Ratio

Chapter 1 : Fundamental Analysis: An Introduction

1.1 What is fundamental analysis?

Fundamental analysis is a stock valuation methodology that uses financial and
economic analysis to envisage the movement of stock prices. The fundamental data that is
analysed could include a company’s financial reports and non-financial information such as
estimates of its growth, demand for products sold by the company, industry comparisons,
economy-wide changes, changes in government policies etc.
The outcome of fundamental analysis is a value (or a range of values) of the stock of the
company called its ‘intrinsic value’ (often called ‘price target’ in fundamental analysts’
parlance).
To a fundamental investor, the market price of a stock tends to revert
towards its intrinsic value. If the intrinsic value of a stock is above the current market price,
the investor would purchase the stock because he believes that the stock price would rise
and move towards its intrinsic value. If the intrinsic value of a stock is below the market
price, the investor would sell the stock because he believes that the stock price is going to
fall and come closer to its intrinsic value.
To find the intrinsic value of a company, the fundamental analyst initially
takes a top-down view of the economic environment; the current and future overall health
of the economy as a whole. After the analysis of the macro-economy, the next step is to
analyse the industry environment which the firm is operating in. One should analyse all the
factors that give the firm a competitive advantage in its sector, such as, management
experience, history of performance, growth potential, low cost of production, brand name
etc. This step of the analysis entails finding out as much as possible about the industry and
the inter-relationships of the companies operating in the industry as we have seen in the
previous NCFM module1. The next step is to study the company and its products.
Some of the questions that should be asked while taking up fundamental analysis of a
company would include:

Any investor while making investment is concerned with the intrinsic value of
the asset, which is determined by the future earning potential of the asset. In case of securities market,
an investor has number of securities available for investment. But, he would like to invest in the one,
which has good potential for future. In order to ensure the future earnings of any security, an individual
has to conduct fundamental analysis of the company. Fundamental analysis of a company involves in-
depth examination of all possible factors, which have bearing on the prospects of the company as well
as its share price. Fundamental analysis is divided into 3 stages in sequential manner as follows:
1. Economic analysis
2. Industry analysis
3. Company analysis

1. Economic analysis
The economic activity of any country has an impact on investment in many ways. When
the state of economy is good and it is at the growing stage, the investment takes place
and stock market is in boom phase. The reverse situation takes place when the economic
activity is low. In view of this it is necessary to analyze all macro economic variables
properly. The parameters, which are used to analyze all macro economic variables, are
given below:
 Growth rate of gross domestic product
GDP represents the aggregate value of the goods and services produced in the
economy. All the major investors, financial institutions, foreign financial institutions,
portfolio manager first tries to estimate the growth rate of GDP of the country in which
they are planning to invest.
 Inflation
The assessment of GDP growth rate is to be done in light of increase in inflation
rate. If the rate of inflation grows in direct proportion to GDP, then the real rate of
growth would be insignificant.

The demand in consumer product industry is severely affected. If there would be
increase in rate of inflation, the amount of saving left for investment would decrease
which is not good for securities market investment. Inflation rate in these two months
reaches to almost more than the 11%.
 Interest rates
Most of the companies borrow funds from banks and financial institutions for
meeting their capital and revenue expenses. If the rate if interest would increase, their
interest expenses would also increase. This would lead to decrease in their profitability.
Increase in interest rates would be reflected in negative manner in stock markets.
Interest rates have to be increased for controlling inflation. It is a measure to control the
inflation means withdrawing the excess money from the market in the form of interest.
 Budget
Budget is statement of proposed revenue and expenditure of government. A
deficit budget leads to higher rate of inflation and increase in cost of production for
companies as explained above whereas surplus budget leads to deflation.
 Balance of payment
Balance of payment is statement of receipts and payments of a country for the
transactions it has entered with other companies. If receipts are more then BOP is
favorable and if payments are more then unfavorable.
 Monsoon and agriculture
A good monsoon has favorable impact on markets and vice versa is true.
Monsoons generate indirect demand for many industries like-auto industry, iron & steel
fertilizers etc. because the main employer in India is the agricultural sector and this
sector is depends on the monsoon.

2. Industry analysis

Classifying them on basis of business cycles does the industry analysis. They can be
classified into following categories:

 Growth industry

Growth industries are the ones those are independent of the business cycles.
These industries show growth irrespective of changes in economy. For example, the
information technology in India exhibited continuous growth irrespective of the
recession and boom in the entire economy of the country.

 Cyclical industry

The growth of these industries depends on the business cycle. When there
is boom period in the business cycle of industries or economy as a whole, these
industries also exhibit growth and vice versa. For example, steel industry. The
growth of steel industry mainly depends on auto industry and construction
industry. When there is boom in the auto industry, the steel is in demand.

 Defensive industry

These categories of industry exhibit constant growth during all phases of
economy. They do not depend on business cycle of other industries. For example, food
industry enjoys constant growth irrespective of growth in other industry.

 Cyclical growth industry

This type of industry experiences the period of growth and stagnation due to
change in technology. For example, computer hardware industry.

 Product of the industry

The user of the product may be either other industries or the household sector
or both. In case the product is to be used only by industrial sector, then the growth of
other user industry is also need to be analyzed. However, if it is to be used by household
sector, then factors such as inflation, increase in level of income etc. are to be taken into
account while estimation growth of industry.

 Government policy

If the government offers tax subsidies and tax holidays, the industry has good
prospects. For example, biotechnology industry is being given number of tax incentives
as the government intends to promote the growth of industry.

 Labor

The industries which are labor intensive in nature require proper analysis of
labor scenario. The activities of trade unions have bearing on productivity of the
companies under that industry. The frequent strike by unions may lead to fall in the
production.

 The Market Share

The rate of growth in the market share of the industry over a period of time
shall be examined since it helps in finding the growth prospects and ability to compete
with industry involved in related product. If the market share is decreasing over a period
of time, it is not a good indicator for investment.










3. Company analysis
The strength of company can be assessed by examining certain quantitative factors.
The quantitative factors normally comprise of various financial ratios which are used
examine the operating efficiency of the company. They are enumerated below:

QUALITATIVE FACTORS

 Management

The management of a company should have expertise, competence to control
the operations of the company. The past track record of the management towards
shareholders should be examined. It should be a management, which has rewarded its
shareholders whenever company has made good profits.

 Product of the company

The growth prospect of demand of product being manufactured by the
company shall be assessed by analyzing the type of users and existence of related
products.

 Raw material

The raw material used by the company also has a bearing on its operating
efficiency. If the raw material is to be sourced from indigenous sources the company
would not face any problems but if it has to be imported from outside countries then
the risk of change in government policies on importing of such material should be
taken into consideration

QUANTIATIVE FACTORS

i. Operating profit ratio :-
It helps in finding the amount of margins over manufacturing costs, which a
company is able to earn by selling its product. This ratio establishes the relationship
between operating net profit and sales. This will be calculated by deducting only
operating expenses from gross profits. Debenture holders or creditors of the company
mainly use this as interest paid is out of operating profit.
ii. Gross profit ratio :-
Gross profit is the difference between net sales and cost of goods sold. This
ratio shows the margin left after meeting the manufacturing costs. It measures the
efficiency of production as well as pricing. A high gross profit ratio means a high margin
for covering other expenses other than cost of goods sold. Therefore, higher the ratio,
the better it is.
iii. Net profit ratio :-
This ratio shows the earnings left for shareholders (equity and preference) as a
percentage of net sales. It measures the overall efficiency of all the functions of a
business firm like production, administration, selling, financing, pricing, tax management
etc. This profit is mainly used by shareholders as dividend is paid out of net profit of the
company.
iv. Return on capital employed :-
This ratio indicates the percentage of net profits before interest and tax to total capital
employed.
Capital employed = Equity Capital + Preference Capital+ Reserve and Surplus +
long term Debt – Fictitious Assets.
Return on capital employed =
Net profit before interest and tax *100
Capital employed

This ratio is considered to be a very important one because it reflects the overall
efficiency with which capital is used. The ratio of a particular business should be
compared with other business firms in the same industry to find out exact position of
that business.
v. Return on equity :-
This ratio also known as return on shareholders funds indicates the percentage
of net profit available for equity shareholders to equity shareholder funds.
Return on equity =
Net profit available for equity shareholders*100
Equity shareholders funds

Net profit after interest, tax, preference dividend
Equity capital + reserve and surplus

This ratio indicates the productivity of the ownership capital employed in the
firm. However, in judging the profitability of a firm, it should not be overlooked that
during inflationary periods, the ratio may show an upward trend because the numerator
of the ratio represents current values whereas the denomination represents historical
values.
vi. Interest coverage ratio :-
This ratio compares the net profit before interest and tax with the interest
payments and long term liabilities. This ratio indicates whether adequate coverage of
net profit is available for the payment of interest or not.

Interest coverage ratio =
Net profit before interest and tax
Interest on long term liabilities

If this ratio is very high, it means that margin for creditors and lenders are very
high. If this ratio is just one, it will indicate that profits are just equal to interest which is
not at all satisfactory. This is not only dangerous for creditors but also unsatisfactory for
shareholders.
vii. Earnings per share :-
This ratio indicates the amount of net profit available per equity share of a
business firm.

Net profit after interest, tax, preference dividend
no. of equity shares
EPS is one of the criteria of measuring the performance of a company. If
earnings per share increase, the possibility of higher dividend paid by the company also
increases. The market price of the share of a company may also be affected by this ratio.
EPS may vary from company to company due to stock in trade, depreciation etc.
viii. Price earnings ratio :-
Market price per equity share
EPS

It means that the market value of every rupee of earnings is …....... times.

ix. Dividend payout ratio :-
This ratio indicates the percentage of profit distributed as dividends to the
shareholders. A higher ratio indicates that the company follows a liberal dividend policy,
while a lower ratio implies a conservative dividend policy.
Dividend payout ratio =
Dividend per share*100
EPS
x. Dividend yield ratio :-
Dividend yield ratio =
Dividend per share*100
Market price per share
This ratio is very important for investors who purchase their shares in the open
market. They will evaluate their return against their investment i.e. the market price
paid by them. The higher the ratio, the more attractive are their investments.
xi. Inventory turnover ratio :-
This ratio establishes relationship between cost of goods sold during a given
period and the average amount of inventory held during that period. The indication
given by this ratio is the number of times finished stock is turned over during a given
accounting period.

____Cost of Goods sold______
Avg. stock during that period
xii. Current ratio :-
This ratio is calculated by dividing current assets by current liabilities. This ratio
indicates how much current assets are there as against each rupee of current liabilities.
If majority of current assets are in the form of inventory, even a 2:1 ratio will not result
into favorable condition because inventory is considered to be the least liquid assets out
of all current assets of a firm.
__Current assets__
Current liabilities
xiii. Liquid ratio :-
It is the ratio between liquid assets and liquid liabilities. From the balance sheet
liquid assets are calculated by deducting inventories and prepaid expenses from current
assets. Liquid liabilities are current liabilities less bank overdraft. An ideal liquid ratio is
considered as 1:1.
__Liquid current assets__
Liquid current liabilities
xiv. Long term solvency/Debt Equity ratio
Ratio like debt-equity ratio helps in examining long-term solvency of the
company. Higher debt equity is not favorable as it indicates dependence of company on
borrowed funds. Any increase in interest rates may significantly affect shareholders
earnings. It should be assessed whether the company is able to make use of trading on
equity or not.

___Long term funds __
Shareholders funds

Or
___________Long term funds________
Shareholders funds + long term funds

Shareholders funds consist of equity share capital, preference share capital and
reserve and surplus. A low ratio will quite satisfactory from creditor’s angle.
xv. Book value :-
There are several ways to define a company’s worth or value. One of the ways
you define value is market capital or how much money would you need to buy every
single share of stock at the current price. Another way to determine a co’s value is to go
to the balance sheet statement and look at the book value. The book value is simply the
co’s assets minus its liabilities.
Book value = assets – liabilities.
In other words, if you wanted to close the doors, how much would be left after
you settled all the outstanding obligations and sold off the assets.
A co. that is viable growing business will always be worth more than its book
value for its ability to generate earnings and growth. To compare companies, you should
convert to book value per share, which is simply the book value divided by outstanding
shares.






1.2 Steps in Fundamental Analysis

Fundamental analysis is the cornerstone of investing. In fact all types of investing comprise
studying some fundamentals. The subject of fundamental analysis is also very vast.
However,
the most important part of fundamental analysis involves delving into the financial
statements.
This involves looking at revenue, expenses, assets, liabilities and all the other financial
aspects of a company. Fundamental analysts look at these information to gain an insight
into
a company’s future performance.
Fundamental analysis consists of a systemtatic series of steps to examine the investment
environment of a company and then identify opportunities. Some of these are:
 Macroeconomic analysis - which involves analysing capital flows, interest rate cycles,
currencies, commodities, indices etc.
 Industry analysis - which involves the analysis of industry and the companies that are
a part of the sector
 Situational analysis of a company
 Financial analysis of the company
 Valuation
The previous NCFM module3 focused on macroeconomic and industry analysis, we would
examine company analysis (financials) and valuation in this module.
3 Please see NCFM’s Investment Analysis and Portfolio Management module for details.



RATIO analysis

GAIL (INDIA) ILD

Ratio Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010
Operational & Financial Ratios
Earnings Per Share (Rs) 37.73 34.48 35.03 31.70 26.23
CEPS(Rs) 50.23 44.43 42.90 38.30 32.45
Adjusted EPS (Rs.) 37.73 34.48 35.03 31.70 26.23
DPS(Rs) 10.40 9.60 8.70 7.50 7.50
Adjusted DPS(Rs) 10.40 9.60 8.70 7.50 7.50
Book NAV/Share(Rs) 255.87 227.00 196.41 167.24 140.40
Adjusted Book Value (Rs) 255.87 227.00 196.41 167.24 140.40
Tax Rate(%) 31.71 34.18 30.75 31.35 31.75
Dividend Pay Out Ratio(%) 27.56 27.84 24.84 23.66 28.59
Margin Ratios
Core EBITDA Margin(%) 12.64 14.15 15.65 18.16 19.79
EBIT Margin(%) 12.07 13.47 14.97 17.28 18.95
Pre Tax Margin(%) 11.01 12.63 14.15 16.22 17.55
PAT Margin (%) 7.52 8.31 9.80 11.14 11.98
Cash Profit Margin (%) 10.13 10.85 12.12 13.59 14.97
Performance Ratios
ROA (%) 7.08 7.57 9.65 10.47 10.09
ROE (%) 15.44 16.07 19.08 20.40 19.83
ROCE (%) 15.77 17.13 20.83 24.06 24.54
Asset Turnover(x) 0.94 0.91 0.98 0.94 0.84
Inventory Turnover(x) 28.04 28.67 32.26 37.31 34.74
Debtors Turnover(x) 20.24 20.63 21.34 20.72 17.67
Sales/Fixed Asset(x) 1.58 1.51 1.54 1.38 1.21
Working Capital/Sales(x) 38.53 -31.60 -28.79 134.72 7.31
Efficiency Ratios
Fixed Capital/Sales(x) 0.63 0.66 0.65 0.72 0.82
Receivable days 18.04 17.70 17.10 17.61 20.66
Inventory Days 13.02 12.73 11.32 9.78 10.51
Payable days 25.62 25.37 23.84 28.85 38.03
Growth Ratio
Net Sales Growth(%) 21.18 15.53 25.67 30.17 9.09
Core EBITDA Growth(%) 7.32 7.11 10.02 16.95 15.33
EBIT Growth(%) 8.52 4.07 8.81 18.58 15.44
PAT Growth(%) 9.52 -1.91 10.55 20.91 18.00
EPS Growth(%) 9.43 -1.58 10.51 20.83 17.74
Financial Stability Ratios
Total Debt/Equity(x) 0.57 0.57 0.46 0.33 0.30
Current Ratio(x) 1.13 0.87 0.85 1.03 1.34
Quick Ratio(x) 0.92 0.72 0.68 0.92 1.26
Interest Cover(x) 11.35 16.00 18.34 16.35 13.52





INTERPRETATION

1)In the above table earning per share of the company is constantly increasing during these five year. In
this higher earnings per share is indicating that after paying preference dividend out of the available
profit, what could be the profit earning capacity of the business on per equity shares and is showing
better performance & prospect of the company and vice-versa.) Here companyeps in the year Mar 2014
is 37.73 per share which is less than the year 2010 is 26.23 per share it is because profit available in the
year 2010 is more than the year 2013.
2)The company dporis increase during these year. In this higher ratio indicating that firm is losing its
long term projects investments(if had ) by paying large portion of the profit in a form of dividend but on
the other side more dividend will able attract more investors and shows better performance & policies
of the company.
3. Here company dpor in the year 2010 is at 28.59 % is less in compare with the year 2014 at 27.56 %
times.
3) In the above table company npr is falling down in comparison with year in 2010 with 2014. . It could
be because of in sufficient profit available to cover its cost of goods sold & indirect costs incurred during
the business.
4) In the above table the company roi is decreasing with higher margin as compared to other years.
While company roi in the year 2010 was 24.54 % but in 2014 it is 15.77 % at lower level. This is because
that before paying interest, dividend and tax. The available profit is less than the capital employed in
business say “total assets”. This kind of situation both in firm and company will increase burden of
interest payment and dividend. Hence, both are not enough good for investment.
5) Here company roe is reducing during these years with lower margin. This situation shows that after
paying sufficient dividend to its preference shareholders, both do not have sufficient profit to entitle the
equity dividend to equity shareholders. Such situation will do not attract investors and may reduce in its
shareholding. It also suggest that it is properly utilizing its business resources.
6)In the above table companyitr is fluctuating, here increase in the itr indicates increase in amount of
sales by increasing per unit investment in the stock. But decrease in the ratio shows investment are not
fully or efficiently utilize in business. Here companyitr is maximum in the year 2010 at 34.74 times in
compare to company in the year 2014 at 28.04 times.
7) In the above table company cr is increasing during these five years. This situation arise because firm
or industry have to manage ascertain amount of standard ratio say 2:1 the lower of it indicating that
firm/industry may not able to meet its short-term solvency on a time and higher ratio indicating that
funds are lying idle and not fully utilized. Here company cr is lower in the year 2011 at 1.03:1 in compare
to company cr in the year 2013 at 0.87:1.
8) In the above table company qr is increasing during the five year. In this any firm have maintain a
standard ratio of 1:1, the ratio indicating that how immediately quick assets may convert into stock to
discharge short term liability. Here higher ratio then the current ratio indicating understocking while
lower ratio then current ratio indicating overstocking. Here company qr is more in the year 2013 at
1.06:1 in compare with company in the year 2010 at 0.84:1
9) In the above table company icr is increase and decrease during these five year. The situation of high
ratio indicating that firm/industry is utilizing its interest bearing debt funds more efficiently. While low
ratio indicating underutilization of the debt funds of business. Here company icr in the year 2014 is
higher at 24.75 times in compare to company icr in the year 2013 at 8.67 times.
10) The company debt equity ratio is decreasing during these five year. In this higher ratio indicating a
risky financial position of the firm that it shows less use of equity fund than debt. But low ratio indicating
that it use fund efficiently than debt and give larger safety margin to the creditors. Here this ratio is only
acceptable if it is 2:1 or nearby.
11) In the above tablecompany dividend yield ratio is fluctuating during the years. In this a high ratio is
indicating that company has paid more dividend or return on the investment to its shareholders but low
ratio may discourage the outsiders to be with company share or stock as its dividend per share is
reducing. In this tablecompanydyr in the year 2014 is at 02.71% more in comparison with the year 2010
at 2.64 %.
12) 1. In the above tablecompany price earningratio is continue increasing during last four year except in
2014. In this situation high ratio indicating that investors have faith in the stability and appreciation of
the company s earning. While low ratio indicating that price of the company shares will be increase.
Here price earning ratio of the company in the year 2014 at 18.99 which is more in comparison to 2010
at 10.18
13) Company book value is increasing over the five year. Which mean that company have lot of assets
such as stocks,bonds, inventory, manufacturing equipment, etc. It mean that higher book value is good
for the company it can pay its debt or liability by selling the asset.

14) In th above table company gross profit ratio is fluctuating. While industrial This may be arise due to
fluctuation in the selling price of an product, relatively with change in material price or wages. In 2010
company gpr was 52.26 which was reduce to 45.27 in 2014.
15) In the above table the companyopr is constantly reducing constantly from year 2010 to 2014. This is
because of decrease in different indirect costs over its sales like cost of goods sold, admin. Expense etc.
Here the company trying to improve its operational efficiency and shows better work to leave higher
margin to meet interest, dividend etc.







Power grid
Ratio Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010
Operational & Financial Ratios
Earnings Per Share (Rs) 8.60 9.15 7.03 5.83 4.85
CEPS(Rs) 16.23 16.39 12.59 10.58 9.55
Adjusted EPS (Rs.) 8.60 9.15 7.03 5.83 4.85
DPS(Rs) 3.00 2.75 2.11 1.75 1.50
Adjusted DPS(Rs) 3.00 2.75 2.11 1.75 1.50
Book NAV/Share(Rs) 65.87 56.68 50.73 46.15 37.87
Adjusted Book Value (Rs) 65.87 56.68 50.73 46.15 37.87
Tax Rate(%) 28.20 24.98 29.20 29.49 22.29
Dividend Pay Out Ratio(%) 34.90 30.07 30.01 30.04 30.93
Margin Ratios
Core EBITDA Margin(%) 97.89 97.03 97.45 93.38 87.86
EBIT Margin(%) 76.86 83.69 86.54 77.58 67.06
Pre Tax Margin(%) 41.13 44.25 45.23 45.59 36.85
PAT Margin (%) 29.53 33.19 32.02 32.15 28.63
Cash Profit Margin (%) 55.76 59.46 57.33 58.37 56.41
Performance Ratios
ROA (%) 3.51 4.11 3.88 3.87 3.46
ROE (%) 14.82 17.03 14.51 14.46 13.36
ROCE (%) 10.63 12.01 12.29 11.09 9.73
Asset Turnover(x) 0.12 0.12 0.12 0.12 0.12
Inventory Turnover(x) 24.10 25.73 24.74 23.10 22.19
Debtors Turnover(x) 10.11 8.70 7.78 5.04 3.97
Sales/Fixed Asset(x) 0.17 0.18 0.18 0.18 0.17
Working Capital/Sales(x) -1.46 -1.48 -2.02 -9.46 -15.31
Efficiency Ratios
Fixed Capital/Sales(x) 5.81 5.64 5.59 5.58 5.86
Receivable days 36.10 41.94 46.89 72.42 91.88
Inventory Days 15.15 14.19 14.76 15.80 16.45
Payable days 16.11 14.84 16.70 61.78 119.59
Growth Ratio
Net Sales Growth(%) 19.38 25.52 21.17 17.70 8.32
Core EBITDA Growth(%) 11.92 23.40 30.56 28.83 4.21
EBIT Growth(%) 9.64 21.38 35.15 36.17 -11.36
PAT Growth(%) 6.21 30.09 20.69 32.14 20.72
EPS Growth(%) -6.01 30.09 20.69 20.13 20.72
Financial Stability Ratios
Total Debt/Equity(x) 2.54 2.74 2.35 2.02 2.31
Current Ratio(x) 0.47 0.41 0.62 0.92 0.95
Quick Ratio(x) 0.43 0.38 0.59 0.88 0.92
Interest Cover(x) 2.15 2.12 2.10 2.43 2.22


Tata power
Ratio Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010
Operational & Financial Ratios
Earnings Per Share (Rs) -1.10 -0.36 -4.58 86.82 82.91
CEPS(Rs) 11.37 8.75 1.49 12.86 12.27
Adjusted EPS (Rs.) -1.10 -0.35 -4.42 8.38 8.00
DPS(Rs) 1.25 1.15 1.25 12.50 12.00
Adjusted DPS(Rs) 1.25 1.15 1.25 1.25 1.20
Book NAV/Share(Rs) 46.73 47.76 49.39 551.71 463.51
Adjusted Book Value (Rs) 46.73 46.09 47.66 53.24 44.73
Tax Rate(%) 103.42 92.27 290.89 30.88 22.72
Dividend Pay Out Ratio(%)
-
114.06
-
319.36 -27.26 14.40 14.47
Margin Ratios
Core EBITDA Margin(%) 19.11 19.03 17.85 21.06 18.73
EBIT Margin(%) 12.38 11.86 7.82 20.67 18.68
Pre Tax Margin(%) 2.73 3.86 1.95 16.22 14.57
PAT Margin (%) -0.09 0.30 -3.72 11.21 11.26
Cash Profit Margin (%) 7.56 6.51 1.41 16.25 15.88
Performance Ratios
ROA (%) -0.05 0.15 -1.73 4.84 5.96
ROE (%) -0.27 0.79 -7.25 16.82 20.10
ROCE (%) 8.36 7.86 4.69 11.62 13.13
Asset Turnover(x) 0.51 0.51 0.46 0.43 0.53
Inventory Turnover(x) 17.40 17.81 18.50 18.69 19.30
Debtors Turnover(x) 9.09 11.85 13.21 6.99 5.48
Sales/Fixed Asset(x) 0.61 0.70 0.83 0.83 0.87
Working Capital/Sales(x) -4.26 -7.36 -15.03 -6.60 7.17
Efficiency Ratios
Fixed Capital/Sales(x) 1.65 1.43 1.20 1.20 1.15
Receivable days 40.15 30.80 27.64 52.25 66.55
Inventory Days 20.98 20.50 19.73 19.53 18.91
Payable days 50.04 41.28 39.69 57.07 60.52
Growth Ratio
Net Sales Growth(%) 7.94 27.01 33.68 2.45 5.12
Core EBITDA Growth(%) 4.76 31.94 3.31 13.02 5.06
EBIT Growth(%) 12.67 92.61 -49.43 13.35 8.31
PAT Growth(%)
-
133.74 110.20
-
144.38 2.02 64.67
EPS Growth(%)
-
204.33 92.15
-
105.28 4.72 50.57
Financial Stability Ratios
Total Debt/Equity(x) 2.94 2.74 2.39 1.76 1.56
Current Ratio(x) 0.61 0.73 0.87 0.71 1.36
Quick Ratio(x) 0.52 0.61 0.74 0.60 1.23
Interest Cover(x) 1.28 1.48 1.33 4.64 4.54

Jindal steel and power ltd
Ratio Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010
Operational & Financial Ratios
Earnings Per Share (Rs) 20.88 31.13 42.41 40.18 38.37
CEPS(Rs) 40.69 47.61 57.65 53.03 49.74
Adjusted EPS (Rs.) 20.88 31.13 42.41 40.18 38.37
DPS(Rs) 1.60 1.60 1.60 1.50 1.25
Adjusted DPS(Rs) 1.60 1.60 1.60 1.50 1.25
Book NAV/Share(Rs) 246.02 227.35 193.74 151.01 111.54
Adjusted Book Value (Rs) 246.02 227.35 193.74 151.01 111.54
Tax Rate(%) 24.61 24.05 22.86 23.72 20.18
Dividend Pay Out Ratio(%) 7.66 5.14 3.77 3.73 3.26
Margin Ratios
Core EBITDA Margin(%) 21.12 23.13 30.49 40.23 47.53
EBIT Margin(%) 15.81 18.57 26.19 34.47 41.04
Pre Tax Margin(%) 9.20 14.52 23.09 31.77 36.96
PAT Margin (%) 6.93 11.03 17.81 24.23 29.50
Cash Profit Margin (%) 13.63 16.86 23.98 31.57 37.59
Performance Ratios
ROA (%) 2.89 5.70 9.87 12.43 16.36
ROE (%) 8.66 14.79 24.84 31.06 41.76
ROCE (%) 8.24 12.09 19.18 23.26 29.59
Asset Turnover(x) 0.42 0.52 0.55 0.51 0.55
Inventory Turnover(x) 5.81 6.51 7.07 7.47 9.22
Debtors Turnover(x) 14.66 16.19 18.27 16.46 18.56
Sales/Fixed Asset(x) 0.74 1.07 1.08 0.96 0.99
Working Capital/Sales(x) -6.41 -9.60 -12.18 -3.95 6.78
Efficiency Ratios
Fixed Capital/Sales(x) 1.36 0.93 0.93 1.04 1.01
Receivable days 24.90 22.55 19.98 22.17 19.66
Inventory Days 62.85 56.03 51.59 48.88 39.57
Payable days 41.30 34.67 33.21 76.18 121.30
Growth Ratio
Net Sales Growth(%) 1.00 8.78 38.87 18.22 1.99
Core EBITDA Growth(%) -4.53 -11.45 10.83 8.40 13.59
EBIT Growth(%) -11.87 -16.74 8.78 7.01 15.83
PAT Growth(%) -34.96 -27.25 5.21 4.66 20.86
EPS Growth(%) -32.93 -26.60 5.56 4.71 -80.51
Financial Stability Ratios
Total Debt/Equity(x) 1.62 1.16 0.87 0.95 0.83
Current Ratio(x) 0.81 0.85 0.87 0.70 1.36
Quick Ratio(x) 0.59 0.59 0.61 0.49 1.08
Interest Cover(x) 2.39 4.59 8.45 12.79 10.06

OIL AND NATURAL GAS CO.LTD
Ratio Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010
Operational & Financial Ratios
Earnings Per Share (Rs) 25.83 24.46 29.36 22.12 78.39
CEPS(Rs) 38.60 34.25 38.13 31.09 36.71
Adjusted EPS (Rs.) 25.83 24.46 29.36 22.12 19.60
DPS(Rs) 9.50 9.50 9.75 8.75 33.00
Adjusted DPS(Rs) 9.50 9.50 9.75 8.75 16.50
Book NAV/Share(Rs) 158.95 144.29 130.96 113.30 404.14
Adjusted Book Value (Rs) 158.95 144.29 130.96 113.30 101.04
Tax Rate(%) 31.87 31.49 31.44 31.48 32.89
Dividend Pay Out Ratio(%) 36.79 38.84 33.20 39.56 42.09
Margin Ratios
Core EBITDA Margin(%) 15.21 16.10 26.68 8.60 23.17
EBIT Margin(%) 38.52 36.70 47.70 40.27 41.52
Pre Tax Margin(%) 38.52 36.66 47.66 40.23 41.50
PAT Margin (%) 26.24 25.12 32.68 27.57 27.85
Cash Profit Margin (%) 39.22 35.17 42.42 38.75 52.17
Performance Ratios
ROA (%) 10.04 10.03 13.15 11.14 10.89
ROE (%) 17.03 17.77 24.04 20.64 20.38
ROCE (%) 25.00 25.48 34.36 27.67 25.38
Asset Turnover(x) 0.38 0.40 0.40 0.40 0.39
Inventory Turnover(x) 14.53 15.33 16.56 15.61 13.78
Debtors Turnover(x) 11.21 12.76 15.09 19.47 16.86
Sales/Fixed Asset(x) 0.37 0.41 0.42 0.42 0.41
Working Capital/Sales(x) 7.82 6.43 7.06 10.14 1.72
Efficiency Ratios
Fixed Capital/Sales(x) 2.71 2.43 2.38 2.40 2.43
Receivable days 32.57 28.61 24.19 18.75 21.65
Inventory Days 25.11 23.81 22.04 23.39 26.49
Payable days 46.22 45.59 54.37 50.09 55.83
Growth Ratio
Net Sales Growth(%) 1.07 8.48 11.96 13.92 -5.68
Core EBITDA Growth(%) 11.33 -5.09 16.18 -10.91 10.15
EBIT Growth(%) 6.09 -16.65 32.69 10.57 3.73
PAT Growth(%) 5.59 -16.71 32.76 12.86 3.98
EPS Growth(%) 5.59 -16.71 32.76 -71.78 3.98
Financial Stability Ratios
Total Debt/Equity(x) 0.00 0.00 0.04 0.00 0.19
Current Ratio(x) 1.56 1.74 1.42 1.35 1.71
Quick Ratio(x) 1.26 1.41 1.22 1.14 1.62
Interest Cover(x) 0.00 1106.24 1053.04 1100.95 1733.22

RATIO GRAPHS:-
1.Dividend Payout Ratio

2014 2013 2012 2011 2010
JINDAL
7.66 5.14 3.77 3.73 3.26
TATA
-
114.06
-
319.36
-
27.26 14.40 14.47
POWER
GRID
34.90 30.07 30.01 30.04 30.93
ONGC
36.79 38.84 33.20 39.56 42.09
GAIL 30.15 30.27 30.2 26.71 30.29






Interpretation


In the above graph company Dividend Payout Ratio of five company is given. In which ONGC Ltd Have
highest Dividend Payout Ratio as compared to other company. This ratio indicates the percentage of
profit distributed as dividends to the shareholders. A higher ratio indicates that the company follows a
liberal dividend policy, while a lower ratio implies a conservative dividend policy.




-114.06
-319.36
-27.26
14.4 14.47
34.9
30.07 30.01 30.04 30.93
36.79
38.84
33.2
39.56
42.09
30.15 30.27 30.2
26.71
30.29
-350
-300
-250
-200
-150
-100
-50
0
50
100
2014 2013 2012 2011 2010
JINDAL
TATA
POWER
ONGC
GAIL

2. Price earnings ratio


2014 2013 2012 2011 2010
JINDAL
20.88 31.13 42.41 40.18 38.37
TATA
-1.10 -0.36 -4.58 86.82 82.91
POWER
GRID
8.60 9.15 7.03 5.83 4.85
ONGC
25.83 24.46 29.36 22.12 78.39
GAIL
37.73 34.48 35.03 31.70 26.23





-20
0
20
40
60
80
100
JINDAL TATA POWER ONGC GAIL
2014
2013
2012
2011
2010

Interpretation


In the above graph company Price earning Ratio of five company is given. In which GAIL LTD have
highest Price earning Ratio as compared to other company.It means that the market value of every
rupee of earnings is …....... times.



12 ) Book Value


2014 2013 2012 2011 2010
JINDAL
246.02 227.35 193.74 151.01 111.54
TATA
46.73 46.09 47.66 53.24 44.73
POWER
GRID
65.87 56.68 50.73 46.15 37.87
ONGC
158.95 144.29 130.96 113.30 101.04
gail
255.87 227.00 196.41 167.24 140.40






Interpretation


In the above graph company Book value of five company is given. In which GAIL Ltd Have highest Book
value as compared to other company. Book value show if you wanted to close the doors, how much
would be left after you settled all the outstanding obligations and sold off the assets.A co. that is viable
growing business will always be worth more than its book value for its ability to generate earnings and
growth. To compare companies, you should convert to book value per share, which is simply the book
value divided by outstanding shares.




0
500
1000
1500
2000
2500
1 2 3 4 5
JINDAL
TATA
POWER
ONGC
GRIL





TECHNICAL ANALYSIS
Technical analysis can be conditionally divided into some main parts such as:
 Types of charts
 Graphical methods
 Analytical methods
 Technical indicators
Technical analysis is concerned with predicting future price trends from historical price and volume
data. The underlying axiom of technical analysis is that all fundamentals (including expectations) are
factored into the market and are reflected in exchange rates.
A technical analysis is based on three axioms:
 Movement of the market considers everything
 Movement of prices is purposeful
 History repeats itself
SUPPORT AND RESISTANCE
Support is a level at which bulls (i.e., buyers) take control over the prices and prevent them from falling
lower.

Resistance, on the other hand, is the point at which sellers (bears) take control of prices and prevent
them from rising higher. The price at which a trade takes place is the price at which a bull and bear
agree to do business. It represents the consensus of their expectations.

Support levels indicate the price where the most of investors believe that prices will move higher.
Resistance levels indicate the price at which the most of investors feel prices will move lower.
Role Reversal
When a resistance level is successfully broken through, that level becomes a support level. Similarly,
when a support level is successfully broken through, that level becomes a resistance level.

DOW THEORY– TRENDS:
The ideas of Charles Dow, the first editor of the Wall Street Journal, form the basis of technical
analysis. The Dow theory is a method of interpreting and signaling changes in the stock market
direction based on the monitoring of the Dow Jones Industrial and Transportation Averages.
Dow created the Industrial Average, of top blue chip stocks, and a second average of top railroad
stocks (now the Transport Average). He believed that the behavior of the averages reflected the
hopes and fears of the entire market. The behavior patterns that he observed apply to markets
throughout the world.
Three Movements
Markets fluctuate in more than one time frame at the same time:
Nothing is more certain than that the market has three well defined movements which fit into
each other.
 The first is the daily variation due to local causes and the balance of buying and selling at that
particular time.
 The secondary movement covers a period ranging from ten days to sixty days, averaging
probably between thirty and forty days.
 The third move is the great swing covering from four to six years.

 Bull markets are broad upward movements of the market that may last several years,
interrupted by secondary reactions. Bear markets are long declines interrupted by secondary
rallies. These movements are referred to as the primary trend.
 Secondary movements normally retrace from one third to two thirds of the primary trend since
the previous secondary movement.
 Daily fluctuations are important for short-term trading, but are unimportant in analysis of broad
market movements.
Various cycles have subsequently been identified within these broad categories.
Primary Movements have Three Phases
The general conditions in the market:
Bull markets
 Bull markets commence with reviving confidence as business conditions improve.
 Prices rise as the market responds to improved earnings
 Rampant speculation dominates the market and price advances are based on hopes and expectations
rather than actual results.
Bear markets
 Bear markets start with abandonment of the hopes and expectations that sustained inflated
prices.
 Prices decline in response to disappointing earnings.
 Distress selling follows as speculators attempt to close out their positions and securities are sold
without regard to their true value.
Ranging Markets
A secondary reaction may take the form of a „line‟ which may endure for several weeks. Price
fluctuates within a narrow range of about five per cent.

Breakouts from a range can occur in either direction.
 Advances above the upper limit of the line signal accumulation and higher prices;
 Declines below the lower limit indicate distribution and lower prices;
 Volume is used to confirm price breakouts.
Trends
Bull Trends
A bull trend is identified by a series of rallies where each rally exceeds the highest point of the
previous rally. The decline, between rallies, ends above the lowest point of the previous decline.




Successive higher highs and higher lows.

The start of an up trend is signaled when price makes a higher low (trough), followed by a rally above
the previous high (peak):

Start = higher Low + break above previous High.

The end is signaled by a lower high (peak), followed by a decline below the previous low (trough):

End = lower High + break below previous Low.

A bear trend starts at the end of a bull trend: when a rally ends with a lower peak and then
retreats below the previous low. The end of a bear trend is identical to the start of a bull trend.
Large Corrections
A large correction occurs when price falls below the previous low (during a bull trend) or where
price rises above the previous high (in a bear trend).

 A bull trend starts when price rallies above the previous high,
 A bull trend ends when price declines below the previous low,
 A bear trend starts at the end of a bull trend (and vice versa).
ELLIOT WAVES THEORY BASICS
TRENDLINES

Breaking through support or resistance levels results in a change of traders‟ expectations (which
causes supply/demand lines to shift).
An Uptrend is defined by successively higher low-prices. A rising trend can be thought of as a
rising support level: the bulls are in control and are pushing prices higher. A Downtrend is
defined by successively lower high-prices. A falling trend can be thought of as a falling
resistance level: the bears are in control and are pushing prices lower.





MOVING AVERAGES
Moving averages are one of the oldest and most popular technical analysis tools. A moving
average is the average price of a financial instrument over a given time.
The moving average represents the consensus of investor’s expectations over the indicated period of
time.

The classic interpretation of a moving average is to use it in observing changes in prices. Investors
typically buy when the price of an instrument rises above its moving average and sell when the it falls
below its moving average.

TECHNICAL INDICATORS
There is a vast number of elaborated technical indicators:

MOVING AVERAGE–MA
RELATIVE STRENGTH INDEX — RSI :The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100. When Wilder introduced the
Relative Strength Index, he recommended using a 14-day RSI.. Since then, the 9-day and 25-day
Relative Strength Index indicators have also gained popularity.
ADVANCE/DECLINE LINE: The “advance/decline line” shows, for some period, the
cumulative difference between advancing and declining issues.
CLOSING TICK: “Closing tick” is the difference between the number of shares that closed on
an uptick and those that closed on a downtick.
CLOSING ARMS: “Closing arms” or “trin” (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues.
Z-BLOCK TRADES: “zBlock trades” are trades in excess of 10,000 shares.
HI-LO-CLOSE CHART: A hi-lo-close chart is a bar chart showing, for each day, the high
price, low price, and closing price.
CANDLESTICK CHART: A candlestick chart is an extended version of the hi-lo-close chart.
It plots the high, low, open, and closing prices, and also shows whether the closing price was
above or below the opening price.
POINT AND FIGURE CHARTS: Point-and-figure charts are a way of showing only major
price moves and their direction. A “major” up move is marked with an “X,” while a “major”
down move is marked with an “O.” A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION: Once a chart is drawn, analysts examine it for
various formations or pattern types in an attempt to predict stock price or market direction in the
case of head-and-shoulders formation. When the stock price “pierces the neckline” after the
right shoulder is finished, it’s time to sell.
ODD-LOT: The “odd-lot” indicator looks at whether odd-lot purchases are up or down.
HEMLINE: Followers of the “hemline” indicator claim that hemlines tend to rise in good times.
SUPER BOWL: The Super Bowl indicator forecasts the direction of the market based on
whether the National Football Conference or the American Football Conference wins. A win by
the National Football Conference is bullish.
BETA: Beta is a risk measure comparing the volatility of a stock's price movement to the
general market.
MOMENTUM: Momentum measures the speed of price change and provides a leading
indicator of changes in trend.
UPSIDE/DOWNSIDE: Measures of Upside/Downside separate the volumes for rising markets
from those in falling markets. Since volume is independent of price, it makes a valuable tool for
measuring the quality of a price trend.











Technical charts
GAIL (INDIA) ILD
A ) MACD

INTERPRETATION :
In which Green line isshorter-term 12-period EMA
Black line is 26-period EMA
Yellow line is zero line
In the above technical chart of GAIL (INDIA) LIMITED of Macdfor last five year data is available on the
basis of which we concluded buying and selling decision
1. When the shorter-term 12-period EMA crosses above the longer-term 26-period EMA, the
MACD line crosses above the Zero line.
2. When the 12-period EMA crosses below the 26-period EMA, the MACD line crosses below the
Zero line
3. Moving Average Crossover Buy Signal
A buy signal is generated when the MACD (Green line) crosses above the Blackline.
4. Moving Average Crossover Sell Signal
When the MACD crosses below the Black line, then a sell signal is generate
B) RELATIVE STRENGTH INDEX

INTERPRETATION :

In the above technical chart of GAIL (INDIA) LIMITED of the RELATIVE STRENGTH INDEX for last five year
data is available on the basis of which we concluded buying and selling decision

the Relative Strength Index (RSI) is an oscillator that measures current price strength in relation to
previous prices.

In Relative Strength Index there are two factor on which decision are ta ken. These two factor are
A ) Oversold
B )Overbrought

For example,

We taken oversold as 30 and overbrought as 70 and on the basis we take buying and selling decision
RSI Buy Signal
Buy when the RSI crosses above the oversold line (30).
RSI Sell Signal
Sell when the RSI crosses below the overbought line (70).


C ) STOCHASTIC





INTERPRETATION

In the above technical chart of GAIL (INDIA) LIMITED of Stochastic RSI for last five year data is available
on the basis of which we concluded buying and selling decision

The Stochastic RSI combines two very popular technical analysis indicators, Stochastics and the Relative
Strength Index (RSI). Whereas Stochastics and RSI are based off of price, Stochastic RSI derives its values
from the Relative Strength Index (RSI); it is basically the Stochastic indicator applied to the RSI indicator.
In Stochastic RSI there are two factor on which decision are taken. These two factor are
A ) Oversold
B )Overbrought

For example,

We taken oversold as 20 and overbrought as 80 and on the basis we take buying and selling decision
Stochastic RSI Buy Signal
Buy when the Stochastic RSI crosses above the Oversold Line (20).
Stochastic RSI Sell Signal
Sell when the Stochastic RSI crosses below the Overbought Line (80)










D )MOMENTUM



INTERPRETATION
In the above technical chart of GAIL (INDIA) limited of Momentum for last five year data is available on
the basis of which we concluded buying and selling decision.

Memomentum indicator compares where the current price is in relation to where the price was in the
past.It is a calculation of the difference between the current market price of the share and the price of
the same share a certain number of days ago.
Momentum Buy Signal

When the momentum indicator crosses above the zero line.The crossing of the zero line implies that the
price of the stock, future, or currency pair is reversing course, either by having bottomed out or by
breaking out above recent highs, a bullish signal.

Momentum Sell Signal

When the momentum indicator crosses below the zero line.The crossing of the zero line mean two
things : the future, or currency pair or stock’s price has topped out and is reversing or that the price has
brokenbelow recent lows, a bearish signal.
For example :

When the momentum indicator crosses above the zero line it mean to buy the share

When the momentum indicator crosses below the zero line it mean to sell the share














JINDAL STEEL AND POWER LTD.
1. MACD








2.Relative Strength Index













3) STOCHASTIC












4.MOMENTUM









POWER GIRD CO.OF INDIA LTD.
1. MACD







2.Relative Strength Index


3) STOCHASTIC







4. Momentum










TATA POWER CO.LTD
1. MACD







2.Relative Strength Index







3. Stochastic







4. Momentum









OIL AND NATURAL GAS CORPORATION LTD.

1. MACD






2.Relative Strength Index







3. Stochastic



4. Momentum













Chapter 1 : Fundamental Analysis: An Introduction

1.3 What is fundamental analysis?

Fundamental analysis is a stock valuation methodology that uses financial and
economic analysis to envisage the movement of stock prices. The fundamental data that is
analysed could include a company’s financial reports and non-financial information such as
estimates of its growth, demand for products sold by the company, industry comparisons,
economy-wide changes, changes in government policies etc.
The outcome of fundamental analysis is a value (or a range of values) of the stock of the
company called its ‘intrinsic value’ (often called ‘price target’ in fundamental analysts’
parlance).
To a fundamental investor, the market price of a stock tends to revert
towards its intrinsic value. If the intrinsic value of a stock is above the current market price,
the investor would purchase the stock because he believes that the stock price would rise
and move towards its intrinsic value. If the intrinsic value of a stock is below the market
price, the investor would sell the stock because he believes that the stock price is going to
fall and come closer to its intrinsic value.
To find the intrinsic value of a company, the fundamental analyst initially
takes a top-down view of the economic environment; the current and future overall health
of the economy as a whole. After the analysis of the macro-economy, the next step is to
analyse the industry environment which the firm is operating in. One should analyse all the
factors that give the firm a competitive advantage in its sector, such as, management
experience, history of performance, growth potential, low cost of production, brand name
etc. This step of the analysis entails finding out as much as possible about the industry and
the inter-relationships of the companies operating in the industry as we have seen in the
previous NCFM module1. The next step is to study the company and its products.
Some of the questions that should be asked while taking up fundamental analysis of a
company would include:

Any investor while making investment is concerned with the intrinsic value of
the asset, which is determined by the future earning potential of the asset. In case of securities market,
an investor has number of securities available for investment. But, he would like to invest in the one,
which has good potential for future. In order to ensure the future earnings of any security, an individual
has to conduct fundamental analysis of the company. Fundamental analysis of a company involves in-
depth examination of all possible factors, which have bearing on the prospects of the company as well
as its share price. Fundamental analysis is divided into 3 stages in sequential manner as follows:
4. Economic analysis
5. Industry analysis
6. Company analysis

4. Economic analysis
The economic activity of any country has an impact on investment in many ways. When
the state of economy is good and it is at the growing stage, the investment takes place
and stock market is in boom phase. The reverse situation takes place when the economic
activity is low. In view of this it is necessary to analyze all macro economic variables
properly. The parameters, which are used to analyze all macro economic variables, are
given below:
 Growth rate of gross domestic product
GDP represents the aggregate value of the goods and services produced in the
economy. All the major investors, financial institutions, foreign financial institutions,
portfolio manager first tries to estimate the growth rate of GDP of the country in which
they are planning to invest.
 Inflation
The assessment of GDP growth rate is to be done in light of increase in inflation
rate. If the rate of inflation grows in direct proportion to GDP, then the real rate of
growth would be insignificant.

The demand in consumer product industry is severely affected. If there would be
increase in rate of inflation, the amount of saving left for investment would decrease
which is not good for securities market investment. Inflation rate in these two months
reaches to almost more than the 11%.
 Interest rates
Most of the companies borrow funds from banks and financial institutions for
meeting their capital and revenue expenses. If the rate if interest would increase, their
interest expenses would also increase. This would lead to decrease in their profitability.
Increase in interest rates would be reflected in negative manner in stock markets.
Interest rates have to be increased for controlling inflation. It is a measure to control the
inflation means withdrawing the excess money from the market in the form of interest.
 Budget
Budget is statement of proposed revenue and expenditure of government. A
deficit budget leads to higher rate of inflation and increase in cost of production for
companies as explained above whereas surplus budget leads to deflation.
 Balance of payment
Balance of payment is statement of receipts and payments of a country for the
transactions it has entered with other companies. If receipts are more then BOP is
favorable and if payments are more then unfavorable.
 Monsoon and agriculture
A good monsoon has favorable impact on markets and vice versa is true.
Monsoons generate indirect demand for many industries like-auto industry, iron & steel
fertilizers etc. because the main employer in India is the agricultural sector and this
sector is depends on the monsoon.

5. Industry analysis

Classifying them on basis of business cycles does the industry analysis. They can be
classified into following categories:

 Growth industry

Growth industries are the ones those are independent of the business cycles.
These industries show growth irrespective of changes in economy. For example, the
information technology in India exhibited continuous growth irrespective of the
recession and boom in the entire economy of the country.

 Cyclical industry

The growth of these industries depends on the business cycle. When there
is boom period in the business cycle of industries or economy as a whole, these
industries also exhibit growth and vice versa. For example, steel industry. The
growth of steel industry mainly depends on auto industry and construction
industry. When there is boom in the auto industry, the steel is in demand.

 Defensive industry

These categories of industry exhibit constant growth during all phases of
economy. They do not depend on business cycle of other industries. For example, food
industry enjoys constant growth irrespective of growth in other industry.

 Cyclical growth industry

This type of industry experiences the period of growth and stagnation due to
change in technology. For example, computer hardware industry.

 Product of the industry

The user of the product may be either other industries or the household sector
or both. In case the product is to be used only by industrial sector, then the growth of
other user industry is also need to be analyzed. However, if it is to be used by household
sector, then factors such as inflation, increase in level of income etc. are to be taken into
account while estimation growth of industry.

 Government policy

If the government offers tax subsidies and tax holidays, the industry has good
prospects. For example, biotechnology industry is being given number of tax incentives
as the government intends to promote the growth of industry.

 Labor

The industries which are labor intensive in nature require proper analysis of
labor scenario. The activities of trade unions have bearing on productivity of the
companies under that industry. The frequent strike by unions may lead to fall in the
production.

 The Market Share

The rate of growth in the market share of the industry over a period of time
shall be examined since it helps in finding the growth prospects and ability to compete
with industry involved in related product. If the market share is decreasing over a period
of time, it is not a good indicator for investment.










6. Company analysis
The strength of company can be assessed by examining certain quantitative factors.
The quantitative factors normally comprise of various financial ratios which are used
examine the operating efficiency of the company. They are enumerated below:

QUALITATIVE FACTORS

 Management

The management of a company should have expertise, competence to control
the operations of the company. The past track record of the management towards
shareholders should be examined. It should be a management, which has rewarded its
shareholders whenever company has made good profits.

 Product of the company

The growth prospect of demand of product being manufactured by the
company shall be assessed by analyzing the type of users and existence of related
products.

 Raw material

The raw material used by the company also has a bearing on its operating
efficiency. If the raw material is to be sourced from indigenous sources the company
would not face any problems but if it has to be imported from outside countries then
the risk of change in government policies on importing of such material should be
taken into consideration

QUANTIATIVE FACTORS

xvi. Operating profit ratio :-
It helps in finding the amount of margins over manufacturing costs, which a
company is able to earn by selling its product. This ratio establishes the relationship
between operating net profit and sales. This will be calculated by deducting only
operating expenses from gross profits. Debenture holders or creditors of the company
mainly use this as interest paid is out of operating profit.
xvii. Gross profit ratio :-
Gross profit is the difference between net sales and cost of goods sold. This
ratio shows the margin left after meeting the manufacturing costs. It measures the
efficiency of production as well as pricing. A high gross profit ratio means a high margin
for covering other expenses other than cost of goods sold. Therefore, higher the ratio,
the better it is.
xviii. Net profit ratio :-
This ratio shows the earnings left for shareholders (equity and preference) as a
percentage of net sales. It measures the overall efficiency of all the functions of a
business firm like production, administration, selling, financing, pricing, tax management
etc. This profit is mainly used by shareholders as dividend is paid out of net profit of the
company.
xix. Return on capital employed :-
This ratio indicates the percentage of net profits before interest and tax to total capital
employed.
Capital employed = Equity Capital + Preference Capital+ Reserve and Surplus +
long term Debt – Fictitious Assets.
Return on capital employed =
Net profit before interest and tax *100
Capital employed

This ratio is considered to be a very important one because it reflects the overall
efficiency with which capital is used. The ratio of a particular business should be
compared with other business firms in the same industry to find out exact position of
that business.
xx. Return on equity :-
This ratio also known as return on shareholders funds indicates the percentage
of net profit available for equity shareholders to equity shareholder funds.
Return on equity =
Net profit available for equity shareholders*100
Equity shareholders funds

Net profit after interest, tax, preference dividend
Equity capital + reserve and surplus

This ratio indicates the productivity of the ownership capital employed in the
firm. However, in judging the profitability of a firm, it should not be overlooked that
during inflationary periods, the ratio may show an upward trend because the numerator
of the ratio represents current values whereas the denomination represents historical
values.
xxi. Interest coverage ratio :-
This ratio compares the net profit before interest and tax with the interest
payments and long term liabilities. This ratio indicates whether adequate coverage of
net profit is available for the payment of interest or not.

Interest coverage ratio =
Net profit before interest and tax
Interest on long term liabilities

If this ratio is very high, it means that margin for creditors and lenders are very
high. If this ratio is just one, it will indicate that profits are just equal to interest which is
not at all satisfactory. This is not only dangerous for creditors but also unsatisfactory for
shareholders.
xxii. Earnings per share :-
This ratio indicates the amount of net profit available per equity share of a
business firm.

Net profit after interest, tax, preference dividend
no. of equity shares
EPS is one of the criteria of measuring the performance of a company. If
earnings per share increase, the possibility of higher dividend paid by the company also
increases. The market price of the share of a company may also be affected by this ratio.
EPS may vary from company to company due to stock in trade, depreciation etc.
xxiii. Price earnings ratio :-
Market price per equity share
EPS

It means that the market value of every rupee of earnings is …....... times.

xxiv. Dividend payout ratio :-
This ratio indicates the percentage of profit distributed as dividends to the
shareholders. A higher ratio indicates that the company follows a liberal dividend policy,
while a lower ratio implies a conservative dividend policy.
Dividend payout ratio =
Dividend per share*100
EPS
xxv. Dividend yield ratio :-
Dividend yield ratio =
Dividend per share*100
Market price per share
This ratio is very important for investors who purchase their shares in the open
market. They will evaluate their return against their investment i.e. the market price
paid by them. The higher the ratio, the more attractive are their investments.
xxvi. Inventory turnover ratio :-
This ratio establishes relationship between cost of goods sold during a given
period and the average amount of inventory held during that period. The indication
given by this ratio is the number of times finished stock is turned over during a given
accounting period.

____Cost of Goods sold______
Avg. stock during that period
xxvii. Current ratio :-
This ratio is calculated by dividing current assets by current liabilities. This ratio
indicates how much current assets are there as against each rupee of current liabilities.
If majority of current assets are in the form of inventory, even a 2:1 ratio will not result
into favorable condition because inventory is considered to be the least liquid assets out
of all current assets of a firm.
__Current assets__
Current liabilities
xxviii. Liquid ratio :-
It is the ratio between liquid assets and liquid liabilities. From the balance sheet
liquid assets are calculated by deducting inventories and prepaid expenses from current
assets. Liquid liabilities are current liabilities less bank overdraft. An ideal liquid ratio is
considered as 1:1.
__Liquid current assets__
Liquid current liabilities
xxix. Long term solvency/Debt Equity ratio
Ratio like debt-equity ratio helps in examining long-term solvency of the
company. Higher debt equity is not favorable as it indicates dependence of company on
borrowed funds. Any increase in interest rates may significantly affect shareholders
earnings. It should be assessed whether the company is able to make use of trading on
equity or not.

___Long term funds __
Shareholders funds

Or
___________Long term funds________
Shareholders funds + long term funds

Shareholders funds consist of equity share capital, preference share capital and
reserve and surplus. A low ratio will quite satisfactory from creditor’s angle.
xxx. Book value :-
There are several ways to define a company’s worth or value. One of the ways
you define value is market capital or how much money would you need to buy every
single share of stock at the current price. Another way to determine a co’s value is to go
to the balance sheet statement and look at the book value. The book value is simply the
co’s assets minus its liabilities.
Book value = assets – liabilities.
In other words, if you wanted to close the doors, how much would be left after
you settled all the outstanding obligations and sold off the assets.
A co. that is viable growing business will always be worth more than its book
value for its ability to generate earnings and growth. To compare companies, you should
convert to book value per share, which is simply the book value divided by outstanding
shares.






1.4 Steps in Fundamental Analysis

Fundamental analysis is the cornerstone of investing. In fact all types of investing comprise
studying some fundamentals. The subject of fundamental analysis is also very vast.
However,
the most important part of fundamental analysis involves delving into the financial
statements.
This involves looking at revenue, expenses, assets, liabilities and all the other financial
aspects of a company. Fundamental analysts look at these information to gain an insight
into
a company’s future performance.
Fundamental analysis consists of a systemtatic series of steps to examine the investment
environment of a company and then identify opportunities. Some of these are:
 Macroeconomic analysis - which involves analysing capital flows, interest rate cycles,
currencies, commodities, indices etc.
 Industry analysis - which involves the analysis of industry and the companies that are
a part of the sector
 Situational analysis of a company
 Financial analysis of the company
 Valuation
The previous NCFM module3 focused on macroeconomic and industry analysis, we would
examine company analysis (financials) and valuation in this module.
3 Please see NCFM’s Investment Analysis and Portfolio Management module for details.



RATIO analysis

GAIL (INDIA) ILD

Ratio Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010
Operational & Financial Ratios
Earnings Per Share (Rs) 37.73 34.48 35.03 31.70 26.23
CEPS(Rs) 50.23 44.43 42.90 38.30 32.45
Adjusted EPS (Rs.) 37.73 34.48 35.03 31.70 26.23
DPS(Rs) 10.40 9.60 8.70 7.50 7.50
Adjusted DPS(Rs) 10.40 9.60 8.70 7.50 7.50
Book NAV/Share(Rs) 255.87 227.00 196.41 167.24 140.40
Adjusted Book Value (Rs) 255.87 227.00 196.41 167.24 140.40
Tax Rate(%) 31.71 34.18 30.75 31.35 31.75
Dividend Pay Out Ratio(%) 27.56 27.84 24.84 23.66 28.59
Margin Ratios
Core EBITDA Margin(%) 12.64 14.15 15.65 18.16 19.79
EBIT Margin(%) 12.07 13.47 14.97 17.28 18.95
Pre Tax Margin(%) 11.01 12.63 14.15 16.22 17.55
PAT Margin (%) 7.52 8.31 9.80 11.14 11.98
Cash Profit Margin (%) 10.13 10.85 12.12 13.59 14.97
Performance Ratios
ROA (%) 7.08 7.57 9.65 10.47 10.09
ROE (%) 15.44 16.07 19.08 20.40 19.83
ROCE (%) 15.77 17.13 20.83 24.06 24.54
Asset Turnover(x) 0.94 0.91 0.98 0.94 0.84
Inventory Turnover(x) 28.04 28.67 32.26 37.31 34.74
Debtors Turnover(x) 20.24 20.63 21.34 20.72 17.67
Sales/Fixed Asset(x) 1.58 1.51 1.54 1.38 1.21
Working Capital/Sales(x) 38.53 -31.60 -28.79 134.72 7.31
Efficiency Ratios
Fixed Capital/Sales(x) 0.63 0.66 0.65 0.72 0.82
Receivable days 18.04 17.70 17.10 17.61 20.66
Inventory Days 13.02 12.73 11.32 9.78 10.51
Payable days 25.62 25.37 23.84 28.85 38.03
Growth Ratio
Net Sales Growth(%) 21.18 15.53 25.67 30.17 9.09
Core EBITDA Growth(%) 7.32 7.11 10.02 16.95 15.33
EBIT Growth(%) 8.52 4.07 8.81 18.58 15.44
PAT Growth(%) 9.52 -1.91 10.55 20.91 18.00
EPS Growth(%) 9.43 -1.58 10.51 20.83 17.74
Financial Stability Ratios
Total Debt/Equity(x) 0.57 0.57 0.46 0.33 0.30
Current Ratio(x) 1.13 0.87 0.85 1.03 1.34
Quick Ratio(x) 0.92 0.72 0.68 0.92 1.26
Interest Cover(x) 11.35 16.00 18.34 16.35 13.52





INTERPRETATION

1)In the above table earning per share of the company is constantly increasing during these five year. In
this higher earnings per share is indicating that after paying preference dividend out of the available
profit, what could be the profit earning capacity of the business on per equity shares and is showing
better performance & prospect of the company and vice-versa.) Here companyeps in the year Mar 2014
is 37.73 per share which is less than the year 2010 is 26.23 per share it is because profit available in the
year 2010 is more than the year 2013.
2)The company dporis increase during these year. In this higher ratio indicating that firm is losing its
long term projects investments(if had ) by paying large portion of the profit in a form of dividend but on
the other side more dividend will able attract more investors and shows better performance & policies
of the company.
3. Here company dpor in the year 2010 is at 28.59 % is less in compare with the year 2014 at 27.56 %
times.
3) In the above table company npr is falling down in comparison with year in 2010 with 2014. . It could
be because of in sufficient profit available to cover its cost of goods sold & indirect costs incurred during
the business.
4) In the above table the company roi is decreasing with higher margin as compared to other years.
While company roi in the year 2010 was 24.54 % but in 2014 it is 15.77 % at lower level. This is because
that before paying interest, dividend and tax. The available profit is less than the capital employed in
business say “total assets”. This kind of situation both in firm and company will increase burden of
interest payment and dividend. Hence, both are not enough good for investment.
5) Here company roe is reducing during these years with lower margin. This situation shows that after
paying sufficient dividend to its preference shareholders, both do not have sufficient profit to entitle the
equity dividend to equity shareholders. Such situation will do not attract investors and may reduce in its
shareholding. It also suggest that it is properly utilizing its business resources.
6)In the above table companyitr is fluctuating, here increase in the itr indicates increase in amount of
sales by increasing per unit investment in the stock. But decrease in the ratio shows investment are not
fully or efficiently utilize in business. Here companyitr is maximum in the year 2010 at 34.74 times in
compare to company in the year 2014 at 28.04 times.
7) In the above table company cr is increasing during these five years. This situation arise because firm
or industry have to manage ascertain amount of standard ratio say 2:1 the lower of it indicating that
firm/industry may not able to meet its short-term solvency on a time and higher ratio indicating that
funds are lying idle and not fully utilized. Here company cr is lower in the year 2011 at 1.03:1 in compare
to company cr in the year 2013 at 0.87:1.
8) In the above table company qr is increasing during the five year. In this any firm have maintain a
standard ratio of 1:1, the ratio indicating that how immediately quick assets may convert into stock to
discharge short term liability. Here higher ratio then the current ratio indicating understocking while
lower ratio then current ratio indicating overstocking. Here company qr is more in the year 2013 at
1.06:1 in compare with company in the year 2010 at 0.84:1
9) In the above table company icr is increase and decrease during these five year. The situation of high
ratio indicating that firm/industry is utilizing its interest bearing debt funds more efficiently. While low
ratio indicating underutilization of the debt funds of business. Here company icr in the year 2014 is
higher at 24.75 times in compare to company icr in the year 2013 at 8.67 times.
10) The company debt equity ratio is decreasing during these five year. In this higher ratio indicating a
risky financial position of the firm that it shows less use of equity fund than debt. But low ratio indicating
that it use fund efficiently than debt and give larger safety margin to the creditors. Here this ratio is only
acceptable if it is 2:1 or nearby.
11) In the above tablecompany dividend yield ratio is fluctuating during the years. In this a high ratio is
indicating that company has paid more dividend or return on the investment to its shareholders but low
ratio may discourage the outsiders to be with company share or stock as its dividend per share is
reducing. In this tablecompanydyr in the year 2014 is at 02.71% more in comparison with the year 2010
at 2.64 %.
12) 1. In the above tablecompany price earningratio is continue increasing during last four year except in
2014. In this situation high ratio indicating that investors have faith in the stability and appreciation of
the company s earning. While low ratio indicating that price of the company shares will be increase.
Here price earning ratio of the company in the year 2014 at 18.99 which is more in comparison to 2010
at 10.18
13) Company book value is increasing over the five year. Which mean that company have lot of assets
such as stocks,bonds, inventory, manufacturing equipment, etc. It mean that higher book value is good
for the company it can pay its debt or liability by selling the asset.

14) In th above table company gross profit ratio is fluctuating. While industrial This may be arise due to
fluctuation in the selling price of an product, relatively with change in material price or wages. In 2010
company gpr was 52.26 which was reduce to 45.27 in 2014.
15) In the above table the companyopr is constantly reducing constantly from year 2010 to 2014. This is
because of decrease in different indirect costs over its sales like cost of goods sold, admin. Expense etc.
Here the company trying to improve its operational efficiency and shows better work to leave higher
margin to meet interest, dividend etc.







Power grid
Ratio Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010
Operational & Financial Ratios
Earnings Per Share (Rs) 8.60 9.15 7.03 5.83 4.85
CEPS(Rs) 16.23 16.39 12.59 10.58 9.55
Adjusted EPS (Rs.) 8.60 9.15 7.03 5.83 4.85
DPS(Rs) 3.00 2.75 2.11 1.75 1.50
Adjusted DPS(Rs) 3.00 2.75 2.11 1.75 1.50
Book NAV/Share(Rs) 65.87 56.68 50.73 46.15 37.87
Adjusted Book Value (Rs) 65.87 56.68 50.73 46.15 37.87
Tax Rate(%) 28.20 24.98 29.20 29.49 22.29
Dividend Pay Out Ratio(%) 34.90 30.07 30.01 30.04 30.93
Margin Ratios
Core EBITDA Margin(%) 97.89 97.03 97.45 93.38 87.86
EBIT Margin(%) 76.86 83.69 86.54 77.58 67.06
Pre Tax Margin(%) 41.13 44.25 45.23 45.59 36.85
PAT Margin (%) 29.53 33.19 32.02 32.15 28.63
Cash Profit Margin (%) 55.76 59.46 57.33 58.37 56.41
Performance Ratios
ROA (%) 3.51 4.11 3.88 3.87 3.46
ROE (%) 14.82 17.03 14.51 14.46 13.36
ROCE (%) 10.63 12.01 12.29 11.09 9.73
Asset Turnover(x) 0.12 0.12 0.12 0.12 0.12
Inventory Turnover(x) 24.10 25.73 24.74 23.10 22.19
Debtors Turnover(x) 10.11 8.70 7.78 5.04 3.97
Sales/Fixed Asset(x) 0.17 0.18 0.18 0.18 0.17
Working Capital/Sales(x) -1.46 -1.48 -2.02 -9.46 -15.31
Efficiency Ratios
Fixed Capital/Sales(x) 5.81 5.64 5.59 5.58 5.86
Receivable days 36.10 41.94 46.89 72.42 91.88
Inventory Days 15.15 14.19 14.76 15.80 16.45
Payable days 16.11 14.84 16.70 61.78 119.59
Growth Ratio
Net Sales Growth(%) 19.38 25.52 21.17 17.70 8.32
Core EBITDA Growth(%) 11.92 23.40 30.56 28.83 4.21
EBIT Growth(%) 9.64 21.38 35.15 36.17 -11.36
PAT Growth(%) 6.21 30.09 20.69 32.14 20.72
EPS Growth(%) -6.01 30.09 20.69 20.13 20.72
Financial Stability Ratios
Total Debt/Equity(x) 2.54 2.74 2.35 2.02 2.31
Current Ratio(x) 0.47 0.41 0.62 0.92 0.95
Quick Ratio(x) 0.43 0.38 0.59 0.88 0.92
Interest Cover(x) 2.15 2.12 2.10 2.43 2.22


Tata power
Ratio Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010
Operational & Financial Ratios
Earnings Per Share (Rs) -1.10 -0.36 -4.58 86.82 82.91
CEPS(Rs) 11.37 8.75 1.49 12.86 12.27
Adjusted EPS (Rs.) -1.10 -0.35 -4.42 8.38 8.00
DPS(Rs) 1.25 1.15 1.25 12.50 12.00
Adjusted DPS(Rs) 1.25 1.15 1.25 1.25 1.20
Book NAV/Share(Rs) 46.73 47.76 49.39 551.71 463.51
Adjusted Book Value (Rs) 46.73 46.09 47.66 53.24 44.73
Tax Rate(%) 103.42 92.27 290.89 30.88 22.72
Dividend Pay Out Ratio(%)
-
114.06
-
319.36 -27.26 14.40 14.47
Margin Ratios
Core EBITDA Margin(%) 19.11 19.03 17.85 21.06 18.73
EBIT Margin(%) 12.38 11.86 7.82 20.67 18.68
Pre Tax Margin(%) 2.73 3.86 1.95 16.22 14.57
PAT Margin (%) -0.09 0.30 -3.72 11.21 11.26
Cash Profit Margin (%) 7.56 6.51 1.41 16.25 15.88
Performance Ratios
ROA (%) -0.05 0.15 -1.73 4.84 5.96
ROE (%) -0.27 0.79 -7.25 16.82 20.10
ROCE (%) 8.36 7.86 4.69 11.62 13.13
Asset Turnover(x) 0.51 0.51 0.46 0.43 0.53
Inventory Turnover(x) 17.40 17.81 18.50 18.69 19.30
Debtors Turnover(x) 9.09 11.85 13.21 6.99 5.48
Sales/Fixed Asset(x) 0.61 0.70 0.83 0.83 0.87
Working Capital/Sales(x) -4.26 -7.36 -15.03 -6.60 7.17
Efficiency Ratios
Fixed Capital/Sales(x) 1.65 1.43 1.20 1.20 1.15
Receivable days 40.15 30.80 27.64 52.25 66.55
Inventory Days 20.98 20.50 19.73 19.53 18.91
Payable days 50.04 41.28 39.69 57.07 60.52
Growth Ratio
Net Sales Growth(%) 7.94 27.01 33.68 2.45 5.12
Core EBITDA Growth(%) 4.76 31.94 3.31 13.02 5.06
EBIT Growth(%) 12.67 92.61 -49.43 13.35 8.31
PAT Growth(%)
-
133.74 110.20
-
144.38 2.02 64.67
EPS Growth(%)
-
204.33 92.15
-
105.28 4.72 50.57
Financial Stability Ratios
Total Debt/Equity(x) 2.94 2.74 2.39 1.76 1.56
Current Ratio(x) 0.61 0.73 0.87 0.71 1.36
Quick Ratio(x) 0.52 0.61 0.74 0.60 1.23
Interest Cover(x) 1.28 1.48 1.33 4.64 4.54

Jindal steel and power ltd
Ratio Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010
Operational & Financial Ratios
Earnings Per Share (Rs) 20.88 31.13 42.41 40.18 38.37
CEPS(Rs) 40.69 47.61 57.65 53.03 49.74
Adjusted EPS (Rs.) 20.88 31.13 42.41 40.18 38.37
DPS(Rs) 1.60 1.60 1.60 1.50 1.25
Adjusted DPS(Rs) 1.60 1.60 1.60 1.50 1.25
Book NAV/Share(Rs) 246.02 227.35 193.74 151.01 111.54
Adjusted Book Value (Rs) 246.02 227.35 193.74 151.01 111.54
Tax Rate(%) 24.61 24.05 22.86 23.72 20.18
Dividend Pay Out Ratio(%) 7.66 5.14 3.77 3.73 3.26
Margin Ratios
Core EBITDA Margin(%) 21.12 23.13 30.49 40.23 47.53
EBIT Margin(%) 15.81 18.57 26.19 34.47 41.04
Pre Tax Margin(%) 9.20 14.52 23.09 31.77 36.96
PAT Margin (%) 6.93 11.03 17.81 24.23 29.50
Cash Profit Margin (%) 13.63 16.86 23.98 31.57 37.59
Performance Ratios
ROA (%) 2.89 5.70 9.87 12.43 16.36
ROE (%) 8.66 14.79 24.84 31.06 41.76
ROCE (%) 8.24 12.09 19.18 23.26 29.59
Asset Turnover(x) 0.42 0.52 0.55 0.51 0.55
Inventory Turnover(x) 5.81 6.51 7.07 7.47 9.22
Debtors Turnover(x) 14.66 16.19 18.27 16.46 18.56
Sales/Fixed Asset(x) 0.74 1.07 1.08 0.96 0.99
Working Capital/Sales(x) -6.41 -9.60 -12.18 -3.95 6.78
Efficiency Ratios
Fixed Capital/Sales(x) 1.36 0.93 0.93 1.04 1.01
Receivable days 24.90 22.55 19.98 22.17 19.66
Inventory Days 62.85 56.03 51.59 48.88 39.57
Payable days 41.30 34.67 33.21 76.18 121.30
Growth Ratio
Net Sales Growth(%) 1.00 8.78 38.87 18.22 1.99
Core EBITDA Growth(%) -4.53 -11.45 10.83 8.40 13.59
EBIT Growth(%) -11.87 -16.74 8.78 7.01 15.83
PAT Growth(%) -34.96 -27.25 5.21 4.66 20.86
EPS Growth(%) -32.93 -26.60 5.56 4.71 -80.51
Financial Stability Ratios
Total Debt/Equity(x) 1.62 1.16 0.87 0.95 0.83
Current Ratio(x) 0.81 0.85 0.87 0.70 1.36
Quick Ratio(x) 0.59 0.59 0.61 0.49 1.08
Interest Cover(x) 2.39 4.59 8.45 12.79 10.06

OIL AND NATURAL GAS CO.LTD
Ratio Mar 2014 Mar 2013 Mar 2012 Mar 2011 Mar 2010
Operational & Financial Ratios
Earnings Per Share (Rs) 25.83 24.46 29.36 22.12 78.39
CEPS(Rs) 38.60 34.25 38.13 31.09 36.71
Adjusted EPS (Rs.) 25.83 24.46 29.36 22.12 19.60
DPS(Rs) 9.50 9.50 9.75 8.75 33.00
Adjusted DPS(Rs) 9.50 9.50 9.75 8.75 16.50
Book NAV/Share(Rs) 158.95 144.29 130.96 113.30 404.14
Adjusted Book Value (Rs) 158.95 144.29 130.96 113.30 101.04
Tax Rate(%) 31.87 31.49 31.44 31.48 32.89
Dividend Pay Out Ratio(%) 36.79 38.84 33.20 39.56 42.09
Margin Ratios
Core EBITDA Margin(%) 15.21 16.10 26.68 8.60 23.17
EBIT Margin(%) 38.52 36.70 47.70 40.27 41.52
Pre Tax Margin(%) 38.52 36.66 47.66 40.23 41.50
PAT Margin (%) 26.24 25.12 32.68 27.57 27.85
Cash Profit Margin (%) 39.22 35.17 42.42 38.75 52.17
Performance Ratios
ROA (%) 10.04 10.03 13.15 11.14 10.89
ROE (%) 17.03 17.77 24.04 20.64 20.38
ROCE (%) 25.00 25.48 34.36 27.67 25.38
Asset Turnover(x) 0.38 0.40 0.40 0.40 0.39
Inventory Turnover(x) 14.53 15.33 16.56 15.61 13.78
Debtors Turnover(x) 11.21 12.76 15.09 19.47 16.86
Sales/Fixed Asset(x) 0.37 0.41 0.42 0.42 0.41
Working Capital/Sales(x) 7.82 6.43 7.06 10.14 1.72
Efficiency Ratios
Fixed Capital/Sales(x) 2.71 2.43 2.38 2.40 2.43
Receivable days 32.57 28.61 24.19 18.75 21.65
Inventory Days 25.11 23.81 22.04 23.39 26.49
Payable days 46.22 45.59 54.37 50.09 55.83
Growth Ratio
Net Sales Growth(%) 1.07 8.48 11.96 13.92 -5.68
Core EBITDA Growth(%) 11.33 -5.09 16.18 -10.91 10.15
EBIT Growth(%) 6.09 -16.65 32.69 10.57 3.73
PAT Growth(%) 5.59 -16.71 32.76 12.86 3.98
EPS Growth(%) 5.59 -16.71 32.76 -71.78 3.98
Financial Stability Ratios
Total Debt/Equity(x) 0.00 0.00 0.04 0.00 0.19
Current Ratio(x) 1.56 1.74 1.42 1.35 1.71
Quick Ratio(x) 1.26 1.41 1.22 1.14 1.62
Interest Cover(x) 0.00 1106.24 1053.04 1100.95 1733.22

RATIO GRAPHS:-
1.Dividend Payout Ratio

2014 2013 2012 2011 2010
JINDAL
7.66 5.14 3.77 3.73 3.26
TATA
-
114.06
-
319.36
-
27.26 14.40 14.47
POWER
GRID
34.90 30.07 30.01 30.04 30.93
ONGC
36.79 38.84 33.20 39.56 42.09
GAIL 30.15 30.27 30.2 26.71 30.29






Interpretation


In the above graph company Dividend Payout Ratio of five company is given. In which ONGC Ltd Have
highest Dividend Payout Ratio as compared to other company. This ratio indicates the percentage of
profit distributed as dividends to the shareholders. A higher ratio indicates that the company follows a
liberal dividend policy, while a lower ratio implies a conservative dividend policy.


-114.06
-319.36
-27.26
14.4 14.47
34.9
30.07 30.01 30.04 30.93
36.79
38.84
33.2
39.56
42.09
30.15 30.27 30.2
26.71
30.29
-350
-300
-250
-200
-150
-100
-50
0
50
100
2014 2013 2012 2011 2010
JINDAL
TATA
POWER
ONGC
GAIL



2. Price earnings ratio


2014 2013 2012 2011 2010
JINDAL
20.88 31.13 42.41 40.18 38.37
TATA
-1.10 -0.36 -4.58 86.82 82.91
POWER
GRID
8.60 9.15 7.03 5.83 4.85
ONGC
25.83 24.46 29.36 22.12 78.39
GAIL
37.73 34.48 35.03 31.70 26.23




-20
0
20
40
60
80
100
JINDAL TATA POWER ONGC GAIL
2014
2013
2012
2011
2010


Interpretation


In the above graph company Price earning Ratio of five company is given. In which GAIL LTD have
highest Price earning Ratio as compared to other company.It means that the market value of every
rupee of earnings is …....... times.



12 ) Book Value


2014 2013 2012 2011 2010
JINDAL
246.02 227.35 193.74 151.01 111.54
TATA
46.73 46.09 47.66 53.24 44.73
POWER
GRID
65.87 56.68 50.73 46.15 37.87
ONGC
158.95 144.29 130.96 113.30 101.04
gail
255.87 227.00 196.41 167.24 140.40






Interpretation


In the above graph company Book value of five company is given. In which GAIL Ltd Have highest Book
value as compared to other company. Book value show if you wanted to close the doors, how much
would be left after you settled all the outstanding obligations and sold off the assets.A co. that is viable
growing business will always be worth more than its book value for its ability to generate earnings and
growth. To compare companies, you should convert to book value per share, which is simply the book
value divided by outstanding shares.




0
500
1000
1500
2000
2500
1 2 3 4 5
JINDAL
TATA
POWER
ONGC
GRIL





TECHNICAL ANALYSIS
Technical analysis can be conditionally divided into some main parts such as:
 Types of charts
 Graphical methods
 Analytical methods
 Technical indicators
Technical analysis is concerned with predicting future price trends from historical price and volume
data. The underlying axiom of technical analysis is that all fundamentals (including expectations) are
factored into the market and are reflected in exchange rates.
A technical analysis is based on three axioms:
 Movement of the market considers everything
 Movement of prices is purposeful
 History repeats itself
SUPPORT AND RESISTANCE
Support is a level at which bulls (i.e., buyers) take control over the prices and prevent them from falling
lower.

Resistance, on the other hand, is the point at which sellers (bears) take control of prices and prevent
them from rising higher. The price at which a trade takes place is the price at which a bull and bear
agree to do business. It represents the consensus of their expectations.

Support levels indicate the price where the most of investors believe that prices will move higher.
Resistance levels indicate the price at which the most of investors feel prices will move lower.
Role Reversal
When a resistance level is successfully broken through, that level becomes a support level. Similarly,
when a support level is successfully broken through, that level becomes a resistance level.

DOW THEORY– TRENDS:
The ideas of Charles Dow, the first editor of the Wall Street Journal, form the basis of technical
analysis. The Dow theory is a method of interpreting and signaling changes in the stock market
direction based on the monitoring of the Dow Jones Industrial and Transportation Averages.
Dow created the Industrial Average, of top blue chip stocks, and a second average of top railroad
stocks (now the Transport Average). He believed that the behavior of the averages reflected the
hopes and fears of the entire market. The behavior patterns that he observed apply to markets
throughout the world.
Three Movements
Markets fluctuate in more than one time frame at the same time:
Nothing is more certain than that the market has three well defined movements which fit into
each other.
 The first is the daily variation due to local causes and the balance of buying and selling at that
particular time.
 The secondary movement covers a period ranging from ten days to sixty days, averaging
probably between thirty and forty days.
 The third move is the great swing covering from four to six years.

 Bull markets are broad upward movements of the market that may last several years,
interrupted by secondary reactions. Bear markets are long declines interrupted by secondary
rallies. These movements are referred to as the primary trend.
 Secondary movements normally retrace from one third to two thirds of the primary trend since
the previous secondary movement.
 Daily fluctuations are important for short-term trading, but are unimportant in analysis of broad
market movements.
Various cycles have subsequently been identified within these broad categories.
Primary Movements have Three Phases
The general conditions in the market:
Bull markets
 Bull markets commence with reviving confidence as business conditions improve.
 Prices rise as the market responds to improved earnings
 Rampant speculation dominates the market and price advances are based on hopes and expectations
rather than actual results.
Bear markets
 Bear markets start with abandonment of the hopes and expectations that sustained inflated
prices.
 Prices decline in response to disappointing earnings.
 Distress selling follows as speculators attempt to close out their positions and securities are sold
without regard to their true value.
Ranging Markets
A secondary reaction may take the form of a „line‟ which may endure for several weeks. Price
fluctuates within a narrow range of about five per cent.

Breakouts from a range can occur in either direction.
 Advances above the upper limit of the line signal accumulation and higher prices;
 Declines below the lower limit indicate distribution and lower prices;
 Volume is used to confirm price breakouts.
Trends
Bull Trends
A bull trend is identified by a series of rallies where each rally exceeds the highest point of the
previous rally. The decline, between rallies, ends above the lowest point of the previous decline.




Successive higher highs and higher lows.

The start of an up trend is signaled when price makes a higher low (trough), followed by a rally above
the previous high (peak):

Start = higher Low + break above previous High.

The end is signaled by a lower high (peak), followed by a decline below the previous low (trough):

End = lower High + break below previous Low.

A bear trend starts at the end of a bull trend: when a rally ends with a lower peak and then
retreats below the previous low. The end of a bear trend is identical to the start of a bull trend.
Large Corrections
A large correction occurs when price falls below the previous low (during a bull trend) or where
price rises above the previous high (in a bear trend).

 A bull trend starts when price rallies above the previous high,
 A bull trend ends when price declines below the previous low,
 A bear trend starts at the end of a bull trend (and vice versa).
ELLIOT WAVES THEORY BASICS
TRENDLINES

Breaking through support or resistance levels results in a change of traders‟ expectations (which
causes supply/demand lines to shift).
An Uptrend is defined by successively higher low-prices. A rising trend can be thought of as a
rising support level: the bulls are in control and are pushing prices higher. A Downtrend is
defined by successively lower high-prices. A falling trend can be thought of as a falling
resistance level: the bears are in control and are pushing prices lower.





MOVING AVERAGES
Moving averages are one of the oldest and most popular technical analysis tools. A moving
average is the average price of a financial instrument over a given time.
The moving average represents the consensus of investor’s expectations over the indicated period of
time.

The classic interpretation of a moving average is to use it in observing changes in prices. Investors
typically buy when the price of an instrument rises above its moving average and sell when the it falls
below its moving average.

TECHNICAL INDICATORS
There is a vast number of elaborated technical indicators:

MOVING AVERAGE–MA
RELATIVE STRENGTH INDEX — RSI :The Relative Strength Index Technical Indicator
(RSI) is a price-following oscillator that ranges between 0 and 100. When Wilder introduced the
Relative Strength Index, he recommended using a 14-day RSI.. Since then, the 9-day and 25-day
Relative Strength Index indicators have also gained popularity.
ADVANCE/DECLINE LINE: The “advance/decline line” shows, for some period, the
cumulative difference between advancing and declining issues.
CLOSING TICK: “Closing tick” is the difference between the number of shares that closed on
an uptick and those that closed on a downtick.
CLOSING ARMS: “Closing arms” or “trin” (trading index) is the ratio of average trading
volume in declining issues to average trading volume in advancing issues.
Z-BLOCK TRADES: “zBlock trades” are trades in excess of 10,000 shares.
HI-LO-CLOSE CHART: A hi-lo-close chart is a bar chart showing, for each day, the high
price, low price, and closing price.
CANDLESTICK CHART: A candlestick chart is an extended version of the hi-lo-close chart.
It plots the high, low, open, and closing prices, and also shows whether the closing price was
above or below the opening price.
POINT AND FIGURE CHARTS: Point-and-figure charts are a way of showing only major
price moves and their direction. A “major” up move is marked with an “X,” while a “major”
down move is marked with an “O.” A new column starts every time there is a change in direction
HEAD AND SHOULDERS FORMATION: Once a chart is drawn, analysts examine it for
various formations or pattern types in an attempt to predict stock price or market direction in the
case of head-and-shoulders formation. When the stock price “pierces the neckline” after the
right shoulder is finished, it’s time to sell.
ODD-LOT: The “odd-lot” indicator looks at whether odd-lot purchases are up or down.
HEMLINE: Followers of the “hemline” indicator claim that hemlines tend to rise in good times.
SUPER BOWL: The Super Bowl indicator forecasts the direction of the market based on
whether the National Football Conference or the American Football Conference wins. A win by
the National Football Conference is bullish.
BETA: Beta is a risk measure comparing the volatility of a stock's price movement to the
general market.
MOMENTUM: Momentum measures the speed of price change and provides a leading
indicator of changes in trend.
UPSIDE/DOWNSIDE: Measures of Upside/Downside separate the volumes for rising markets
from those in falling markets. Since volume is independent of price, it makes a valuable tool for
measuring the quality of a price trend.











Technical charts
GAIL (INDIA) ILD
A ) MACD

INTERPRETATION :
In which Green line isshorter-term 12-period EMA
Black line is 26-period EMA
Yellow line is zero line
In the above technical chart of GAIL (INDIA) LIMITED of Macdfor last five year data is available on the
basis of which we concluded buying and selling decision
5. When the shorter-term 12-period EMA crosses above the longer-term 26-period EMA, the
MACD line crosses above the Zero line.
6. When the 12-period EMA crosses below the 26-period EMA, the MACD line crosses below the
Zero line
7. Moving Average Crossover Buy Signal
A buy signal is generated when the MACD (Green line) crosses above the Blackline.
8. Moving Average Crossover Sell Signal
When the MACD crosses below the Black line, then a sell signal is generate
B) RELATIVE STRENGTH INDEX

INTERPRETATION :

In the above technical chart of GAIL (INDIA) LIMITED of the RELATIVE STRENGTH INDEX for last five year
data is available on the basis of which we concluded buying and selling decision

the Relative Strength Index (RSI) is an oscillator that measures current price strength in relation to
previous prices.

In Relative Strength Index there are two factor on which decision are ta ken. These two factor are
A ) Oversold
B )Overbrought

For example,

We taken oversold as 30 and overbrought as 70 and on the basis we take buying and selling decision
RSI Buy Signal
Buy when the RSI crosses above the oversold line (30).
RSI Sell Signal
Sell when the RSI crosses below the overbought line (70).


C ) STOCHASTIC





INTERPRETATION

In the above technical chart of GAIL (INDIA) LIMITED of Stochastic RSI for last five year data is available
on the basis of which we concluded buying and selling decision

The Stochastic RSI combines two very popular technical analysis indicators, Stochastics and the Relative
Strength Index (RSI). Whereas Stochastics and RSI are based off of price, Stochastic RSI derives its values
from the Relative Strength Index (RSI); it is basically the Stochastic indicator applied to the RSI indicator.
In Stochastic RSI there are two factor on which decision are taken. These two factor are
A ) Oversold
B )Overbrought

For example,

We taken oversold as 20 and overbrought as 80 and on the basis we take buying and selling decision
Stochastic RSI Buy Signal
Buy when the Stochastic RSI crosses above the Oversold Line (20).
Stochastic RSI Sell Signal
Sell when the Stochastic RSI crosses below the Overbought Line (80)










D )MOMENTUM



INTERPRETATION
In the above technical chart of GAIL (INDIA) limited of Momentum for last five year data is available on
the basis of which we concluded buying and selling decision.

Memomentum indicator compares where the current price is in relation to where the price was in the
past.It is a calculation of the difference between the current market price of the share and the price of
the same share a certain number of days ago.
Momentum Buy Signal

When the momentum indicator crosses above the zero line.The crossing of the zero line implies that the
price of the stock, future, or currency pair is reversing course, either by having bottomed out or by
breaking out above recent highs, a bullish signal.

Momentum Sell Signal

When the momentum indicator crosses below the zero line.The crossing of the zero line mean two
things : the future, or currency pair or stock’s price has topped out and is reversing or that the price has
brokenbelow recent lows, a bearish signal.
For example :

When the momentum indicator crosses above the zero line it mean to buy the share

When the momentum indicator crosses below the zero line it mean to sell the share














JINDAL STEEL AND POWER LTD.
1. MACD








2.Relative Strength Index













3) STOCHASTIC












4.MOMENTUM









POWER GIRD CO.OF INDIA LTD.
1. MACD







2.Relative Strength Index


3) STOCHASTIC







4. Momentum










TATA POWER CO.LTD
1. MACD







2.Relative Strength Index







3. Stochastic







4. Momentum









OIL AND NATURAL GAS CORPORATION LTD.

2. MACD






2.Relative Strength Index







3. Stochastic



4. Momentum