E.I.C.

Analysis

Before investing in any companies it is very important to do EIC analysis. What is EIC? Its E = Economy, I = Industry and C = Company. economic analysis (Definition) The study of forces that determine the distribution of scarce resources. Economic analysis provides insight into how markets operate, and offers methods for attempting to predict future market behavior in response to events, trends, and cycles. Economic analysis is also used by governments to determine tax rates and evaluate the financial health of the nation or state.

To begin with lets start with economy. Study the overall economic condition of the globe and see how it will impact or affect your country. Analyze the micro and macro economic factors which influences the economic growth of the country like GDP, inflation, interest rates, fiscal and monetary frame work, tax structure, credit policy, BOP, money supply, infrastructure, agriculture and monsoon.

industry analysis(Definition) A market assessment tool designed to provide a business with an idea of the complexity of a particular industry. Industry analysis involves reviewing the economic, political and market factors that influence the way the industry develops. Major factors can include the power wielded by suppliers and buyers, the condition of competitors, and the likelihood of new market entrants.

Then go for Industry. The industry has four life cycles a) Pioneering stage, b)Rapid growth stage, c) Maturity and stabilization stage and d) Declining stage. You should mainly focus on industries in these first three stages and try to avoid the declining stage. In industries one should analysise the following things namely structure of industry and nature of competition, licensing policy, nature and prospects of demand, entry barrier, pricing policy, expected growth rate, no. of firms in market and their market share, cost efficiency and profitability, cost and type of investments. Ie. industries producing capital good will require huge investments in form of infrastructure and machinery as compared to banking sector where investment will be inform of liquid cash.

Company Analysis (Defination) Company analysis, or corporate analysis, refers to actions undertaken for an in-depth evaluation and to gain an understanding of a particular company's past performance and future prospects. A thorough company analysis will focus on all aspects of the corporate entity, including management structure and expertise, finances, growth prospects, profitability, market share and intangible factors such as goodwill in the market and brand image. Results of the analysis are used in reaching business decisions by external parties, such as whether or not to invest in or go into a partnership with the analyzed company. Lastly its Company. After taking into consideration E and I you should select the company. For selecting a company you should pick such a company which have more growth potential. A scrip which is undervalued. For doing that you should study and analyze PE ratio, EPS (earning per share), ROE(return on equity), Book value per share, CAGR(sales and EPS), Dividend policy, share holding pattern, future projects of company, managements role or one can say quality of management etc apart from companys P&L and balance sheet. You should compare all these with the industry as a whole and also with the market leader in that particular industry. Eg. If you a choosing a company in banking sector compare that bank with banking sector ie. I and also with the market leader like SBI.