chapter fourteen l.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
CHAPTER FOURTEEN PowerPoint Presentation
Download Presentation
CHAPTER FOURTEEN

Loading in 2 Seconds...

play fullscreen
1 / 22

CHAPTER FOURTEEN - PowerPoint PPT Presentation


  • 180 Views
  • Uploaded on

CHAPTER FOURTEEN. FINANCIAL ANALYSIS OF COMMON STOCKS. FINANCIAL ANALYSIS. WHAT IS FINANCIAL ANALYSIS? DEFINITION: the activity of providing inputs to the portfolio management process. FINANCIAL ANALYSIS. PROFESSIONAL FINANCIAL ANALYSIS ORGANIZATIONS

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'CHAPTER FOURTEEN' - lynton


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
chapter fourteen

CHAPTER FOURTEEN

FINANCIAL ANALYSIS OF COMMON STOCKS

financial analysis
FINANCIAL ANALYSIS
  • WHAT IS FINANCIAL ANALYSIS?
    • DEFINITION: the activity of providing inputs to the portfolio management process
financial analysis3
FINANCIAL ANALYSIS
  • PROFESSIONAL FINANCIAL ANALYSIS ORGANIZATIONS
    • THE ASSOCIATION OF INVESTMENT MANAGEMENT AND RESEARCH (AIMR)
      • acts as an advocate for the financial analyst profession
      • it hosts conferencing and workshops
        • designed to enhance the knowledge base of the memberships
      • it also publishes the Financial Analysts Journal
financial analysis4
FINANCIAL ANALYSIS
  • PROFESSIONAL FINANCIAL ANALYSIS ORGANIZATIONS
    • THE ASSOCIATION OF INVESTMENT MANAGEMENT AND RESEARCH (AIMR)
      • acts as an advocate for the financial analyst profession
      • it host conferencing and workshops
        • designed to enhance the knowledge base of the memberships
      • it also publishes the Financial Analysts Journal
financial analysis5
FINANCIAL ANALYSIS
  • REASONS FOR FINANCIAL ANALYSIS
    • TWO PRIMARY REASONS
      • to determine certain securities’ characteristics
      • to attempt to identify mispriced securities
financial analysis6
FINANCIAL ANALYSIS
  • REASON #1: DETERMNING SECURITY CHARACTERISTICS
    • estimate future sensitivity to major factors
    • estimate dividend yield
financial analysis7
FINANCIAL ANALYSIS
  • REASON #2: ATTEMPTING TO IDENTIFY MISPRICED SECURITIES
    • use fundamental analysis
    • approaches
      • valuation determines the intrinsic value compared to the current market value
      • estimate key financial variables such as
        • EPS next year
        • income growth next year
technical anaysis
TECHNICAL ANAYSIS
  • DEFINITION: a form of security analysis that attempts to forecast price changes based on historical price and volume trends
technical anaysis9
TECHNICAL ANAYSIS
  • Two Groups of Strategies Used:

1. Momentum and Contrarian Strategies

2. Moving Average and Trading Range Breakout

Strategies

technical anaysis10
TECHNICAL ANAYSIS

1. Momentum and Contrarian Strategies

  • METHDOLOGY:
    • examine the returns over a time period just ended to identify
      • momentum investors who seek out stocks recently rising in price for purchase; falling for sale
      • contrarians who follow the opposite strategy of most investors
        • contrarians base their strategy on the overreation theory
technical anaysis11
TECHNICAL ANAYSIS

2. Moving Average and Trading Range Breakout Strategies

  • MOVING AVERAGE STRATEGY:
    • calculate a moving average over the last 200 days of closing prices
    • divdied today’s closing price into the moving average (SHORT-TO-LONG RATIO)
    • if short-to-long ratio is greater than 1, buy
    • if ratio is less than 1, sell
technical anaysis12
TECHNICAL ANAYSIS
  • 2. Moving Average and Trading Range Breakout Strategies
    • TRADING RANGE BREAKOUT STRATEGY:
      • high and low prices for past 200 trading days are identified
      • if today’s close is greater than the high = buy!
      • if today’s close is less than the low = sell!
fundamental analysis
FUNDAMENTAL ANALYSIS
  • TOP-DOWN V. BOTTOM UP
    • TOP-DOWN APPROACH
      • attempts to forecast in the following order

1. economic activity

2. industry performance

3. firm’s performance

fundamental analysis14
FUNDAMENTAL ANALYSIS
  • TOP-DOWN V. BOTTOM UP
    • BOTTOM-UP APPROACH:
      • attempts to estimate prospects in the following order:

1. The firm

2. The Industry

3. The economy

fundamental analysis15
FUNDAMENTAL ANALYSIS
  • FINANCIAL STATMENT ANALYSIS
    • INTEGRAL PART OF FUNDAMENTAL ANALYSIS
      • it helps the analyst understand a firm’s current condition
      • where it is headed
      • what factors affect it
      • how the factors affect it
fundamental analysis16
FUNDAMENTAL ANALYSIS
  • FINANCIAL STATMENT ANALYSIS
    • Review of Accounting Statements
      • includes a study of the three major statements prepared monthly by most accountants:
        • the balance sheet
        • the income statement
        • the statment of cash flows
fundamental analysis17
FUNDAMENTAL ANALYSIS
  • FINANCIAL STATMENT ANALYSIS
    • RATIO ANALYSIS
      • DEFINITION: a technique used to examine a company’s financial statements
      • Use of Ratios
        • as an absolute standard
        • as a comparative indicator
        • as a trend over time
        • in combination with technical analysis
fundamental analysis18
FUNDAMENTAL ANALYSIS
  • FINANCIAL STATMENT ANALYSIS
    • RATIO ANALYSIS
      • Types of Ratios
        • internal liquidity
        • operating performance
        • risk analysis
        • growth analysis
fundamental analysis19
FUNDAMENTAL ANALYSIS
  • internal liquidity ratios:
    • indicate the ability of the firm to meet future short-term financial obligations
    • some liquidity ratios:
      • current ratio
      • quick ratio
      • cash ratio
      • receivables turnover
fundamental analysis20
FUNDAMENTAL ANALYSIS
  • operating performance ratios:
    • indicate how well the management is operating the business
    • some examples:
      • total asset turnover
      • net fixed asset turnover
      • equity turnover
fundamental analysis21
FUNDAMENTAL ANALYSIS
  • risk analysis ratios:
    • indicates the uncertainty of income flows for the total firm and for the individual sources of capital (debt and stock)
    • some examples:
      • debt to equity ratio
      • long-term debt/total capital ratio
fundamental analysis22
FUNDAMENTAL ANALYSIS
  • growth analysis ratios:
    • indicate how fast a firm should grow
    • it involves analysis using several other ratios
      • net profit margin
      • total asset turnover
      • total assets/equity