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SOURCES OF DATA
The study is based on the secondary data. The audited financial statements of the companies are
the main source of data. The major data sources used in this study are:
Annual Reports of Companies
Websites
Journals
Magazines
Reference Books
The operating profit margin indicates the profit of the company after depreciation, but before
interest and taxes are deducted from the earnings.
Operating profit margin = Operating profit / Revenue
= EBIT / Revenue x 100
Net profit margin measures the amount of profits available to shareholders after depreciation,
interest and taxes are deducted from the earnings.
Net profit margin = Net profit / Revenue x 100
c) Earnings per Share (EPS)
This ratio indicates the profits available to equity shareholders per share, this helps to determine
the market price of equity shares.
Earnings per Share = Profit after Tax / No. of equity shares.
d) Dividend per Share (DPS)
The amount of profits distributed to shareholders per share is known as DPS and may be
calculated as follows:
Dividend per Share = Amount declared as dividend / No. of equity shares.
e) Dividend Payout Ratio (DP Ratio)
The DP ratio is the ratio between the DPS and EPS of the firm, i.e., it refers to the proportion of
the EPS which has been distributed by the company as dividends.
Dividend payout ratio may be calculated as follows:
The PE Ratio indicates the expectations of the equity investors about the earnings of the firm.
The PE ratio is one of the most widely used measures of financial analysis in practice and is
calculated as follows.
Price to Earnings ratio = Market Price per Share /Earnings per Share.
The yield is defined as the rate of return on the amount invested. With the reference to equity
shares, the yield may be defined as the rate of return on the market piece of equity shares.
Earnings Yield Ratio = Earnings per share / Market price per share.
i) Price to Book Value Ratio
The book value of a share provides a floor below which the market price of a share is not
expected to fall. Shares which have lower PB Ratio may be considered as a ‘safer’ investment
and vice versa.
Price to Book Ratio = Market price per share/Book value per share.
2. INTRINSIC VALUE
The actual value of a company or an asset based on an underlying perception of its true value
including all aspects of business in terms of both tangible and intangible factors. The value may
or may not be same as the current market value. The true economic worth of the share is its
intrinsic value. The fundamental analyst finds out intrinsic value of a share by using the formula:
Intrinsic Value = Earnings per share x Price to Earnings ratio.
3. SWOT ANALYSIS
SWOT Analysis is the analysis of strength, weakness, opportunity, and threats of the
organization. The company’s success is mainly depending on the accurate managing of SWOT.
Strength is to be maximized, weakness is to be reduced and should concentrated on opportunities
and avoid threats.
1. Bar diagram
2. Tabular presentation
FUNDAMENTAL ANALAYSIS
1. ECONOMY ANALYSIS –
• GNP
• GDP
• INFLATION RATE
• INTEREST RATE
• EXCHANGE RATE
• FOREX RESERVES
• GOVERNMENT RECEIPTS
• GOVERNMENT EXPENDITURE
2. INDUSTRY ANALYSIS –
• GROWTH RATE
• SWOT ANALYSIS
3. COMPANY ANALYSIS -
• GPM, NPM, OPM
• EPS, DPS, DP RATIO, PE RATIO, ROE
• EARNINGS YIELD RATIO
• DIVIDEND YIELD RATIO
• PRICE TO BOOKVALUE RATIO
• INTRINSIC VALUE
Three phases of fundamental analysis are: -
Three phase of the fundamental analysis are:
o Understanding of the Macro Economic environment and developments
(Economic analysis)
o Analyzing the prospectus of the industry to which the firm belongs
(Industry analysis)
o Assessing the performance of the company (Company analysis).
AUTHORS REVIEW
A brief review of literature would help the researcher, reader and other research scholars
in gaining an insight into the studies, which were made in areas related to the subject of
this study. The findings of some of the studies are briefly summarized as follows.
1. SANDIP MUKHERJI, MANJEET, AND KIM (1997)
Fundamental Analysis of Korean Stock Returns” in their article examined about the
relation between stock return and fundamental variables in Korean firm annual stock
returns during the period of 1982-83. The study found that stock returns are positively
related to book-market ratio, sales-price ratio and debt-equity ratio. It is also found that
return is negatively related to firm size and not significantly related to earnings price
ratio. They suggested that book-market and sales-price ratios are more efficient indicators than
the earnings-price and the debt-equity ratio.
2. JIANG XIA (2000)
“Fundamental Analysis of Price on Chinese Steel Products” in his paper considered five
fundamental factors such as price index of steel product, Gross National Product,
exchange rates, interest rates, imports and exports are influencing over the price of steel
products. A hedonic function model was applied which reflects the relation between
prices of varieties of heterogeneous goods and empirical tests applied by using Chinese
annual data for the year 1978. Study found that the above said variables are influencing
at 62 per cent over the steel price. The price index and Gross Domestic Product have
positive significant relation which depicts that higher the price index and Gross
Domestic Product, higher the steel price. The exchange rate have negative impact over
the steel price, the interest rate does not have influence over the steel price and finally
it is found that import and export influence the steel price of the product.
3. MEHMET SARAC (2007)
“Does Fundamental Analysis Matter for Foreign Investors? An Empirical Analysis of
Foreign Investment in the Istanbul Stock Exchange” The paper analyzed about the buy
and sell decisions of foreign investors are related to financial indicators of the firms
listed on the Istanbul Stock Exchange. Based on the monthly data from January 2000 to
April 2006, the study found that the operating leverage, profitability and solvency are
the most important factors while investing in the manufacturing stocks. Foreign
investors consider solvency is a major factor whereas, local investors consider the
profitability of a firm.
4. JEFFERY ABARBANELL AND BRAIN BUSHEE (1977)
“Fundamental Analysis, Future Earnings and Stock Prices”, in their study examined the
relationship between accounting based fundamental signals and future earnings of
security prices. They applied multiple regression analysis to analyze the data. The study
found that investors are not completely relying on the information given by the analyst.
They also found that the variables such as Gross Domestic Product, inflation, firm specific
variables are prior earnings, expected earnings growth, relation between
fundamental signal and future earnings, revisions and forecast errors are most
influencing factors in fundamental analysis.
5. VIYYANNA RAO AND NIRMALA DAITA (2012)
“Fundamental Factors Influencing Investments in Mutual Funds the EIC Approach: A
Case Study of RCAMI” the study focused on fundamental analysis of mutual funds in
India. The macro economic variables taken for this study, viz., RBI Bank Rate,
Domestic savings, Gross Domestic Capital Formation, Money Supply, Gross National
Product, Wholesale Price Index, and Forex Reserves. Descriptive Statistics,
Correlation, Regression, Augmented Dickey Fuller test and Granger test has been
applied. The economic analysis results found that all the variables were positively
correlated with each other except bank rate and Wholesale price index. The industry
analysis shows that Reliance, HDFC, ICICI Prudential, UTI and Birla Sun Life stood
in the top five positions and its contribution as 57.02 per cent of the total assets. The
remaining 33 players shared the rest of the 42.98 per cent of the industry. The company
analysis results reveal that price earnings ratio and price to book ratio, fund size, market
capitalization and Net assets value were found to be having a significant influence on
the return of the funds.
ECONOMY ANALYSIS
TABLE 1
Weaknesses
1. Lower scope of investing in technology of small scale sectors.
A fundamental Analysis on Three FMCG Companies
2. Low export levels.
3. Illegal duplicate labels of the established brands of FMCG product reduced the
scope in rural and semi-urban market.
Opportunities
1. Untapped rural market.
2. Increasing income levels which lead to increase in purchasing power of
consumers.
3. Huge domestic market - a population of over one billion.
4. Export potential.
5. High consumer goods spending.
6. Lower price and smaller packs which increases the trading volume.
Threats
1. Removal of import restrictions resulting in replacing of domestic brands.
2. Slowdown in rural demand and mostly depends upon monsoon.
3. Tax and regulatory structure.
MARICO LTD
16
14
12
10
0
2013 2014 2015
MARICO LTD
INTERPRETATION
When analyzing the operating profit margin of the Marico Ltd. it shows that the
company reached at its highest operating profit in 2014. In 2015 it gained 14.2
of operating profit. It reveals that the company is on its way to achieve the
shareholders’ objectives.
TABLE 3
NET PROFIT MARGIN (NPM) OF MARICO LTD
NET PROFIT MARGIN = NET PROFIT / REVENUE X 100
COMPANY 2013 2014 2015
MARICO LTD 8.54 10.23 9.90
MARICO LTD
10.5
10
9.5
8.5
7.5
2013 2014 2015
MARICO LTD
INTERPRETATION
In the case of Marico Ltd., the net profit margin indicates a fluctuating trend. The
company has a sharp decline in the last year when compared to the previous year.
TABLE 4
EARNING PER SHARE - EPS (BASIC) OF MARICO LTD
EARNINGS PER SHARE = PROFIT AFTER TAX / NO. OF EQUITY
COMPANY 2013 2014 2015
MARICO LTD 6.18 7.53 8.89
MARICO.LTD
10
9
8
7
6
5
4
3
2
1
0
2013 2014 2015
MARICO.LTD
INTERPRETATION
When compared to the Earnings per share of the other companies it had a low
EPS in the period. However, Marico also shows the increasing trend in their
earnings per share. It will be a hope to their shareholders.
TABLE 5
EARNING PER SHARE - EPS (DILUTED) OF MARICO.LTD
EARNINGS PER SHARE = PROFIT AFTER TAX / NO. OF EQUITY SHARES + OTHER
CONVERTIBLE INSTRUMENTS
COMPANY 2013 2014 2015
MARICO.LTD
10
9
8
7
6
5
4
3
2
1
0
2013 2014 2015
MARICO.LTD
INTERPRETATION
There are no fluctuations in the basic earnings per share of the Marico Ltd. in the
recent two years. That’s means there was no convertible securities in the firm
during the years. In the first year Marico had a slight different in the basic and
diluted earnings per share of the company.
TABLE 6
DIVIDEND PER SHARE (DPS) OF MARICO.LTD
DIVIDEND PER SHARE = AMOUNT DECLARED AS DIVIDEND / NO. OF EQUITY
SHARES.
COMPANY 2013 2014 2015
MARICO.LTD
4.5
3.5
2.5
1.5
0.5
0
2013 2014 2015
MARICO.LTD
INTERPRETATION
In 2013 DPS of the company was very low. In the following years it shows a
rapid increase in the dividend paid to the shareholders. But in the 2015 it again
fallen.
TABLE 7
DIVIDEND PAYOUT RATIO OF MARICO.LTD
DIVIDEND PAYOUT RATIO = DPS / EPS X 100
COMPANY 2013 2014 2015
MARICO.LTD
60
50
40
30
20
10
0
2013 2014 2015
MARICO.LTD
INTERPRETATION
DPR of the Marico indicates a greater fluctuation in the amount dividend
distributed to the shareholders during this period. This fluctuation is not good
for the investors.
TABLE 8
RETURN ON EQUITY (ROE) OF MARICO.LTD
RETURN ON EQUITY = NET INCOME/SHAREHOLDERS FUND
COMPANY 2013 2014 2015
MARICO.LTD
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
2013 2014 2015
MARICO.LTD
INTERPRETATION
The return on equity of Marico was faced a rapid growth in the 2014. But it was
declined in the next year. This fluctuating RoE is not favorable to the
shareholders.
TABLE 9
EARNING YIELD RATIO OF MARICO.LTD
EARNINGS YIELD RATIO = EARNINGS PER SHARE / MARKET PRICE PER SHARE.
COMPANY 2013 2014 2015
MARICO.LTD
0.03
0.03
0.02
0.02
0.01
0.01
0
2013 2014 2015
MARICO.LTD
INTERPRETATION
Earning yield ratio of the Marico is showing a declining trend. In 2013 Marico
was highest among companies. But it was started falling in the following years.
TABLE 10
PRICE TO BOOK VALUE RATIO (P/B RATIO) OF MARICO.LTD
PRICE TO BOOK RATIO = MARKET PRICE PER SHARE/BOOK VALUE PER SHARE.
COMPANY 2013 2014 2015
Source: Profit & Loss statement of MARICO.LTD, Balance sheet of the MARICO.LTD,
money.rediff.com
CHART 9
PRICE TO BOOK VALUE RATIO (P/B RATIO) OF MARICO.LTD
MARICO LTD
16
14
12
10
0
2013 2014 2015
MARICO LTD
INTERPRETATION
The above table and graph shows that PB Ratio of Marico Ltd. is increasing in
every year. It was 7.74 in 2013 to 15.13 in 2015.
TABLE 11
PRICE TO EARNING (P/E) RATIO OF MARICO.LTD
PRICE TO EARNINGS RATIO = MARKET PRICE PER SHARE /EARNINGS PER SHARE.
COMPANY 2013 2014 2015
MARICO.LTD
60
50
40
30
20
10
0
2013 2014 2015
MARICO.LTD
INTERPRETATION
Marico shows a high performance in the PE Ratio. They were in last position
among others in the first year. But in the last year Marico is at the first position.
This trend is a good for the investors.
TABLE 12
INTRINSIC VALUE OF MARICO.LTD
INTRINSIC VALUE = EARNINGS PER SHARE X PRICE TO EARNINGS RATIO.
COMPANY 2013 2014 2015
MARICO.LTD
500
450
400
350
300
250
200
150
100
50
0
2013 2014 2015
MARICO.LTD
INTERPRETATION
The intrinsic value of share of Marico Ltd. is lower than the market price of share
in 2013. There is no difference between market price and intrinsic value in the
following years.
CHAPTER 4 – CONCLUSION
LIMITATIONS OF THE STUDY
The study is confined only to the listed FMCG companies
External factors may adversely affect the industry as well as its share price. E.g.