INTRODUCTION
                          INTRODUCTION
      •  In  case  of  securities  market,  an  investor  has  number  of 
         securities available for investment. But, he would like to invest 
         in one, which has good prospects in future. In order to assess 
         the future earning potential of any security, an individual has 
         to    conduct     fundamental  analysis          of   the    company. 
         Fundamental  analysis  involves  in-depth  examination  of  all 
         possible factors, which have bearing on the prospects of the 
         company as well as its share price. For Fundamental analysis 
         we will do EIC Analysis. EIC analysis is broadly divided into 
         three stages in the sequential manner namely:
      •  Economic Analysis
      •  Industry Analysis
      •  Company Analysis
                            Economic Analysis
                            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 markets are in boom phase. 
           The reverse situation takes place when the economic activity is low. In 
           view of this, it is necessary to analyse all macro economic environment 
           properly.  The  parameters  which  are  used  to  analyse  macro  economic 
           environment are given below:
       •   Growth Rate of Gross Domestic Product (GDP)
       •   Inflation
       •   Interest Rates
       •   Budget
       •   Balance of Payment
       •   Monsoon and Agriculture
       •   Infrastructure facilities
                              Industry Analysis
                              Industry Analysis
       •    The industry analysis is done by classifying them on the basis of business 
           cycle. They can be classified into following categories:
       •   Growth Industry: The growth industries have unique feature that they are 
           independent  of  the  business  cycle.  The  industries  exhibit  growth 
           irrespective of the changes in the economy.
       •   Cyclical Industry: The growth of this industry depends on the business 
           cycle. When there is boom period in the business cycle of other industries 
           or economy as a whole, this industry also exhibit growth and vice versa. 
       •   Defensive  Industry:  This  category  of  industry  exhibits  constant  growth 
           during all phases of economy. They do not depend on business cycle of 
           other industries. For example, food industry.
       •   Cyclical  Growth  Industry:  This  type  of  industry  experiences  period  of 
           growth  and  stagnation  due  to  change  in  technology.  For  example, 
           computer hardware industry. 
                                        Company Analysis
                                        Company Analysis
         •     In order to study any company, data is collected with a view to analyse the 
               quantitative  as  well  as  qualitative  aspects  of  the  company.  The 
               quantitative factors- normally comprise of various financial ratios which 
               are used to examine the operating efficiency of the company. Financial 
               ratio  analysis  is  performed  by  comparing  two  items  in  the  financial 
               statements. The resulting ratio helps in proper interpretation as one figure 
               in isolation may fail to convey required information. In order to examine 
               financial strength of company, the financial statements namely, Profit and 
               Loss Account and Balance sheet, are used. Before one proceeds to know 
               how to use them, one must be clear about the information transmitted by 
               them. 
         •     Both documents are vital as they not only show the corporate health of 
               the organization but also as an indication to various shareholders of how 
               well  or  badly  the  organization  is  performing.  It  serves  as  a  guide  for 
               potential investors or lenders intending to be associated with a company 
               as a shareholder or debenture holders.
                  Company Analysis Cont….
                  Company Analysis Cont….
       •   The balance sheet shows the profit for an accounting period increased on 
           proprietor’s  funds.  The  trading  and  profit  and  loss  account  shows,  in 
           detail, how that profit or loss has arisen.
       •   After having understood various kind of financial information parameters 
           contained in Profit and Loss Account and Balance Sheet of a company, one 
           should know how to use them. With the help of this financial information, 
           investors and analyst conduct financial ratio analysis. Ratios are the means 
           of  presenting  information,  in  the  form  of  ratio  or  percentage,  which 
           facilitate a comparison among different figures. Often the same ratios of 
           similar companies are used to compare the performance of one company 
           with  another.  One  can  also  calculate  ratio  of  the  same  companies  for 
           different years to find the improvement or growth over a period of time. 
           Financial  ratio  analysis  is  helpful  in  assessing  an  organization’s  internal 
           strengths  and  weaknesses.  Present  and  potential  investors  can  quickly 
           assess whether the company is a good investment or not. Management 
           can compare current performance with previous periods and competing 
           companies.