1.nlt wsbs stock lecture notes
- 1. Nyan Linn Tun 20th Feb 16
- 2. 2 1. What is Financial Markets? Financial markets perform the essential function of channeling funds from economic players that have saved surplus funds to those that have a shortage of funds At any point in time in an economy, there are individuals or organizations with excess amounts of funds, and others with a lack of funds they need for example to consume or to invest. Exchange between these two groups of agents is settled in financial markets The first group is commonly referred to as lenders, the second group is commonly referred to as the borrowers of funds.
- 3. Company Logo Typically a borrower issues a receipt to the lender promising to pay back the capital. These receipts are securities which may be freely bought or sold. In return for lending money to the borrower, the lender will expect some compensation in the form of interest or dividends. This return on investment is a necessary part of markets to ensure that funds are supplied to them.
- 5. Company Logo Financial Market Chart
- 6. 6 Functions of Financial markets Borrowing and Lending Financial markets channel funds from households, firms, governments and foreigners that have saved surplus funds to those who encounter a shortage of funds (for purposes of consumption and investment) Price Determination Financial markets determine the prices of financial assets. The secondary market herein plays an important role in determining the prices for newly issued assets
- 7. 7 Functions of Financial markets Coordination and Provision of Information The exchange of funds is characterized by a high amount of incomplete and asymmetric information. Financial markets collect and provide much information to facilitate this exchange. Risk Sharing Trade in financial markets is partly motivated by the transfer of risk from borrowers to lenders who use the obtained funds to invest
- 8. 8 Functions of Financial markets Liquidity The existence of financial markets enables the owners of assets to buy and resell these assets. Generally this leads to an increase in the liquidity of these financial instruments Efficiency The facilitation of financial transactions through financial markets lead to a decrease in informational cost and transaction costs, which from an economic point of view leads to an increase in efficiency.
- 9. Relationship Between Lenders and Borrowers Lenders Financial Intermediar y Financial Markets Borrowers •Individual •Companies •Banks •Insurance Companies •Pension Funds •Interbank •Stock Exchange •Money Market •Bond Market •Foreign Exchange •Individuals •Companies •Central Government •Municipalities •Public Corporations
- 10. Capital Market Capital market is a market for financial assets which have a long or indefinite maturity. Unlike money market instruments the capital market instruments become mature for the period above one year. The capital markets may also be divided into primary markets and secondary markets. Newly formed (issued) securities are bought or sold in primary markets, such as during initial public offerings. Secondary markets allow investors to buy and sell existing securities. The transactions in primary markets exist between issuers and investors, while in secondary market transactions exist among investors These institutions play the role of lenders in the capital market. Business units and corporate are the borrowers in the capital market.
- 11. Company Logo Instrument of Capital Market 1 STOCKS The market in which shares are issued and traded either through exchanges or over- the-counter markets. Also known as the equity market. 2 BONDS The environment in which the issuance and trading of debt securities occurs. The bond market primarily includes government- issued securities and corporate debt securities. 3 DEBENTURES A certificate issued by a corporation with the purpose of creating a debt. Debentures are generally unsecured by assets and are interest bearing securities. 4 TREASURY BILLS A short-term obligation that is not interest-bearing (it is purchased at a discount); can be traded on a discount basis for 91 days 5 FOREIGN EXCHANGE The market in which participants are able to buy, sell, exchange and speculate on currencies. 6 FIXED DEPOSITS FDs are the deposits that are repayable on fixed maturity date along with the principal and agreed interest rate for the period.
- 12. Role Of Capital Market 1. Mobilization of Savings : Capital market is an important source for mobilizing idle savings from the economy. It mobilizes funds from people for further investments in the productive channels of an economy. 2. Capital Formation : Capital market helps in capital formation. Capital formation is net addition to the existing stock of capital in the economy. 3. Provision of Investment Avenue : Capital market raises resources for longer periods of time. Thus it provides an investment avenue for people who wish to invest resources for a long period of time.
- 13. Role Of Capital Market 4. Speed up Economic Growth and Development : Capital market enhances production and productivity in the national economy by generation of employment and development of infrastructure. 5. Service Provision : As an important financial set up capital market provides various types of services. It includes long term and medium term loans to industry, underwriting services, consultancy services, export finance, etc. These services help the manufacturing sector in a large spectrum.
- 14. Debt vs Equity Financial markets are split into debt and equity markets. Debt titles are the most commonly traded security. In these arrangements, the issuer of the title (borrower) earns some initial amount of money (such as the price of a bond) and the holder (lender) subsequently receives a fixed amount of payments over a specified period of time, known as the maturity of a debt title. Debt titles can be issued on short term (maturity < 1 yr.), long term (maturity >10 yrs.) and intermediate terms (1 yr. < maturity < 10 yrs.). The holder of a debt title does not achieve ownership of the borrower’s enterprise. Common debt titles are bonds or mortgages. 14
- 15. Debt vs Equity Equity titles are somewhat different from bonds. The most common equity title is (common) stock. First and foremost, an equity instruments makes its buyer (lender) an owner of the borrower’s enterprise. Formally this entitles the holder of an equity instrument to earn a share of the borrower’s enterprise’s income, but only some firms actually pay (more or less) periodic payments to their equity holders known as dividends. Often these titles, thus, are held primarily to be sold and resold. Equity titles do not expire and their maturity is, thus, infinite. Hence they are considered long term securities. 15
- 16. What is Share A share is a document which is issued by a company, registered with the stock exchange, by which the holder of the share becomes one of the owners of the company. There are several different stock types and classifications, so it is important to understand what type your shares are and what their classifications are. Two of the biggest stock types are preferred stock shares and common stock shares/ Equity Shares. These type of shares you own will determine how you are paid, and the value of your stock if the company goes under, as well as the order debts are paid to shareholders. 16
- 17. Stocks and Companies Stocks are often classified based on the type of company, it is the company’s value, or in some cases the level of return that is expected from the company. Some companies grow faster than others, while some have reached what they perceive as their peak and don’t think they can handle more growth. In some cases, management just might be content with the level of business that they’ve achieved, thus stalling to make moves to gain further business.
- 18. Importance of Information Before investing in a particular company, it is very important to get to know the company on a personal level and find out what the company’s goals and objectives are for the short and long term. Some company’s are growth minded, while some are defensive minded and operate in services that are always needed such as food.
- 19. Importance of Knowledge Stocks can be a very risky investment, depending on the level of knowledge held by the person making the investment decisions. In order to prosper in the world of stock investing, a person must have a clear understanding of what they are doing, or they shouldn’t be doing it at all.
- 20. Preference Shares Preference Shares- must satisfy 2 conditions:- It shall carry a preferential right as to the payment of dividend at a fixed rate; In the event of winding up, there must be a preferential right to the payment of the paid-up capital.
- 21. Preference Shares Preference shares are a long term source of finance for a company. They are neither completely similar to equity nor equivalent to debt. The law treats them as shares but they have elements of both equity shares and debt. For this reason, they are also called ‘hybrid financing instruments’. These are also known as preferred stock, preferred shares, or only preferred in different part of the world.
- 22. Features of Preference Shares 1. Fixed Dividends Preference shares have fixed dividends. Also preference dividends are not tax deductible. 2. Preference over Equity Preference share dividend has to be paid before any dividend payment to ordinary equity shares & at the time of liquidation also, these shares would be paid before equity shares. 3. No Share in Earnings Preference shareholders can not claim on the residual earnings and residual assets.
- 23. Features of Preference Shares 4. Fixed Maturity Like debt, preference shares also have fixed maturity date. 5. Cumulative dividend It requires that all past unpaid preference dividend be paid before any ordinary dividends are paid. 6. Dividend from PAT Preference share dividend is paid out of the profits left after all expenses and even taxes.
- 24. Cumulative and Non- cumulative In the case of cumulative preference shares, if the profits of the company in any year are not sufficient to pay the fixed dividend on the preference shares, the deficiency must be made out of the profits of subsequent years (i.e., right to claim the arrears of dividend) In the case of non-cumulative preference shares, the dividend is only payable out of the profits of each year. If there are no profits for the year, the arrears of dividend cannot be claimed in the subsequent year.
- 25. Participating and Non-participating Participating preference shares are those which are entitled to participate in the surplus profits ( after they get a fixed rate of dividend on their shares). They may also have the right to share in the surplus assets of the company on its winding up. Non- participating preference shares are entitled only to a fixed rate of dividend. They do not have the right to share in the surplus profits and surplus assets of the company.
- 26. Convertible and Non-convertible Convertible preference shares are those which can be converted into equity shares within a certain period. Non-convertible preference shares are those which do not carry the right of conversion into equity shares.
- 27. Redeemable and Irredeemable Redeemable preference shares are those which may be redeemed after a certain period of time. Irredeemable preference shares are those which cannot be redeemed, and the capital is to be returned on the winding up of the company.
- 28. Advantages of Preference Shares Advantages from Company point of view 1. Fixed Return 2. No Voting Right 3. Flexibility in Capital Structure 4. No Charge on Assets 5. Widens Capital Market
- 29. Advantages of Preference Shares Advantages from Investors point of view: 1. Regular Fixed Income 2. Preferential Rights 3. Voting Right for Safety of Interest 4. Lesser Capital Losses 5. Fair Security
- 30. Disadvantages of Preference Shares Disadvantages for companies 1. Higher Rate of Dividend 2. Financial Burden 3. Adverse effect on credit-worthiness 4. Tax disadvantage
- 31. Disadvantages of Preference Shares Disadvantages for Investors 1. No Voting Right 2. Fixed Income 3. No claim over surplus 4. No Guarantee of Assets
- 32. Equity Shares All the shares which are not preference shares are equity shares. Equity shareholders have a residual claim on the income of the company. They may get higher dividends if the company is prosperous or may not get anything if the business flops. In the winding up, the equity shares are entitled to the assets remaining after the payment of the liabilities and the capital of the company.
- 33. Equity Shares Equity shares also known as Ordinary shares. Equity shares represent the ownership position in a company. The shareholders of equity shares are the legal owner of the company. Equity shares are the source of the permanent capital since they do not have a maturity date. Shareholders are entitled for dividend. The amount or rate of dividend is not fixed: the company’s board of directors decides it. An ordinary share is known as variable income security
- 34. Features of Equity Shares 1. Maturity: Equity shares provide permanent capital to the company and cannot be redeemed during the life time of the company 2. Claims on Income: Equity shareholders have a residual claim on the income of a company. They have a claim on income left after paying dividend to preference shareholders.
- 35. Features of Equity Shares 3. Claim on Assets: Ordinary shareholders have a residual claim on the company’s assets in the case of liquidation. 4. Right to control: Ordinary shareholders have the legal power to elect directors on the board. Ordinary shareholders are able to control management of the company through their voting rights and right to maintain proportionate ownership.
- 36. Features of Equity Shares 5. Voting rights: Ordinary shareholders are required to vote for election of directors and change in the memorandum of association. An ordinary share holder has votes equal to the number of shares held by him. Shareholders may vote in person or by proxy. A proxy gives a designated person right to vote on behalf of a shareholder at the company’s annual general meeting.
- 37. Features of Equity Shares 6. Pre-emptive Right: The law grants shareholders the right to purchase new shares in the same proportion as their current ownership. 7. Limited Liability: Ordinary shareholders are the true owners of the company, but their liability is limited to the amount of their investment in shares.
- 38. Advantages of Equity Shares Advantages to company: 1. Long-term and Permanent Capital 2. No Fixed Burden on the company's resources 3. Credit worthiness 4. Risk Capital 5. Dividend Policy
- 39. Advantages of Equity Shares Advantages to Investors: 1. More Income 2. Right to Participate in the Control and Management 3. Capital profits 4. An Attraction of Persons having Limited Income
- 40. Disadvantages of Equity Shares Disadvantages to company 1. Dilution in control 2. Over-capitalization 3. No flexibility in capital structure 4. High cost 5. Speculation
- 41. Disadvantages of Equity Shares Disadvantages to investors 1. Uncertain and Irregular Income 2. Capital loss During Depression Period 3. Loss on Liquidation
- 42. PREFERENCE SHARES These are more like debentures than like shares. They are entitle to a fixed rate of interest. The company may choose them to pay them back. The right to vote restricted to resolutions which directly affect the rights attached to his preference shares. Offers profitable and safe source of investment. ORDINARY SHARES Ordinary shareholders cannot be paid back except under a scheme involving reduction of capital. Ordinary shareholder is entitled to vote on all matters affecting the company. Rate of income and risk involved is more.
- 44. Primary Market Company requires Money/Capital for operations So, Company sell their shares directly to public Selling of shares for the 1st time is IPO(Initial Public Offering) Selling of Shares for the 2nd and 3rd time is called FPO(Follow on Public Offering) PRIMARY MARKET Company- Requires money/capital Money/Capital (In form of Equity/debts) Selling of Shares(In terms to increase the value of equity)- Value of Shares decided by the company People(Institution/ Individual)
- 45. Secondary Market People invest in share to get the profit in future by selling them. Company listed its shares on Stock Exchange and provide the opportunity to sell them on profit for investors(IPO/FPO). Trading of shares by the general people Process is Secondary Market Majority of trading done in Secondary Market IPO/FPO (Sell the shares using Stock Exchange platform) Selling of shares(Price Decided by Law of Demand & Supply) General Public Secondary Market
- 46. PRIMARY MARKETS Vs SECONDERY MARKETS Markets are divided into primary and secondary markets • Primary markets are markets in which financial instruments are newly issued by borrowers. • Secondary markets are markets in which financial instruments already in existence are traded among lenders. • Secondary markets can be organized as exchanges, in which titles are traded in a central location, such as a stock exchange, or alternatively as over-the-counter markets in which titles are sold in several locations. 46
- 47. IMPORTANT FUNCTION OF STOCK EXCHANGE Provide central and convenient meeting places for sellers and buyer of securities Increase the marketability and liquidity of securities Contribute to stability of prices of securities Smoothen price movement Help the investors to know the worth of their holdings Promote the habit of saving and investment Help capital formation Help companies and government to raise funds from the investors Provide forecasting service
- 48. Major Stock Exchanges: New York Stock Exchange (NYSE- USA) Toronto Stock Exchange (Canada) Amsterdam Stock Exchange London Stock Exchange Singapore Exchange Tokyo Stock Exchange Hong Kong Stock Exchange Bombay Stock Exchange (BSE- India)
- 50. Major Participants: • Individual Retail Investors • Institutional investors such as mutual funds, banks, insurance companies and hedge funds, and also publicly traded corporations trading in their own shares.
- 56. How to Read a Stock Table • Bid: A bid is an offer made by an investor to buy a security. If a bid in the market would be $23.53 x 1,000, which means that an investor is willing to purchase 1,000 shares at the price of $23.53. • Ask: Ask is the price a seller is willing to accept for a security, also known as the offer price. $5.24 x 1,000 means that someone is offering to sell 1,000 shares for $5.24. • Target: A price target is a projected price level as stated by an investment analyst or advisor. • Beta: A beta of 1 indicates that the security's price will move with the market. A beta of less than 1 means that the security will be less volatile than the market. A beta of greater than 1 indicates that the security's price will be more volatile than the market.
- 57. How to Read a Stock Table • 52-week Range: The 52-week range reflects the lowest and highest price at which a stock has traded in the previous 52 weeks. • Volume: This column tells you how many shares of that particular stock were traded that day. If only 100 shares are traded in a day, the trading volume is 100. • Market Capitalization: Market capitalization is the total dollar market value of all of a company's outstanding shares. • P/E: This is calculated by dividing the current stock price by earnings per share. • Earnings per share (EPS): is the portion of a company's profit allocated to each outstanding share.
- 58. How to Read a Stock Table • Dividend: A value in this column indicates that payments have been made to stockholders. • Dividend Yield: The percentage return on the dividend. Calculated as annual dividends per share divided by price per share.
- 63. How to do Technical Analysis? TECHNICAL ANALYSIS Fundamental Analysis Economic Analysis Company Analysis Industry Analysis Moving Averages Charting Theories
- 64. Trend time horizons that vary greatly Stock Price trend of Jet Airways Do charts Speak?
- 65. Do charts Speak? • Consider the basic assumptions presented by Robert D. Edwards and John Magee in the classic book, Technical Analysis of Stock Trends: • Stock prices are determined solely by the interaction of demand and supply. • Stock prices tend to move in trends. • Shifts in demand and supply cause reversals in trends. • Shifts in demand and supply can be detected in charts. • Chart patterns tend to repeat themselves. Technical analysis is based on one major assumption—trend. Markets trend. Traders and investors hope to buy a security at the beginning of an uptrend at a low price, ride the trend, and sell the security when the trend ends at a high price. Although this strategy sounds very simple, implementing it is exceedingly complex. Stock Price trend of Jet Airways
- 66. Candlesticks • Each bar is composed of 4 elements: • Open • High • Low • Close Drawing Bar (OHLC) Charts Open Close High Low Standard Bar Chart Japanese Candlestick Open Close High Low Standard Bar Chart Japanese Candlestick A candlestick chart is a style of bar-chart used primarily to describe price movements of a security, derivative, or currency for a designated span of time. It is a combination of a line-chart and a bar-chart, in that each bar represents the range of price movement over a given time interval. A chart that displays the high, low, opening and closing prices for a security for a single day.
- 69. The wide part of the candlestick is called the "real body" and tells investors whether the closing price was higher or lower than the opening price (black/red if the stock closed lower, white/green if the stock closed higher).
- 70. Line Chart • A style of chart that is created by connecting a series of data points together with a line. • This is the most basic type of chart used in finance and it is generally created by connecting a series of past prices together with a line. • A line chart can give the reader a fairly good idea of where the price of an asset has traveled over a given time frame. Infosys
- 71. Uptrends Types of Trend
- 72. Downtrend Types of Trend
- 73. Sideways Trend Types of Trend
- 74. WHAT IS 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. WHY FUNDAMENTAL ANALYSIS? Fundamental analysis answers the following question 1. Is the company’s revenue growing? 2. Is it actually making a profit? 3. Is it in a position strong-enough to outrun its competitors in the future? 4. Is it able to repay its debts? 5. Is management trying to "cook the books"?
- 75. FUNDAMENTAL ANALYSIS • Fundamental analysis can be composed of many different aspects: the analysis of the economy as the whole, the analysis of an industry or that of an individual company. FUNDAMENTAL ANALYSIS Economic Analysis Company Analysis Industry Analysis
- 76. ECONOMY ANALYSIS • The performance of a company depends much on the performance of the economy if the economy. • The first step to this type of analysis includes looking at the macroeconomic situation.
- 77. ECONOMIC INDICATORS AND THEIR IMPACT ON THE STOCK MARKET INDICATOR FAVOURABLE IMPACT UNFAVOURABLE IMAPACT GDP/GROWTH RATE HIGH GROWTH RATE SLOW GROWTH RATE DOMESTIC SAVINGS RATE HIGH LOW INTEREST RATES LOW HIGH TAX RATES LOW HIGH INFLATION LOW HIGH IIP/INDUSTRIAL PRODUCTION HIGH LOW BALANCE OF TRADE POSITIVE NEGATIVE BALANCE OF PAYMENTS POSITIVE NEGATIVE
- 78. ECONOMIC INDICATORS AND THEIR IMPACT ON THE STOCK MARKET INDICATOR FAVOURABLE IMPACT UNFAVOURABLE IMAPACT FOREIGN EXCHANGE POSITION HIGH LOW DEFICIT FINANCING/FISCAL DEFICIT LOW HIGH AGRICULTURAL PRODUCTION HIGH LOW INFRASTRUCTURAL FACILITIES GOOD NOT GOOD
- 79. Company Analysis • It involves a close investigative scrutiny of the companies financial and non financial aspects with a view to identifying its strength, weaknesses and future business prospects. Company Analysis financial non financial • Non Financial Factors Marketing success Business Model Competitive Advantage Management Corporate Governance
- 80. Company Analysis-Non Financial Aspects : History, Promoters and Management Review Questions How old is the company? Who are the promoters? Is it family managed or professionally managed? What is the public image and reputation of the company, its promoters and its products? Aspects : Technology, Facilities and Production Review Questions Does the company use relevant technology? Is there any foreign collaboration? Where is the unit located? Are the production facilities well balanced? Is the size the right economic size? What are the production trends? What is the raw material position? Is the process power- intense? Are there adequate arrangements for power?
- 81. Company Analysis-Non Financial Aspect: Product range, Marketing, Selling and Distribution Review Question: What is the company‘s product range? Are there any cash cows among the product portfolio? How distribution-effective is the marketing network? What is the brand image of the products? What is the market share enjoyed by the products in the relevant segments? What are the effects and costs of sales promotion and distribution? Aspect: Industrial relations, Productivity and Personnel Review Question: How important is the labour component? What is the labour situation in general? Aspect: Environment Review Question: Are there any statutory controls on production, price, distribution, raw material, etc? Is there any major legal constraint? What are the government policies on the industry (domestic as well as related to imports and exports of the final products and raw materials)?
- 82. SWOT ANALYSIS Strengths • Latest Technology • Lower delivered Cost • Established products • Committed manpower • Advantageous location • Strong finances • Well- known brand names Weaknesses • Loose controls • Untrained labour force • Strained cash flows • Poor product quality • Family funds • Poor public image Opportunities • Growing domestic demand • Expanding export markets • Cheap labour • Booming capital markets • Low interest rates Weaknesses • Price War • Intensive competition • Undependable component • Suppliers • Infrastructure bottlenecks • Power cuts
- 83. FACEBOOK SWOT Strengths Integration with websites and applications More than a billion active monthly users Excellent users experience Understanding of user’s needs and behavior Weaknesses Weak CTR of advertisements Social network lacks of some features One source of revenues – advertisements on Facebook Attitude towards users’ privacy Lack of website customization Weak protection of users’ information Opportunities Increasing number of people using Facebook through mobile devices Expansion to China Diversify sources of revenue Open Facebook marketplace Threats Increasing number of mobile internet users Users using ad-block extensions Slow growth rate of online advertising Identity thefts Weak business model
- 84. Industry intelligence An industry intelligence is a business tool carried out to assess profit potential and the complexity of a particular industry. 1. Industry intelligence is assessed based of key factors relating to the industry such as the history of the industry, 2. Analysis of the industries financial performance, 3. Industry life cycle, 4. A review of how differing trends such as seasonal fluctuations affect the industry, 5. External influences on the industry such as government laws and 6. A review of levels of competition both present and future for the specific industry.
- 85. Porter’s Five Forces- Industry Analysis: 1. Industry rivalry: Indicates degree of competition among existing firms, cut throat competition leads to reduced profit potential for companies in the same industry 2. Threat of substitutes: Availability of substitute products or services will limit a firm’s ability to raise prices 3. Bargaining power of buyers: It represents powerful buyers have a significant impact on prices 4. Bargaining power of suppliers: It highlights powerful suppliers can demand premium prices and limit your profit 5. Barriers to entry: it includes threats of new entrants that can act as a deterrent against new competitors
- 86. Industry intelligence • An industry intelligence is a business tool carried out to assess profit potential and the complexity of a particular industry. • Industry intelligence is assessed based of key factors relating to the industry such as the history of the industry, • analysis of the industries financial performance, • industry life cycle, • a review of how differing trends such as seasonal fluctuations affect the industry, • external influences on the industry such as government laws and • a review of levels of competition both present and future for the specific industry.
- 87. Porter’s Five Forces- Industry Analysis: 1. Industry rivalry: Indicates degree of competition among existing firms, cut throat competition leads to reduced profit potential for companies in the same industry 2. Threat of substitutes: Availability of substitute products or services will limit a firm’s ability to raise prices 3. Bargaining power of buyers: It represents powerful buyers have a significant impact on prices 4. Bargaining power of suppliers: It highlights powerful suppliers can demand premium prices and limit your profit 5. Barriers to entry: it includes threats of new entrants that can act as a deterrent against new competitors
- 88. Competitors’ intelligence • Competitors’ intelligence in international business is an assessment of the strengths and weaknesses of current and potential competitors. • It involves primarily two activities: 1. obtaining information about important competitors and 2. using that information to predict competitor behavior. Competitors Analysis Identifying competitors Profiling Competitors Comparison of your potentials with competitors Developing Marketing Strategy Most firms face four basic types of Competition: 1. Brand competitors, refers to competition with different brands offering with similar features, prices and benefits to the same potential customers. 2. Product competitors, offer same product class but with offer different benefits, features, and prices. 3. Generic competitors, are rival firms offering products which are different but are capable of satisfying the same basic want or provide the same benefit or utility to the prospective customer. 4. Total budget competitors, primarily focus on prices, they compete for the limited financial resources of the same customers.
- 89. Various types of competition Product Need Brand Competitors Product Competitors Generic Competitors Total Budget Competitors Colleges Education St. Joseph’s, Christ, Jain, Jyoti Nivas, Mount’s, Kristu Jayanti Distance Education, Community college. Books, Internet, Apprenticeship, Seminars. Public Colleges Movies Entertainment Avengers, Spiderman, Ice age, Shrek, Batman, Immortals, Mission Impossible. Cable TV, Pay-per- view on DTH, DVD rentals Sporting events like IPL, Music Concerts, Exhibitions, Melas. Relative and friends house, reading, Parks, Museum. Soft Drinks Refreshment Coca-Cola, Pepsi, Tropicana, Frooti Minute Maid, Appy Tea, Coffee, Badam Milk, Fruit Juice, Lime soda, Butter milk. Tap water, Prasadam (given in religious places) Candy, Pani puri, Pop corn, Vada pav, Pakoda. Sedans (Large Cars) Transportation Maruti Suzuki, Ford Hyundai, Toyota Honda, Nissan Jeeps, Hatchbacks, SUVs, Minivans, MUVs Rental cars, Bikes, BMTC, Metro. car-sharing, ride- sharing, lift- sharing
- 90. Profitability A.(a) Gross profit Margin (b) Net profit Margin (c) Earning power (d) Return on equity (e) Earning per share (f) Cash EPS B. Financial Statement Analysis Trading, P& L A/C Analysis Balance Sheet Analysis C. Ratio Analysis Liquidity Ratios Leverage Ratios Profitability Ratios Activity / Efficiency Ratio
- 91. Outcome of FUNDAMENTAL ANALYSIS The end goal of performing fundamental analysis is to produce a value that an investor can compare with the underlying assets current price in hopes of figuring out what sort of position to take with that security(under priced = buy, overpriced = sell). Valuation of Stock The intrinsic value of a share is the present value of all future cash flows INTRINSIC VALUE = DIVIDENDS + CAPITAL APPRECIATION Investment decision: 1. If the market price of a share is currently lower than its intrinsic value, such a share would be bought because it is perceived to be under- priced. 2. A share whose current market price is higher than its intrinsic value would be considered as overpriced and hence sold.
- 92. PRICE –QUALITY MATRIX LQ HP HQ HP LQ LP HQ LP MQ MP PRICE QUALITY YESTERDAY’S BLUE CHIPS EMERGING BLUE CHIPS TURN AROUND STOCK NON BLUE CHIPS EVERGREEN STOCK A blue-chip: Stock of a large, well-established and financially sound company that has operated for many years.
- 93. PRICE –QUALITY MATRIX1 The non-blue chips a. Feature: These shares are of low quality and hence are quoted at low prices. b. Should we buy: Just ignore them until there is an upswing in their fortunes. c. But Why? You should not buy something simply because it is cheap. Remember, what appears cheap may ultimately prove very expensive. 2 Emerging blue chips a. Feature: High – Quality, High - Price (HQHP) b. Should we buy: Hold on to them. c. But Why? They are current stars, popular and command a high price. As long as their glamour last, such shares perform well in the market. But be careful, partial booking of profits at high price may be desirable.
- 94. PRICE –QUALITY MATRIX3 Yesterdays blue chips a. Feature: Medium – Quality, Medium - Price (MQMP): These are steady scrip's. b. Should we buy: Don‘t be in a hurry to sell them. c. But Why? They can last for two to three generations fairly intact. Hold on to them. 4 Evergreen Stock a. Feature: Low – Quality, High - Price (LQHP). You can call these the stocks with the hangover effect b. Should we buy: Such scrip's should be sold fast. Do not look at such a share again until the company returns to the growth track. c. But Why? You can call these the stocks with the hangover effect‘. Once they had the market on a high but they are more or less banking on their past glory now. Once this fact is recognized, the market downgrades such stocks and their prices tumble.
- 95. Moneymaking Strategies • Make Money Slowly: • Investment Strategies Using Stocks • Before you put real money into the market, you should find an appropriate strategy. A strategy is a plan for buying and selling stocks, and is essential if you want to be a consistently profitable investor or trader. • If you are a new to the stock market, it’s best to keep an open mind before you choose a strategy.
- 96. Moneymaking Strategies • No matter what strategy you use, here are a few things to remember: 1. A strategy is only as good as the person using it. In other words, no matter how brilliant and ingenious the strategy, you must execute it well or you can still lose money. 2. Not all strategies work under all market conditions. 3. Don’t become so devoted to a strategy that you are blind to the fact that you are losing money. Money is the scorecard that determines whether your strategy is working.
- 97. Moneymaking Strategies • Buy and Hold: Buy stock in a fundamentally sound company and hold it for the long-term • Buy on the Dip: Buy stock in a fundamentally sound company goes down in price. • Bottom Fishing: Finding Bargains Among Unloved Stocks • Value Investing: Buying Good-Quality Companies at a Cheap Price • Growth Investing: Buying Growing Companies at Any Price
- 98. Moneymaking Strategies • Momentum Investing: Buy High and Sell Higher • Mutual Funds: An investment company creates a mutual fund by pooling investors’ money and using that money to invest in an assortment of stocks, bonds, fixed income, or alternative investments such as commodities. In a way, investing in a mutual fund is like hiring your own professional money manager. • Day Trading: Buying and Selling in Minutes • Selling Short: Profiting from a Falling Stock