Page 190 - DCOM507_STOCK_MARKET_OPERATIONS

Unit 9: Fundamental Analysis 3: Company Analysis

2. Suppose that Beta’s position had been 99% of equity funds invested in the index Notes
fund, and 1% in the individual stock. Calculated the standard deviation of this
portfolio using each stock. How does each stock affect the variability of the equity
investment?
3. Based on your answers to questions 1 and 2, which stock is riskiest?

4. Regress each stock’s monthly returns on the Index returns to compute the “beta” for
each stock. Relate your answer to question 3.
5. What do you think about the move to a more active stock-picking strategy?

Source: http://brainmass.com/economics/finance/23762

9.6 Summary

 We have discussed the relevance of economy and industry analysis and how it is conducted.
In this unit, we have discussed the company level analyses.
 For earning profits, investors apply a simple and common sense decision rule, that is,
maximization.
 A careful examination of the company quantitative and qualitative fundamentals is,
therefore, very essential.

 As Fischer and Jordan have aptly put it: “If the economic outlook suggests purchase at the
time, the economic analysis of the industry analysis will aid the investor selecting their
proper industry in which to invest. Nonetheless, when to invest and in which industry is
not enough. It is also necessary to know which companies industries should be selected”.

9.7 Keywords

Capital Asset Pricing Model: Capital Asset Pricing Model (CAPM) or Security Market Line
(SML) depicts the risk return relationships based on historical data.
Dividend Discounted Method: Dividend discounted method is based on the premise that the
value of an investment is the present value, its future returns.
External Information: External information comprises the reports and analyses made by sources
outside the company viz. media and research agencies.

Internal Information: Internal information consists the data and events relating to the enterprise
as publicized by it.
Price Earnings Approach: According to this method, the future price of an equity share is calculated
by multiplying the P/E ratio by the price.
ROI Approach: Under this approach, attempts are made to relate the productivity of assets with
the earnings and outcomes.
Simulation: This method can be applied to forecast earnings and also security values. Simulation
is a technique that systematically repeats the application of a rule or formula to know outcomes
indifferent situations.
Trend Analysis: Trend analysis is a time series analysis that permits identification of seasonal,
cyclical and erratic fluctuations of the variables under consideration over a time period.

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