Fundamental Analysis - Others

NECESSITY OF PRODUCTS :-

The stocks you ought to buy, organizations are producing what type   of products must be monitored. Daily usages such as Milk,    Electricity, Medias, Transport, Roadways, are involved (or) Grandeur           products such as Cars, Electronic goods, must be noticed. Value investing people only consider daily needs purposes stocks. They    may be even safe. Moreover the cash flow of those companies, will      be continuously good. Grandeur products manufacturing companies           sales may be Ups and Downs based on the Economy, and the years respective Budgets.  

TECHNOLOGY :-

India’s economy is undergoing extensive modernization. The country wants to privatize existing state-owned enterprises and the emerging private sector is becoming increasingly competitive in national and international markets. Introducing modern automation and control systems is a key stage in this modernization process, since such systems form the core of any modern industrial plant.

RESULTS ACHIEVED SO FAR

The modernized companies are achieving higher productivity, while workers, students and lecturers alike are acquiring new skills. They are learning to apply modern control and regulation technology. The development partner, Siemens, is also identifying new markets for its automation technology, as an important pre-condition for demand is that the workers in the enterprises in India are able to operate modern plants.

Marketing Capabilities :-

Iron & Steel

Indian Steelmakers Metal Bulletin Research (MBR) has undertaken an in-depth review of the Indian Steel Industry and its outlook over the next six years. The Indian Steel Industry: Market projections and company strategies out to 2015 offers over 300 pages of independent research and analysis including: §                  The independent and unrivalled view of MBR on the demand, supply and pricing prospects of the Indian steel and raw materials industry; §                  Critical raw materials scenario; §                  Detailed strategic recommendations on competitive strategies to be adopted by Indian steelmakers and those looking to invest in India, for sustainable and profitable growth; §                  Unique and in-depth insights into the Indian steel market and company strategies by MBR consultants and experts, in tandem with Satyabir Bhattacharyya, the former Director - Corporate Strategy and Business Excellence in Ispat Industries Limited; §                  The Indian CEO – a simple point plan in re-defining the role and leadership style required to successfully meet the domestic and global challenges ahead. The Indian Steel industry: Market projections and company strategies out to 2015 is the first report of its kind to provide independent and on-the-ground research combined with strategic recommendations. This report comes amid a challenging economic climate directly impacting those looking to invest, or already operating, in steel today. The Indian Steel Industry: Market projections and company strategies out to 2015 further offers: §                  Key long-term supply-demand balances for steel and raw materials by-major product including: iron ore, DRI, pig iron, coking coal and HR coil/sheet; §                  Sales volumes and cost structures for the key steelmakers in India; §                  Key strategic insights in leading steelmakers including Tata Steel Limited, Steel Authority of India Limited (SAIL), Ispat Industries Limited, Essar Steel Limited, JSW Steel Limited among others §                  Consumption drivers of the end-user industry segments including: construction, automotive, roads, ports, airports, railways and power; §                  Government policies on steel and minerals and how these will affect the industry structure and prices over the next decade; §                  Investment strategies needed to ensure growth, profitability and sustainability uniquely for the Indian market including how to build organisational capabilities, select the appropriate steelmaking and casting technology and achieve cost efficiency; §                  How best to understand and take advantage of the Indian steel business culture.

Exports :-

·    Iron & steel are freely exportable.

·    Advance Licensing Scheme allows duty free import of raw materials for exports. Duty Entitlement Pass Book Scheme (DEPB) was introduced to facilitate exports.  Under this scheme exporters on the basis of notified entitlement rates, are granted due credits which would entitle them to import duty free goods.  The DEPB benefit on export of various categories of steel items scheme is currently applicable for steel exports.

·     Last five year’s export  of total finished steel (alloy + non alloy) is given below:-

Indian steel industry : Exports (in million tonnes)
Category	2007-08	2008-09	2009-10	2010-11	2011-12*
Total Finished Steel (alloy + non alloy)	5.08	4.44	3.25	3.64	4.04
Source: Joint Plant Committee; *provisional

Focusing Segment :-

The stocks you ought to buy, companies products are prepared for   which class of people, 

          (a)     Like I.T.C., Britannia           --  which belongs to all people,

          (b)     Or else like Oberoi Hotels  --  which belongs to High class people, 

          (c)     Or else Infosys                     --  for Local / International   Organizations. While the Economy struggles, focusing retail customers may not suffer more. The retail customers will only reduce their usage. But not totally withdraw. But Economy based customer oriented organizations suffer more. Due to these situation they   may even ( to limit the expenses ) stop certain services, totally until the Economy retains its Growth. In turn while the Economy          improves    this may also take a “U” turn.    

Fundamental Analysis - Quality of the Products

If we are ready to purchase a stock, first of all we must ascertain the quality of products manufactured is very important. On today’s date all the companies are manufacturing only qualified products.
 
The companies you mention may be either I.T.C., Britannia, Godrej, Titan, Voltas, etc…..We are purchasing and using only very few products. But mostly we are not using majority of the products by purchasing and using for our own use. To avoid this, we can enquire about those products quality and read through various available sources.
 
If the products are quality and anytime Demand persists. So that our investment may also be safe and growth occurs.
 
Manufacturing is based on finding efficiencies and removing wasteful steps that don't add value to the end product. There's no need to reduce quality with lean manufacturing – the cuts are a result of finding better, more efficient ways of accomplishing the same tasks.
 
To find the efficiencies, lean manufacturing adopts a customer-value focus, asking "What is the customer willing to pay for?" Customers want value, and they'll pay only if you can meet their needs. They shouldn't pay for defects, or for the extra cost of having large inventories. In other words, they shouldn't pay for your waste.
 
Waste is anything that doesn't add value to the end product. In Lean Manufacturing, there are eight categories of waste that you should monitor:
 
1. Overproduction – Are you producing more than consumers demand?
2. Waiting – How much lag time is there between production steps?
3. Inventory (work in progress) – Are your supply levels and work in progress inventories too 
    high?
4. Transportation – Do you move materials efficiently?
5. Over-processing – Do you work on the product too many times, or otherwise work 
     inefficiently?
6. Motion – Do people and equipment move between tasks efficiently?
7. Defects – How much time do you spend finding and fixing production mistakes?
8. Workforce – Do you use workers efficiently?
 
Lean Manufacturing Process :-
The Lean Manufacturing process has three key stages:
 
Stage 1 – Identify Waste
 
According to the Lean Manufacturing philosophy, waste always exists, and no matter how good your process is right now, it can always be better. Lean Manufacturing relies on this fundamental philosophy of continuous improvement, known as
 
Kaizen.
 
One of the key tools used to find this waste is a Value Stream Map (VSM). This shows how materials and processes flow through your organization to bring your product or service to the consumer. It looks at how actions and departments are connected, and it highlights the waste. As you analyze the VSM, you'll see the processes that add value and those that don't. You can then create a "future state" VSM that includes as few non-value-adding activities as possible.

Stage 2 – Analyze the Waste, and Find the Root Cause

For each waste you identified in the first stage, figure out what's causing it by using Root Cause Analysis. If a machine is constantly breaking down, you might think the problem is mechanical and decide to purchase a new machine. But Root Cause Analysis could show that the real problem is poorly trained operators who don't use the machine properly. Other effective tools for finding a root cause include Brainstorming and Cause and Effect Diagrams.

Stage 3 – Solve the Root Cause, and Repeat the Cycle
Using an appropriate problem-solving process, decide what you must do to fix the issue to create more efficiency.

Tools to Reduce Waste

Once you have identified wastes using the three key stages above, you can then apply this next set of tools to help you reduce waste further:

Just in Time – 

This is the core idea of Lean Manufacturing and is based on the "pull" model. To minimize stock and resources, you only purchase materials, and produce and distribute products when required. You also produce small, continuous batches of products to help production run smoothly and efficiently. By reducing batch size, you can also monitor quality and correct any defects as you go. This reduces the likelihood of quality being poor in future batches.
 
(In manufacturing, a key way of doing this is to use Kanban, below.)

Kanban – This is one of the key ways to involve people in the lean manufacturing process. Here, you support the Just In Time model by developing cues in the system to signal that you need to replace, order, or locate something. The focus is on reducing overproduction, so that you have what you need, only when you need it.

Zero Defects – This system focuses on getting the product right the first time, rather than spending extra time and money fixing poor-quality products. By using the Zero Defects system, you'll reinforce the notion that no defect is acceptable, and encourage people to do things right the first time that they do something.

Single Minute Exchange of Die (SMED) – 

This helps you build flexibility into your production. For example, in the automotive industry, it could take days to change a line to produce a different car model. With SMED, the assembly process and machinery are designed to support quick and efficient changeovers. (Here, a "die" is a tool used to shape an object or material.)

The 5S Philosophy – 

Lean Manufacturing depends on standardization. You want your tools, processes, and workplace arrangements to be as simple and as standard as possible. This creates fewer places for things to go wrong, and reduces the inventory of replacement parts that you need to hold. To accomplish a good level of standardization, use the 5S System.

Tip:
 
These techniques offer proven solutions for fixing waste within your organization. However, remember first to apply the three-stage Lean Manufacturing process, and to deal with any issues that this raises.
 
Key Points
 
Lean Manufacturing focuses on optimizing your processes and eliminating waste. This helps you cut costs and deliver what the customer wants and is willing to pay for.
 
With a lean philosophy, you enjoy the benefit of continuous improvement. So, rather than making rapid, irregular changes that are disruptive to the workplace, you make small and sustainable changes that the people who actually work with the processes, equipment, and materials will take forward.
 
This systematic and simple approach is very effective across all types of industries. What's more, ultimately, a process without waste is much more sustainable.

Apply This to Your Life

1. Overproduction – Do you provide more data or information than is needed? Do you create reports more often than required for example? Or do you spend unnecessary amounts of time formatting these reports?
2. Waiting – Do you spend too much time waiting for information or data from others, before you can do your work? What can you do about this?
3. Inventory (work in progress) – Do you have a large stock of materials? Are your supply levels and work-in-process inventory too high?
4. Transportation – Do things flow efficiently? Could you combine deliveries, or deliver things more quickly?
5. Over-processing – Do you needlessly work on something more than once?
6. Motion – How is work passed along in your team? Do people understand what they're required to do at each step? Do people and equipment move between tasks efficiently?
7. Defects – How often do you find mistakes ? Do you make the same mistakes on a regular basis? 
8. Workforce – Do you use your time wisely ? Do you spend most of your time on activities that add value and are a high priority ?

Fundamental Analysis - Age of Organization

ORGANIZATIONS AGE :-

A Long History for an Organization is much better. Being in the field   for several years it may have faced many Ups and Downs         experiences. How to solve a problem occurring from a specific side        may be known to the Management. In the Upcoming years , sudden    drawbacks if occurring , how to tackle them will also be able from their previous experiences. In that manner the Organizations 

          (a)     Management,

          (b)     About the promoters,

          (c)     About their products,

          (d)     Products Quality,

          (e)     Customer Service,

          (f)      Investor service etc……numerous factors can be known from their track records.

                            

An Organization without Long History can be kept at a Distance. Investing in New comer companies stocks , risk will be considerably more. To achieve success brave actions with courage alone is required.

                            

The very Long history organizations, can be of how many years ? Is there any certain restrictions in this ! No, to how much extent the years are, better it can be involved for Analysis. But a maximum of 20 – 25 years can be considered as reasonable. Apart from these the following factors should also be considered,    

they are

1. Strong Historical Earnings Growth? 
The first question a growth investor should ask is whether the company, based on annual revenue, has been growing in the past. Below are rough guidelines for the rate of EPS growth an investor should look for in companies of differing sizes, which would indicate their growth investing potential: 

Although the NAIC suggests that companies display this type of EPS growth in at least the last five years, a 10-year period of this growth is even more attractive. The basic idea is that if a company has displayed good growth (as defined by the above chart) over the last five- or 10-year period, it is likely to continue doing so in the next five to 10 years. 

2. Strong Forward Earnings Growth? 
The second criterion set out by the NAIC is a projected five-year growth rate of at least 10-12%, although 15% or more is ideal. These projections are made by analysts, the company or other credible sources. 

The big problem with forward estimates is that they are estimates. When a growth investor sees an ideal growth projection, he or she, before trusting this projection, must evaluate its credibility. This requires knowledge of the typical growth rates for different sizes of companies. For example, an established large cap will not be able to grow as quickly as a younger small-cap tech company. Also, when evaluating analyst consensus estimates, an investor should learn about the company's industry - specifically, what its prospects are and what stage of growth it is at. (See The Stages of Industry Growth.) 

3. Is Management Controlling Costs and Revenues? 
The third guideline set out by the NAIC focuses specifically on pre-tax profit margins. There are many examples of companies with astounding growth in sales but less than outstanding gains in earnings. High annual revenue growth is good, but if EPS has not increased proportionately, it's likely due to a decrease in profit margin. 

By comparing a company's present profit margins to its past margins and its competition's profit margins, a growth investor is able to gauge fairly accurately whether or not management is controlling costs and revenues and maintaining margins. A good rule of thumb is that if company exceeds its previous five-year average of pre-tax profit margins as well as those of its industry, the company may be a good growth candidate. 

4. Can Management Operate the Business Efficiently? 
Efficiency can be quantified by using return on equity (ROE). Efficient use of assets should be reflected in a stable or increasing ROE. Again, analysis of this metric should be relative: a company's present ROE is best compared to the five-year average ROE of the company and the industry. 

5. Can the Stock Price Double in Five Years? 
If a stock cannot realistically double in five years, it's probably not a growth stock. That's the general consensus. This may seem like an overly high, unrealistic standard, but remember that with a growth rate of 10%, a stock's price would double in seven years. So the rate growth investors are seeking is 15% per annum, which yields a doubling in price in five years. 

Fundamental Analysis - Why to consider Management ?

WHILE SELECTING STOCKS, WHY WE SHOULD GIVE IMPORTANCE TO MANAGEMENT? 


Even a small mischievous activity can ruin the totally invested amount by the investors. Neither the background unknown nor the entrusted promoters, Managements, the Indian investors faced losses of several millions being unable to calculate. 


In the book “The Intelligent Investor” Benjamin Graham enunciates about investment like this, 
An investment must provide safety to Capital and at the same time should create necessary income. Not coming under this limit is called Gambling. 


Our investment (Capital) when it may be secured ? The important criteria after analysis with no doubt will definitely be Qualified Management. You are telling about Qualified Management ! But I am only a small investor. So how can I find out whether a management is qualified or not ? 


Generally, qualified management companies stock prices may be high when compared to their Competitors ! Some minimum filters are presented below for analyzing about managements Quality :- 


a) Company and its team involved in that specified field ? Either 20 – 25 years ? or Even more ? Greater will be much better ! 

b) Until this period the said company has deceit the Depositors, Document holders, and stock investors ?

c) Either the Promoters or Management involved in Bribe or Scam connected news ?

d) Either the Organization, Promoters, Management, Government, Allied Organizations, or General public faced any ------------------?

e) The Promoters involved in (with the help of some speculators buying and selling ) varying the stock prices ?

f) Obeying the Laws or even more a step ahead prudently functioning Management ?

g) Considering the Employees and giving Importance, as a mark of respect to act loyal, are all the facilities Provided ?

h) Is the Management considering customers as Assets in doing service ?

i) Considering the Executing business as Almighty, and functioning as Efficiently ?

j) Either the actions declared and Executed by the Management differ?

k) Either the service nor the benefits offered to the share holders are better ?

Like the above filters, many criteria’s can be included in Analyzing about a Managements standard. This is not the End. It is only a start. Moreover the facts considering as important by yourself can also be included. In total before investing in stocks, the companies management standard can be considered better must be borne in mind. 

Fundamental Analysis: Qualitative Factors - The Industry

Each industry has differences in terms of its customer base, market share among firms, industry-wide growth, competition, regulation and business cycles. Learning about how the industry works will give an investor a deeper understanding of a company's financial health. 


Customers

Some companies serve only a handful of customers, while others serve millions. In general, it's a red flag (a negative) if a business relies on a small number of customers for a large portion of its sales because the loss of each customer could dramatically affect revenues. For example, think of a military supplier who has 100% of its sales with the U.S. government. One change in government policy could potentially wipe out all of its sales. For this reason, companies will always disclose in their 10-K if any one customer accounts for a majority of revenues.

Market Share

Understanding a company's present market share can tell volumes about the company's business. The fact that a company possesses an 85% market share tells you that it is the largest player in its market by far. Furthermore, this could also suggest that the company possesses some sort of "economic moat," in other words, a competitive barrier serving to protect its current and futureearnings, along with its market share. Market share is important because of economies of scale. When the firm is bigger than the rest of its rivals, it is in a better position to absorb the high fixed costs of a capital-intensive industry.

Fundamental Analysis - About the Management

QUALITY OF MANAGEMENT 
After Analyzing Economy and sectors, the various factors required to purchase a stock are, 

(i) Trusted Management, 
(ii) Efficient and Impartial characteristics. 

How a government is important for a country, likewise a head of the family for the house, a teacher for a class, similarly to that much level, a management is very important.

CORPORATE GOVERNANCE 
Corporate governance describes the policies in place within an organization denoting the relationships and responsibilities between management, directors and stakeholders. These policies are defined and determined in the company charter and its bylaws, along with corporate laws and regulations. The purpose of corporate governance policies is to ensure that proper checks and balances are in place, making it more difficult for anyone to conduct unethical and illegal activities. 

Good corporate governance is a situation in which a company complies with all of its governance policies and applicable government regulations (such as the Sarbanes-Oxley Act of 2002) in order to look out for the interests of the company's investors and other stakeholders.

Although, there are companies and organizations (such as Standard & Poor's) that attempt to quantitatively assess companies on how well their corporate governance policies serve stakeholders, most of these reports are quite expensive for the average investor to purchase.

Fortunately, corporate governance policies typically cover a few general areas: structure of the board of directors, stakeholder rights and financial and information transparency. With a little research and the right questions in mind, investors can get a good idea about a company's corporate governance.

Financial and Information Transparency
This aspect of governance relates to the quality and timeliness of a company's financial disclosures and operational happenings. Sufficient transparency implies that a company's financial releases are written in a manner that stakeholders can follow what management is doing and therefore have a clear understanding of the company's current financial situation.

Stakeholder Rights
This aspect of corporate governance examines the extent that a company's policies are benefiting stakeholder interests, notably shareholder interests. Ultimately, as owners of the company, shareholders should have some access to the board of directors if they have concerns or want something addressed. Therefore companies with good governance give shareholders a certain amount of ownership voting rights to call meetings to discuss pressing issues with the board.

Another relevant area for good governance, in terms of ownership rights, is whether or not a company possesses large amounts of takeover defenses (such as the Macaroni Defense or the Poison Pill) or other measures that make it difficult for changes in management, directors and ownership to occur. (To read more on takeover strategies, see The Wacky World of M&As.)

Structure of the Board of Directors
The board of directors is composed of representatives from the company and representatives from outside of the company. The combination of inside and outside directors attempts to provide an independent assessment of management's performance, making sure that the interests of shareholders are represented.

The key word when looking at the board of directors is independence. The board of directors is responsible for protecting shareholder interests and ensuring that the upper management of the company is doing the same. The board possesses the right to hire and fire members of the board on behalf of the shareholders. A board filled with insiders will often not serve as objective critics of management and will defend their actions as good and beneficial, regardless of the circumstances.

Information on the board of directors of a publicly traded company (such as biographies of individual board members and compensation-related info) can be found in the DEF 14A proxy statement.

We've now gone over the business model, management and corporate governance. These three areas are all important to consider when analyzing any company. We will now move on to looking at qualitative factors in the environment in which the company operates.