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Stock Perfomance Analysis and Strategy

Stock Investment Strategy, Stock Perfomance Analysis and Strategy, The Sharemarket »

Value Analysis of Share Prices
Share price is determined by supply and demand of a company’s shares
Expectation of bad company performance causes investors to sell their shares, increasing supply and reducing the price
Similarly expectation of good company performance increased demand and leads to an  increase in share price
What causes the shifts in demand and supply of a company’s securities on the secondary market?
Three approaches taken in analysing this question
–      1. Fundamental analysis – bottom up
–      2. Fundamental analysis – top down
–      3. Technical analysis
Fundamental Analysis – Bottom Up
Focuses on ratios and …

Stock Investment Strategy, Stock Perfomance Analysis and Strategy, The Sharemarket »

Potential investors are concerned with the future level of a company’s performance
Company’s performance affects both the profitability and variability of the cash flows
Indicators of company performance
–      1. Capital structure
–      2. Liquidity
–      3. Debt Servicing
–      4. Profitability
–      5. Share Price
–      6. Risk
Capital structure
Proportion of finance (capital) obtained through debt or equity
Measured as
Debt to equity ratio =

Market value of debt/

Market value of equity

Higher debt levels increase financial risk (company may not be able to meet interest payments)
Proprietorship Ratio =

Shareholder’s funds/

Total assets

Indicates long-term stability
A higher ratio indicates less reliance on  external funding
The ability …

Options and Derivatives Fundamentals and Trading, Stock Investment Strategy, Stock Perfomance Analysis and Strategy »

There are 3 aspects of financial management
Investment decisions

ð  In which asset to invest?
Financing (funding) decisions
ð  How to fund the purchase of these assets?
Dividend Policy decisions
ð  How to retain and/or distribute profits?
This chapter focuses on the financing decision
Funding Decisions
Financial objective of a corporation is to maximise return subject to an acceptable level of risk
Returns generated from net cash flows of the business
Risk is the variability of these cash flows, caused by either
–      1.Business Risk
–      2.Financial Risk

Business Risk
–      The level of business risk depends upon the type of operations of …

Stock Investment Strategy, Stock Perfomance Analysis and Strategy, The Sharemarket »

The price of a share, as for the price of any asset that is sold in a free market, is determined by the demand for and supply of the share. The balance, at any moment, between buyers and sellers of a company’s shares is determined by the market participants’ assessments of the future profitability of the company and the likely future of the share’s price movements. Analysts take one of two approaches in forming a view on the two issues. They may conduct their evaluations, and issue their buy/sell recommendations, …

Debt Finance and Loans Explained, Stock Investment Strategy, Stock Perfomance Analysis and Strategy, The Sharemarket »

In determining whether to fund its expansion through the use of debt or equity, a business must consider the current debt to equity ratio, and the associated degree of financial risk. If the ratio is such that an increase in the proportion of debt can be sustained without an undue increase in financial risk, it is in the interests of the existing owners for the expansion to be funded through debt rather than equity. Once reaching an appropriate debt to equity ratio, further expansion must be accompanied by the injection …