Page 174 - DCOM507_STOCK_MARKET_OPERATIONS

Unit 9: Fundamental Analysis 3: Company Analysis

5. Future plans of expansion/diversification Notes
6. R & D
7. Market standing – competition and market share
8. Corporate social responsibility

9. Industrial relations scenario
10. Corporate image etc.
Besides these internal factors, the external environment related to the company survival and
image:
1. Statutory controls
2. Government policy
3. Industry life cycle stage

4. Business cycle stage
5. Environmentalism
6. Consumerism, etc.

9.1.2 Financial Analysis

Asset value vs. Earnings value: The asset value of a security is determined by estimating the
liquidating value of the firm, deducting the claims of firm’s creditors and allocating the remaining
net asset value of the firm over the outstanding shares of stock. The asset value is usually
estimated by consultation with: a specialist who appraises asset values and/or an accountant
who gives book value of the firm.
This method is suitable only for companies heading towards bankruptcy. For them, the firm’s
income and dividends will be declining and discontinuous. Hence, they will have negligible
value. On the other hand, for going concerns, the intrinsic value far exceeds the value of the
firm’s physical assets. There is a definite lack of relationship between book value and real value,
in the case of prosperous firms.

Therefore, investment analysis focus their attention on the trends of earnings and the related
factors like dividends, bonus issues, rights shares, and appreciation of the market value of the
share. It is believed that the appropriate indices for a company’s performance are market price
per share (MPS) and earnings per share (EPS).

Did u know? Financial analysts interested in making investments in equality shares of a
company will be concerned with the prospects of rise in value of the firm.

Self Assessment

Fill in the blanks:
1. The real test of an analyst’s competence lies in his ability to see not only the forest but also
the ..................................
2. Superior judgment is an outcome of intelligence, synthesis and .................................. drawing.

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