Analysis of Investment

Analysis of Investment
Fundamental Analysis
Economic Analysis
Industry Analysis
Company Analysis

Special Analysis
Technical Analysis
Risk Analysis
Return Analysis

Economic Analysis

Economic Analysis
Actually national economy affects corporate
profits. As the economy grows the industry
will have a higher demand for investment.
Similarly if in the company investment is
made, it results in the growth of the
economy of the country.

Factors for Analyzing Economy

G.D.P
Savings & investment of people
Inflation & G.D.P
Interest Rate
Budget of the country
Tax structure
Balance payment
Infra structure facility
Demographic factors

Industry Analysis

Industry Analysis
Industry means firms / company having similar
technological structure of production / produces similar
products.
Example - Steel industries, Food industries, Cement
industries
Industry Analysis
Industry Life Cycle

Categories of Industry

Industry life cycle / Product life cycle

A product / a business has to go through
several stages & in total it creates a cycle
from its start / womb to end/ cradle.
Comprises of four stages
Stage 1 - Introduction
Stage 2 Growth
Stage 3 Maturity
Stage 4 - Decline

Stage 1 - Introduction

The product is new in the market

There is no competitor
It has not come to the knowledge of all
people
Creates a craze in the market but sale is
not high

Stage 2 - Growth

In this stage market knows the product

Growth of sales is high

Profit is high
Competitors enters the market and start the
production.

Stage 3 - Maturity

Competitor stands in the market

Sales increases but it is at a lowered rate

Stage 4 - Decline

Better product available in the

market than the companys product

No sales

No profit

Up gradation - Again the product has to be upgraded

with new technology to re-enter the market.

Categories of Industry
Growth Industries
These industries have special features like high rate
of earning & growth in expansion irrespective of the
business cycle. This expansion is mainly because of
technological changes.

Information technology industries.

Telecommunication industries

Pharmatutical industries

Cyclical Industries
In these industries, growth expansion & profitability
moves along with the business cycle. As per the situations
of each stage of business cycle, the growth of industries
also varies.
Cement industries
Textiles industries
Defensive Industries
It defies the nature of business cycle i.e. the growth / profitability is
static / fixed whether, there is a recession / depression because at
the time of depression these industries are under govt. protection.
Example: - Khadi & village industries
Sugar industries etc.

Cyclical Growth Industries

Adopts the changes in technology & introducing new model.
It challenges the business life cycle depression i.e. at the time
of depression it introduces new models / adopt different
technology. So, through it follows the business cycle but still
it grows because of challenging change implementation.
Example: - Automobile industries
Electronic industries.

Other special factors affecting

Industry analysis

Growth of industry
Cost of structure & profitability analysis
Nature of product
Nature of competition
Govt. policy
Labour
Research and development
Pollutions standard
SWOT analysis

Company Analysis

During Company Analysis

an investor has to analyze two things

Company Analysis
Factors to be considered for Company analysis
Competitive edge
In terms of market share, growth of annual sales and
stability of sales
Earning of the company
Capital structure
Ratios to be considered are debt to equity, interest
coverage and asset limit to debt ratio.
Operating efficiency
This is to be considered by taking into account the firms
operating leverage.

Financial Performances
Financial performances of a company can be judged on the
basis of two facts
Through financial statement analysis
Through ratio analysis
Management

The ability to get along with people

Leadership quality
Analytical competence
Ability to get things done
Judgment capability
Knowledge / idea about industry

SPECIAL ISSUE / MEASURES IN RATIO

ANALYSIS
Book value of shares = Equity Share + G.

Reserve / No. Of equity shares.

Dividend yield = Dividend per share / Market
Value of shares
Dividend per share = Dividend paid / no. of
shares.
E.P.S = P.A.T / no. of shares
P/E ratio = Market Value of shares / EPS

 Growth in earnings

Growth in earnings influences the value of

stock. But, growth depends upon two facts:

Returned earnings

Amount re-invested
Growth in earning = Retained earnings /
equity share capital

Intrinsic value: - Intrinsic value means true

economic value.
Intrinsic value = EPS X expected P/E ratio
Where,
Expected P/E ratio = Cash dividend per share / EPS
Discount rate Growth in earning
So, Intrinsic value = D / K - g

Economic Value Added (EVA)

Measures the surplus created by investment
EVA = Net profit after tax (Capital
invested x WACC)