Topic 5 - Topic 5: Fundamental Analysis vs. Technical...

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Unformatted text preview: Topic 5: Fundamental Analysis vs. Technical Analysis Fundamental Analysis Accounting aspects EPS, ROA, ROE, PE, Growth rate, Dividend Yield Technical Analysis Dow Theory Moving Average, Relative strength, Advance-Decline line Accounting Aspects How is EPS derived and what does EPS represent? Financial statements provide majority of financial information about firms Analysis implies comparison over time or with other firms in the same industry Focus on how statements used, not made Financial statements Profit & Loss Balance Sheet Cash Flows Statement The Financial Statements Earnings per share EPS =Net Inc./average number of shares outstanding Net Inc. before adjustments in accounting treatment or one-time events Certifying statements Auditors do not guarantee the accuracy of earnings but only that statements are fair financial representation Problems with Reported Earnings EPS for a company is not a precise figure that is readily comparable over time or between companies Alternative accounting treatments used to prepare statements Difficult to gauge the true performance of a company with any one method Investors must be aware of these problems Analyzing a Companys Profitability Important to determine whether a companys profitability is increasing or decreasing and why Return on equity (ROE) emphasized because is key component in finding earnings and dividend growth EPS =ROE Book value per share Du Pont Analysis ROE depends on the product of: 1) Profit margin on sales: EBIT/Sales 2) Total asset turnover: Sales/Total Assets 3) Interest burden: Pre-tax Income/EBIT 4) Tax burden: Net Income/Pre-tax Income 5) Financial leverage: Total Assets/Equity ROE =EBIT efficiency Asset turnover Interest burden Tax burden leverage Obtaining Estimates of Earnings...
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This note was uploaded on 10/04/2011 for the course FINANCE FINANCE taught by Professor Don'tknow during the Spring '09 term at American Internation College.

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Topic 5 - Topic 5: Fundamental Analysis vs. Technical...

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