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Unformatted text preview: HO-ValuationAnalysisFramework1 of 9HANDOUT 2. VALUATION AND FINANCIAL ANALYSIS:THE BIG PICTURE AND CONCEPTUAL FRAMEWORKSBernell K. Stone2004, 2009. Bernell K. Stone. All rights reserved. Students in investment management courses taught by Bernell K. Stone are authorized to make one copy for personal educational use. Any other use or distribution is strictly prohibited.I.FRAMEWORK: LEVELS OF INFORMATIONA.ENVIRONMENTAL1.Demographic2.Cultural-sociological taking business worldwide, Russian potatoes for mcdonalds; internationalizing software. 3.Technology4.Legal-Regulatory5.Ecology6.Governmental, taxB.MACRO-MONETARY BIG PICTURE1.Macro: the real economya.GDP: the long-run real growth rateb.GDP: near-term outlookc.Employement; unemploymentd.Balance of payments, tradee.Business investmentf.Government spending, taxes; surplus/deficit2.Monetarya.Interest rates: term structureb.Price level; inflationc.Currency valuesd.Consumer debt, savings; disposable incomee.Business debt; government debtf.Financial sector, e.g:BanksWall StreetInsuranceKey Idea: Flow of funds investment savings by sectorC.SECTOR1.Types of Sector Classifications; Our FocusHere we are identifying factor-inputand line-of-businesssectors. Other useful sector structuring includes:a.Size (large, madcap, small)b.Geographyc.Capital IntensityHO-ValuationAnalysisFramework2 of 9d.Cyclicality2.Key Factor Sectors (Boulding Economic Factors Model)1a.Energyb.Materialsc.Know-how3.Stones Infrastructure Sectors (See Exhibit 2)4.Wall Street JournalSector List (See Exhibit 3)D.INDUSTRY5.COMPANY-SECURITYI.CONCEPTUAL APPROACHESA.Fundamental - Focus on valuation, FCF focal pointB.Technical Language of the WSJBoth fundamental and technical approaches are applied to all four levels: market, sector, industry, and individual company-security. (See Exhibit 4). However, environmental analysis is almost exclusively long-term and fundamental in nature....
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