Fundamental Analysis

Fundamental Analysis - Security Analysis & Portfolio...

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Copyright © 1996 - 2006 Investment Analytics Fundamental Analysis Slide: 1 Fundamental Analysis Copyright 1996-2006 Investment Analytics Security Analysis & Portfolio Management
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Copyright © 1996 - 2006 Investment Analytics Fundamental Analysis Slide: 2 Course Content ¾ Why & how to apply Fundamental Analysis ¾ Industry Analysis ¾ Financial Statement Analysis ¾ Intrinsic Stock Valuation Guideline Company Method
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Copyright © 1996 - 2006 Investment Analytics Fundamental Analysis Slide: 3 Firm Value ¾ Value of Assets = Value of Debt + Value of Equity ¾ V = D + E ASSETS DEBT EQUITY BALANCE SHEET
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Copyright © 1996 - 2006 Investment Analytics Fundamental Analysis Slide: 4 Fundamental Analysis - Why? ¾ If you are going to buy the firm ¾ If you are going to lend money ¾ If you are going to make an equity investment
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Copyright © 1996 - 2006 Investment Analytics Fundamental Analysis Slide: 5 Fundamental Analysis - What? ¾ Buy Firm: All assets Going concern or breakup value? Change management, capital structure? Control premium ¾ Lend Money Debt How risky? Debt coverage ratios, etc.
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Copyright © 1996 - 2006 Investment Analytics Fundamental Analysis Slide: 6 Equity Investment ¾ You are buying into the firm as is: Existing management, strategy, capital structure ¾ EMH says share price is fair value: All information (historic, published, inside) is in the share price ¾ Fundamental analysis only makes sense if: You have a superior method of analysis You believe in possibility of market anomalies Private firm
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Copyright © 1996 - 2006 Investment Analytics Fundamental Analysis Slide: 7 Questions for the Equity Investor ¾ How is this stock going to perform? Any clear trends in company performance? ¾ Are trends sustainable? What could go wrong? Firm’s management Competition Industry restructure ¾ How does this firm make its money? Is it efficient, well managed? ¾ How does it compare to competitors? Common factors affecting all firms in this industry? ¾ How much of this is built into the share price?
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Copyright © 1996 - 2006 Investment Analytics Fundamental Analysis Slide: 8 Applications of FSA ¾ Analyzing trends ¾ Evaluating company performance How is it generating profits? How efficiently is it utilizing assets? How risky a firm is it? ¾ Comparative analysis of competitors & industry ¾ Forecasting returns to shareholders
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Copyright © 1996 - 2006 Investment Analytics Fundamental Analysis Slide: 9 Industry Analysis - Porter’s Five Forces Model RIVALRY AMONGST COMPETITORS BARGAINING POWER OF SUPPLIERS BARGAINING POWER OF BUYERS THREAT OF NEW ENTRANTS THREAT OF SUBSTITUTES
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Copyright © 1996 - 2006 Investment Analytics Fundamental Analysis Slide: 10 Threat of Entry ¾ Importance of barriers to entry: Economies of scale First mover cost advantages Capital required Government/legal barriers Control of distribution Product differentiation ¾ Higher the barriers, higher the profitability ¾ Example: Telecoms industry
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Copyright © 1996 - 2006 Investment Analytics Fundamental Analysis Slide: 11
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This document was uploaded on 11/04/2011 for the course ECON 421 at CUNY York.

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Fundamental Analysis - Security Analysis & Portfolio...

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