FUNDAMENTAL ANLAYSIS

V/s

TECHNICAL ANALYSIS

PRESENTED BY

RAGHUNATH K

FUNDAMENTAL ANALYSISFundamental analysis is a method used to

determine the value of a stock by analyzing the

financial data that is ‘fundamental’ to the

company. That means that fundamental analysis

takes into consideration only those variables

that are directly related to the company itself,

such as its earnings, its dividends, and its

sales. Fundamental analysis does not look at

the overall state of the market nor does it

include behavioral variables in its methodology.

It focuses exclusively on the company’s

business in order to determine whether or not

the stock should be bought or sold.

TECHNICAL ANALYSIS

Technical Analysis is the forecasting of

future financial price movements based on

an examination of past price movements.

Like weather forecasting, technical analysis

does not result in absolute predictions

about the future. Instead, technical analysis

can help investors anticipate what is “likely”

to happen to prices over time. Technical

analysis uses a wide variety of charts that

show price over time.

COMPARISON CHART

FUNDAMENTAL ANALYSIS TECHNICAL ANALYSIS

Definition

Calculates stock value using

economic factors, known as

fundamentals.

Uses price movement of

security to predict future

price movements

Data

gathered

from

Financial statements Past Share prices

Stock bought

When price falls below intrinsic

value

When trader believes they

can sell it on for a higher

price

Time horizonLong-term approach Short-term approach

Visionlooks backward as well as

forward

looks backward

Most individual investors and

investment professionals

believe that fundamental

analysis is useful, either alone

or in combination with other

techniques. some of the

valuation measures it uses are

1.EARNINGSSimply earnings are how much profit (or loss) a company

has made after subtracting expenses. During a specific

period of time, all public companies are required to report

their earnings on a quarterly basis. Earnings are important

to investors because they give an indication of the

company’s expected dividends and its potential for growth

and capital appreciation.

2.EARNINGS PER SHAREIn order to make earnings comparisons more useful across

companies, fundamental analysts instead look at a

company’s earnings per share (EPS). EPS is calculated by

taking a company’s net earnings and dividing by the

number of outstanding shares of stock the company has .

3.P/E RATIOEPS is a great way to compare earnings across

companies, but it doesn’t tell you anything about how

the market values the stock. That’s why fundamental

analysts use the price-to-earnings ratio, more

commonly known as the P/E Ratio , to figure out how

much the market is willing to pay for a company’s

earnings. It can be calculated by taking its price per

share and dividing by its EPS.

4.PEGPEG stands for Price/Earnings to Growth Ratio. PEG

is calculated by taking a stock’s P/E Ratio and

dividing by its expected percentage earnings growth

for the next year.

5.DIVIDEND YIELDThe dividend yield measures what percentage return

a company pays out to its shareholders in the form of

dividends . It is calculated by taking the amount of

dividends paid per share over the course of a year

and dividing by the stock’s price.

6.DIVIDEND PAY OUT RATIOThe dividend payout ratio shows what percentage of a

company’s earnings it is paying out to investors in the

form of dividends. It is calculated by taking the

company’s annual dividends per share and dividing

by its annual earnings per share (EPS).

7.BOOK VALUEThe book value of a company is the company’s net

worth, as measured by its total assets minus its total

liabilities. This is how much the company would have

left over in assets if it went out of business

immediately.In order to compare book values across

companies, investor should use book value per share,

which is simply the company’s last quarterly book

value divided by the number of shares of stock it has

outstanding.

8.PRICE/BOOKA company’s price-to-book ratio (P/B ratio) is

determined by taking the company’s per share stock

price and dividing by the company’s book value per

share.

9.PRICE / SALES RATIO

As with earnings and book value, investor cannot find

out how much the market is valuing a company by

comparing the company’s price to its annual sales.

This measure is known as the price-to-sales ratio (P/S

or PSR). Investor can calculate the P/S by taking the

stock’s current price and dividing by the company’s

total sales per share for the past year (or equivalently,

by dividing the entire company’s market cap by its

total sales).

10.RETURN ON EQUITYReturn on equity (ROE) shows you how much

profit a company generates in comparison to its

book value . The ratio is calculated by taking a

company’s after-tax income (after preferred

stock dividends but before common stock

dividends) and dividing by its book value (which

is equal to its assets minus its liabilities). It is

used as a general indication of the company’s

efficiency; in other words, how much profit it is

able to generate given the resources provided

by its stockholders. Investors usually look for

companies with ROEs that are high and

growing.