...■ Fundamental Analysis: Fundamental analysis is a technique that attempts to determine a security’s value by focusing on underlying factors that affect a company's actual business and its future prospects. On a broader scope, you can perform fundamental analysis on industries or the economy as a whole. The term simply refers to the analysis of the economic well-being of a financial entity as opposed to only its price movements Fundamental analysis serves to answer questions, such as: • Is the company’s revenue growing? • Is it actually making a profit? • Is it in a strong-enough position to beat out its competitors in the future? • Is it able to repay its debts? • Is management trying to "cook the books"? The term fundamental analysis is used most often in the context of stocks, but we can perform fundamental analysis on any security, from a bond to a derivative. As long as we look at the economic fundamentals, we are doing fundamental analysis. For the purpose of this tutorial, fundamental analysis always is referred to in the context of stocks. Intrinsic Value of Fundamental Analysis: Intrinsic value is one of the primary assumptions of fundamental analysis is that the price on the stock market does not fully reflect a stock’s “real” value. In financial jargon, this true value is known as the intrinsic value. For example, let’s say that a company’s stock was trading at $20. After doing extensive homework on the company, we determine...
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...eurojournals.com/finance.htm Fundamental Analysis Strategy and the Prediction of Stock Returns Jaouida Elleuch* Faculty of Economics and management sciences (FSEG), University of Sfax, Tunisia E-mail: Elleuchj@yahoo.fr Abstract This paper examines whether a simple fundamental analysis strategy based on historical accounting information can predict stock returns. The paper’s goal is to show that simple screens based on historical financial signals can shift the distribution of returns earned by an investor by separating eventual winners stocks from losers. Results show that historical accounting signals can be used to improve the entire distribution of future returns earned by an investor. In fact, despite the overall down activity of the market over the sample period chosen, results reveal that fundamental accounting signals can be used to discriminate from an overall sample generating future negative returns of -0,116 a winner portfolio that provide positive future return of 0,019 from a loser one generating a negative return of -0,229. The over-performance of the winner portfolio seems to be attributable to the ability of the fundamental signals to predict future earnings. In fact, results show that fundamental signals have a positive and significant correlation with future earnings performance and that the winner portfolio have a future earning’s realisation (0,100) that outperforms that of the loser portfolio (-0,012). Keywords: Fundamental Analysis, Market Efficiency, Stock...
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...Vol‐3 No. 1 March, 2013 The Fundamental Analysis: An Overview Sónia R. Bentes#, Raúl Navas* ISCAL, Av. Miguel Bombarda 20, 1069-035 Lisbon, Portugal smbentes@iscal.ipl.pt * COPORGEST, SA, Av. da Liberdade 245, 9º C 1250-143Lisbon, Portugal rdnavas@gmail.com Abstract - In this paper we discuss the fundamental analysis by covering a number of studies in this field of research. This constitutes a useful tool to evaluate the companies’ financial performance. Particularly, the discussion in this paper illustrates how this kind of approach can help in analyzing a companies’ stock price. Additionally, a debate on its potentialities is also provided. Keywords – Fundamental Analysis, Return on Equity, Return on Investment, Price Earnings Ratio, Price to Book Value # foreign competition in a particular sector in order to identify the best company of the sector. ii) Bottom-up approach: in this method, the analyst starts the searching analysis within a specific sector irrespective of its industry/region. The fundamental analysis is carried out with the aim of predicting company’s future performance. It is based on the belief that the market price of an asset tends to move towards its “real value” or its “intrinsic value”. Thus, if the intrinsic value of an asset is higher than its market value, there may be a situation where it is time to buy. Otherwise, investors should sell. In the next section, the theoretical framework of the fundamental analysis is reviewed. The paper ends with...
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...Was fundamental analysis redundant in the period during the Global Financial Crisis (GFC)? 3/21/2014 ABC Was fundamental analysis redundant in the period during the Global Financial Crisis (GFC)? Fundamental analysis is the process of evaluating the value of any security and certificate by analyzing the real time factors, which are based on qualitative and quantitative factors. Economic and the social factors also effect while you are finding out the intrinsic value of any security or asset. Fundamental analysis when made for evaluating the value of security all the factors that can affect the security considered like macroeconomic factors, microeconomic factors and the company based factors. Not only have the external factors about the internal factors also affected the value of any asset (Bedford, 2008). You need to consider in fundamental analysis: * Market analysis * Company analysis * Industry analysis For an investor the fundamental analysis is very important to invest in any asset or security. The investor when found the intrinsic value of security with its current value than this make easy for them to invest or not. Global financial crises are the period, which is experienced by the society, and the marketers, a situation of great difficulty in the world where nothing is stable in any state of the world. The economic situation in the global crises become worst and the purchase power of the customer reduces, and this is a difficult time for the...
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...Fundamental & Technical Analysis of Prime Bank Ltd. Technical analysis looks at the price movement of a security and uses this data to predict its future price movements. Fundamental analysis on the other hand looks at economic factors which are known as fundamentals. Fundamental & Technical Analysis of Prime Bank Ltd. Group:16 Department of Finance. Jagannath University, Dhaka Page Fundamental & Technical Analysis of Prime Bank Ltd. Submitted To, Kawser Ahmed Shiblu Lecturer Department of Finance Jagannath University, Dhaka Submitted By Uttam Golder On the behalf of Group: 16 Department of finance Jagannath University, Dhaka Department of Finance. Jagannath University, Dhaka Page i Fundamental & Technical Analysis of Prime Bank Ltd. List of Group Member Serial 1. 2. 3. 4. 5. Name Uttam Golder Rajib Chandra Banik Md. Monir Hossain Joy Roy Choudhury Md. Al-Masur Rahaman Khan ID M 130203004 M 130203025 M 130203069 M 130203033 M 130203077 Department of Finance. Jagannath University, Dhaka Page ii Fundamental & Technical Analysis of Prime Bank Ltd. Letter of Transmittal February 15, 2015 Kawser Ahmed Shiblu Lecturer Department of Finance, Jagannath University, Dhaka Subject: - Submission of report on “Fundamental & Technical Analysis of Prime Bank Ltd.” Dear Sir, With due respect, we would like to state that it is a matter of great pleasure and honor for us to submit our report on...
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...Efficient Market Hypothesis Efficient Market - Introduction An efficient capital market is a market that is efficient in processing information Assumptions for Market to be Efficient 1. 2. In other words, the market quickly and correctly adjusts to new information In an efficient market, the prices of securities observed at any time are based on “correct” evaluation of all information available at that time In an efficient market, prices immediately and fully reflect all available information Large no. of investors analyze and value securities for profit New information comes to the market in a random fashion 3. 4. Stock Prices adjust quickly to the new information Stock Prices should available information reflect all Definition "In an efficient market, competition among the many intelligent participants leads to a situation where, at any point in time, actual prices of individual securities already reflect the effects of information based both on events that have already occurred and on events which, as of now, the market expects to take place in the future. In other words, in an efficient market at any point in time the actual price of a security will be a good estimate of its intrinsic value.“ - Professor Eugene Fama Efficient Market Hypothesis - Forms Efficient Market Hypothesis Weak Form Semi-Strong Form Strong Form The EMH Graphically All information, public & private • In this diagram, the circles represent the amount of information that each...
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...Case Analysis: Dimensional Fund Advisors 1. Describe the philosophy of DFA. What sort of market behavior are they counting on? * DFA believes in three principles: 1. The Efficient Market Theory. That is, the stock market is efficient and no one has the ability to consistently pick stocks that will beat the market. Over any given period, some lucky investors will outperform the market while others will underperform. DFA felt that the market price of any firm’s stock incorporated all public information and therefore did not do any fundamental analysis on the firm in question. 2. The value of sound academic research. For example, DFA’s founders believed that small-stock investing could yield high returns to investors. They formulated this belief on the Ph.D. dissertation research of Rolf Banz of the University of Chicago, which showed that small stocks had consistently outperformed large stocks between 1926 and the late 1970s. 3. The ability of skilled traders to contribute to a fund’s profits even when the investment is inherently passive. DFA’s investment fund had a semi-active strategy between those of actively managed funds and those of pure index funds. * DFA counts on market behavior that reflects the following concepts: 1. The Beta is Dead. Stocks with high-beta do not have consistently higher returns than low-beta stocks. That is, greater risk does not guarantee greater reward. 2. The Size Effect (Small Minus Big). Based on the research...
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...do you mean by stock split? What do you mean by Bonus Issue? What do you mean by Buy Back? What do you mean by Right issue of shares? What are ADR’s? ------------------------------------------------- What is the difference in between IPO and FPO? Risk-Return analysis Risk meaning and Measurement – Types of Risk – Systematic, Unsystematic risk, Beta Coefficient, Alpha, CAPM theory etc. What is return? Expected rate of Return, computation formulae. Case studies on risk-return using standard deviation, variance, probability and other statistical tools. ------------------------------------------------- What is beta? ------------------------------------------------- What is cost of equity? ------------------------------------------------- What is WACC? ------------------------------------------------- ------------------------------------------------- "Stock A generates a return of 20% while stock B generates a return of 25%. The risk free-rate is 5%. Stock A has a standard deviation (risk) of 20%, while stock B has a standard deviation of 15%. Which stock gives a better risk adjusted return?" Security Research – (Fundamental) ------------------------------------------------- Fundamental Analysis –...
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...course number, name of student and instructor, date, etc. (1 points) * Table of contents. (1 points) * Proper paging of your term paper. (1 points) * Abstract –consisting of findings, method used, objective of study. (5 points) * Background/Introduction (7 points) * Problem Statement that highlights what prompted you to select the topic for the term paper. (5 points) * Fundamental analysis with tables and graphs if possible/preferable (15 points) * Literature review (Summarize the literature on the topic. What are the fundamental questions formulated from the problem you described above? How did the researchers analyze the processes and design methods to parameterize the processes? What are the major findings from the studies? In this section you should also critically analyze the literature. Is what have been addressed adequate, or insufficient? What are the gaps? * How can you improve the current understanding with your own analysis? Be imaginary and creative with emphasis on fundamentals. (30 points): * Findings (15 points) * Conclusions (5 points) * List of references with standard formats and appropriate citations in the text (5points) * Major statements, facts, and conclusions must be...
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...Fundamental Analysis Fundamental analysis is the study of a company’s financial strength, based on historical data; sector and industry position; management; dividend history; capitalization; and potential for future growth. It is a stock valuation method that uses financial and economic analysis to predict the movement of stock prices. The analysis attempts to find the intrinsic value of a security that helps investors to make decisions. The fundamental information that is analyzed can include a company's financial reports, and non-financial information such as estimates of the growth of demand for products sold by the company, industry comparisons, and economy-wide changes, changes in government policies etc. The various steps involved in the fundamental analysis are: 1. Macroeconomic analysis, which involves considering the overall health of the economy and its future. 2. Industry analysis, which involves the analysis of the industry in which the company is operating. 3. Situational analysis of the company, studying their business model, management, products and services, its current position, its future, etc. 4. Financial analysis of the company, which involves analyzing the financial statements like balance sheets, income statements, cash flows and ratios. 5. Valuation, which attempts to find the intrinsic value of the securities of the company... The three distinctive parts of fundamental analysis are: 1. Economic analysis 2. Industry analysis 3. Company analysis ...
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...PLEKHANOV RUSSIAN UNIVERSITY OF ECONOMICS INTERNATIONAL BUSINESS SCHOOL COURSE WORK « Business Valuation on the basis of Damodaran model » Corporate Finance Student: Pavel Terefera Supervisor: Irina Sokolnikova Moscow 2015 Contents Introduction _____________________________________________ 3 Chapter 1. Valuation______________________________________ 4 1.1 Valuation in portfolio management_________________________ 7 1.2 Valuation in acquisition__________________________________ 10 1.3 Valuation in corporate finance_____________________________ 10 Chapter 2. Approaches to Valuation___________________________ 11 2.1 Profitable Approach_____________________________________ 12 2.1.2 Income capitalization approach __________________________ 12 2.1.3Method of discounted cash flows__________________________ 14 2.1.4 Discounted Cash Flow Valuation on example of JSC NLMK____ 20 2.2 Relative Valuation Approach______________________________ 23 Conclusion _______________________________________________ 28 Bibliography ______________________________________________ 29 Introduction. Knowing the value of an asset may not be a guarantee for success for investor, but it does help us make more informed judgments. A postulate of sound investing is that an investor does not pay more for an asset than its worth. In conditions of market economy when all transactions are made "on fear and risk" their participants, both seller...
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...and apply technologies for valuing firms and for strategic planning to generate value within the firm. • • Features of the approach: A disciplined approach to valuation: minimizes ad hockery – Built on theoretical and empirical findings from scientific research I ‘_ Marries fundamental analysis and financial statement analysis – Exploits accounting as a system for measuring value added – Exposes good (and “bad”) accounting from a valuation perspective L Financial Statement Analysis and Security Valuation • • • Integrates financial statement analysis with corporate finance Focuses on technologies that can be used in practice – Based on real world examples Adopts activist point of view to investing – The market may be inefficient 0-1 What Will You Learn from the Course Part I Financial statements and valuation Ch. 1-7 • How intrinsic values are calculated • What determines a firm’s value • How businesses are analyzed to assess the value they create • How financial analysis is developed for strategy and planning • The role of financial statements in determining firms’ values • How to pull apart the financial statements to get at the relevant information • How ratio analysis is employed in valuation • How growth is analyzed and valued • How to calculate the P/E and P/B ratio and what they should be • The value of operations • How to make forecasts and develop valuations • How to assess the quality of the accounting 0-2 _c I- By the end of the course...
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...JB Hi Fi Limited(JBH) | April 17 2011 | The following document is a complete valuation JBH based on DCF and Relative Valuation. All input justifications are provided and a final recommendation is presented. | | Business Summary JB Hi Fi (JBH) has experience unprecedented growth in the past few years in excess of 10% despite the Global Financial Crisis and weak consumer spending environments. JBH is likely to continue its strong growth (although below expectations) through a combination of recovering market conditions, a new era of smart products and with official interest rates likely to be placed on hold by the RBA until the end of 2011. (A) CHOICE OF MODELS ------------------------------------------------- 1. Discount Models Why FCFF Discount Model? DDM would not be a suitable model because JBH paid dividends which are significantly greater than or lower than FCFE to the firm between 2006 and 2010 thereby underestimating or overestimating the value of JBH (dividends less than 80% of FCFE or greater than 110% FCFE) . The debt to equity ratio has been volatile declining from 82.90% in 2003 to 23.73% in 2010 with a spike of 120.96% in 2006. Estimating future debt issues and repayments will prove to be difficult given that changes are expected because JBH has raised their senior debt facility by $105 million expiring by 2014 possibly to finance the roll out of up to 193 new stores by 2014 as well. The recent stock repurchases of $173 million and possible future...
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...Lecture 7: Valuation of Shares (Fundamental Analysis) Introduction Fundamental Analysis It helps us determine the value of a share by studying the intrinsic factors such as earnings potential, dividend growth, required rate of return, and factors relating to company, the industry, and the economy. Analysis of a company’s financial data helps us to predict the movement of that company's stock price. A potential (or current) investor uses fundamental analysis to examine a company’s operations and the market in which the company is operating to understand the stability and growth potential of that company. Company factors to examine include the dividends that company issues, the way a company manages its cash, the amount of debt a company has, and the growth of a company's costs and income. Fundamental analysis adherents believe a company’s “intrinsic value” will be eventually be reflected in the stock price through market forces, but that, while the market is efficient, some stocks (for any number of reasons) are either over- or under-valued in the short run. However, some experts suggest that a monkey throwing darts at the financial pages of a newspaper may do just as well. (see efficient market hypothesis and random walk hypothesis) Technical Analysis The study of price action in securities markets helps us determine the value of a share by many different methods and tools, but they all rely on the same principles, such as studying patterns of price movement, trends, and transaction...
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...Introduction Efficient market hypothesis is widely accepted by academic community as a cornerstone of modern financial theory. Fama (1970) gives detailed definition of this theory and states that efficient market is a market that stock prices quickly and fully reflect all available and newly released information, where majority of participants are rational in their decision making process and where an investor is not able to outperform the market through any analyses, because of actual price of stock shows its intrinsic value. Naturally such revolutionary hypothesis did not occur suddenly. In 1990 Louis Bachelier in his "Theory of Speculation" paragraph gave definition of informational efficiency of the market. This study was not being developed until 1953 when Maurice Kendall who postulated that stock prices movement follow the random walk theory. Further enhancement of these studies associated with the name of Eugene Fama who gave comprehensive resume of efficient market hypothesis, as well as empirical evidences to support it and defined three form of efficient market: weak, semi-strong and strong in 1970 (Dimson and Mussavian, 1998). Later several different researches have been carried out by financial academics which continuously underpinned efficient market hypothesis. Consequently this theory began widely use by investors for investment decision making process. However only after two decades this hypothesis began less dominance in the market. Several crashes, changing...
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