Chapter I

Security Analysis, Risk Return , Investment Alternatives financial

securities & Real Estate Investment , Objectives of security analysis.

Security Analysis?
Security analysis refers to analyzing the value of securities like shares and
other instruments to assess the business’s total value, which will be useful
for investors to make decisions. There are three methods to analyze the
value of securities – fundamental, technical, and quantitative analysis

Features Of Security Analysis

• To value financial instruments like equity, debt, and company warrants.

• To use publicly available information. The use of insider information is
unethical and illegal.
• Security analysts must act with integrity, competence, and diligence while
conducting the investment profession.
• Using various analytical tools, including fundamental, technical, and
quantitative approaches.
• Security analysts should place the interest of clients above their interests.
Types of Security Analysis
1.Fundamental Analysis

This type of security analysis is an evaluation procedure of securities

where the major goal is to calculate the intrinsic value. It studies the
fundamental factors that affect a stock’s intrinsic value, like the
company’s profitability statement and position statements, managerial
performance and future outlook, present industrial conditions, and the
overall economy.

2.Technical Analysis

This type of security analysis is a price forecasting technique that

considers only historical prices, trading volumes, and industry trends to
predict the security’s future performance. It studies stock charts by
applying various indicators (like MACD, Bollinger Bands, etc.), assuming
every fundamental input has been factored into the price.
3.Quantitative Analysis

This security analysis is a supporting methodology for both fundamental

and technical analysis, which evaluates the stock’s historical performance
through calculations of basic financial ratios, e.g., Earnings Per Share
(EPS), Return on Investments (ROI), or complex valuations
like Discounted Cash Flows (DCF).

.
 Risk Return
Investors sacrifice current consumption in order to be able to consume
more in the future. The required rate of return therefore depends on the
time for which funds are locked up, the expected rate of inflation during
that period and risk involved. The real risk-free rate of return can be
considered as the compensation for time. Since inflation erodes the future
purchasing power of money, the return has to be higher to account for
expected inflation. Investors are also concerned with the safety of their
returns, so more risky investments have to offer higher returns to attract
investors. The expected return on any asset depends on the initial outlay
and timing of expected cash flows. For debt, the calculation is relatively
simple as cash flows are known and fixed in advance. For equity, we need
to project future expected cash flows i.e., expected dividends and
projected stock price. For both debt and equity, there is a risk that
expected return. There could be fluctuation in expected returns in the form
of delayed or rescheduled payments or not-payments. The estimation of
risk and return is, therefore, a very important part of investments analysis.
Realized return can also be higher than expected return if there are
unexpected favorable events that result in increased annual payments such
as dividends or prices of assets owned.
The absolute and relative returns on assets have varied over the
years. In order to be able to forecast returns, we also need to examine the
factors that influence returns on debt and equity. This includes the impact
of global and country specific economic conditions, the influence of
macroeconomic variables such as inflation and interest rates, oil prices,
and the importance of industry and company specific variables. This
analysis of information related to economic. Industry, and company -
specific data, to arrive at a fair present or future price of a security is
known as fundamental analysis. There are various theories and models
that attempt to explain the complex dynamics of risk and return. The
Efficient Market Hypothesis (EMH) basically asserts that it is not possible
to consistently outperform the market by using historical prices,
fundamental analysis or even insider information. The Capital asset
Pricing Model (CAPM) and the competing arbitrage pricing Theory (APT)
describe how assets should be priced relative to risk. We study these
theories and their implications and see whether they are applicable in the
Indian context. The prices of certain assets such as stocks, commodities
and precious metals fluctuate every day.
The same asset would give higher profit if purchases could be timed
to buy when prices are low and sell when prices are high. Technical
analysis claims that a study of past prices and volumes can help forecast
future price movements. Though this is contradictory to the efficient
market hypothesis, these techniques have become very popular and are
reported in leading economic dailies and finance sites
Understanding Risk-Return Tradeoff

The risk-return tradeoff is the trading principle that links high risk
with high reward. The appropriate risk-return tradeoff depends on a
variety of factors including an investor’s risk tolerance, the investor’s
years to retirement and the potential to replace lost funds. Time also plays
an essential role in determining a portfolio with the appropriate levels of
risk and reward. For example, if an investor has the ability to invest in
equities over the long term, that provides the investor with the potential to
recover from the risks of bear markets and participate in bull markets,
while if an investor can only invest in a short time frame, the same
equities have a higher risk proposition.
Investors use the risk-return tradeoff as one of the essential
components of each investment decision, as well as to assess their
portfolios as a whole. At the portfolio level, the risk-return tradeoff can
include assessments of the concentration or the diversity of holdings and
 whether the mix presents too much risk or a lower-than-desired potential
for returns.
KEY TAKEAWAYS

• The risk-return tradeoff is an investment principle that indicates that the

higher the risk, the higher the potential reward.
• To calculate an appropriate risk-return tradeoff, investors must consider
many factors, including overall risk tolerance, the potential to replace lost
funds and more.
• Investors consider the risk-return tradeoff on individual investments and
across portfolios when making investment decisions.

Investment Alternatives financial securities

Alternative investments can include private equity or venture

capital, hedge funds, managed futures, art and antiques, commodities, and
derivatives contracts. Real estate is also often classified as an alternative
investment.
Understanding Alternative Investments
Most alternative investment assets are held by institutional
investors or accredited, high-net-worth individuals because of their
complex nature, lack of regulation, and degree of risk. Many alternative
investments have high minimum investments and fee structures,
especially when compared to mutual funds and exchange-traded
funds (ETFs). These investments also have less opportunity to publish
verifiable performance data and advertise to potential investors. Although
alternative assets may have high initial minimums and upfront investment
fees, transaction costs are typically lower than those of conventional
assets due to lower levels of turnover.
 TYPES OF ALTERNATIVE INVESTMENTS
1. Real Estate (वास्तववक मालमत्ता)
2. Commodities (वस्तू)
3. Collectibles (संग्रहणीय)
4. Structured Products (संचारीत उत्पादने)
5. Private Equity (खाजगी न्यायबुद्धी)
6. Private Debt (खाजगी कजज)
7. Hedge Funds (अडथळा वनधी)

1. Real Estate

There are many types of real assets. For example, land, timberland, and
farmland are all real assets, as is intellectual property like artwork. But real
estate is the most common type and the world’s biggest asset class.

In addition to its size, real estate is an interesting category because it has

characteristics similar to bonds—because property owners receive current
cash flow from tenants paying rent—and equity, because the goal is to
increase the long-term value of the asset, which is called capital
appreciation.

As with other real assets, valuation is a challenge in real estate investing.

Real estate valuation methods include income capitalization, discounted
cash flow, and sales comparable, with each having both benefits and
shortcomings. To become a successful real estate investor, it’s crucial to
develop strong valuation skills and understand when and how to use various
methods.

2. Commodities

Commodities are also real assets and mostly natural resources, such as
agricultural products, oil, natural gas, and precious and industrial metals.
 Commodities are considered a hedge against inflation, as they're not
sensitive to public equity markets. Additionally, the value of commodities
rises and falls with supply and demand—higher demand for commodities
results in higher prices and, therefore, investor profit.

Commodities are hardly new to the investing scene and have been traded
for thousands of years. Amsterdam, Netherlands, and Osaka, Japan may
lay claim to the title of the earliest formal commodities exchange, in the 16th
and 17th centuries, respectively. In the mid-19th century, the Chicago Board
of Trade started commodity futures trading.

3. Collectibles

Collectibles include a wide range of items such as:

• Rare wines
• Vintage cars
• Fine art
• Mint-condition toys
• Stamps
• Coins
• Baseball cards
Investing in collectibles means purchasing and maintaining physical items
with the hope the value of the assets will appreciate over time.

These investments may sound more fun and interesting than other types,
but can be risky due to the high costs of acquisition, a lack of dividends or
other income until they're sold, and potential destruction of the assets if not
stored or cared for properly. The key skill required in collectibles investment
is experience; you have to be a true expert to expect any return on your
investment.
 4. Structured Products

Structured products usually involve fixed income markets—those that pay

investors dividend payments like government or corporate bonds—and
derivatives, or securities whose value comes from an underlying asset or
group of assets like stocks, bonds, or market indices. Examples of
structured products include credit default swaps (CDS) and collateralized
debt obligations (CDO).

Structured products can be complex and sometimes risky investment

products, but offer investors a customized product mix to meet their
individual needs. They're most commonly created by investment banks and
offered to hedge funds, organizations, or retail investors.

Structured products are relatively new to the investing landscape, but you’ve
probably heard of them due to the 2007–2008 financial crisis. Structured
products like CDO and mortgage-backed securities (MBS) became popular
as the housing market boomed before the crisis. When housing prices
declined, those who had invested in these products suffered extreme
losses.

5. Private Equity

Private equity is a broad category that refers to capital investment made

into private companies, or those not listed on a public exchange, such as
the New York Stock Exchange. There are several subsets of private
equity, including:

• Venture capital, which focuses on startup and early-stage ventures

• Growth capital, which helps more mature companies expand or restructure
• Buyouts, when a company or one of its divisions is purchased outright
An important part of private equity is the relationship between the
investing firm and the company receiving capital. Private equity
companies often provide more than capital to the firms they invest in; they
also provide benefits like industry expertise, talent sourcing assistance,
and mentorship to founders.
6. Private Debt

Private debt refers to investments that are not financed by banks (i.e., a
bank loan) or traded on an open market. The “private” part of the term is
important—it refers to the investment instrument itself, rather than the
borrower of the debt, as both public and private companies can borrow via
private debt.

Private debt is leveraged when companies need additional capital to grow

their businesses. The companies that issue the capital are called private
debt funds, and they typically make money in two ways: through interest
payments and the repayment of the initial loan.

7. Hedge Funds

Hedge funds are investment funds that trade relatively liquid assets and
employ various investing strategies with the goal of earning a high return
on their investment. Hedge fund managers can specialize in a variety of
skills to execute their strategies, such as long-short equity, market neutral,
volatility arbitrage, and quantitative strategies.

Hedge funds are exclusive, available only to institutional investors, such

as endowments, pension funds, and mutual funds, and high-net-worth
individuals.

Real Estate Investment

Investment real estate is real estate that generates income or is otherwise
intended for investment purposes rather than as a primary residence. It is common
for investors to own multiple pieces of real estate, one of which serves as a primary
residence while the others are used to generate rental income and profits through
price appreciation. The tax implications for investment real estate are often
different than those for residential real estate.

Simple Ways to Invest in Real Estate

1. Real Estate Investment Groups (REIGs)
2. House Flipping
3. Rental Properties
4. Online Real Estate Platforms
5. Real Estate Investment Trusts (REITs)

1. Real Estate Investment Groups (REIGs)

Real estate investment groups (REIGs) are ideal for people who want to
own rental real estate without the hassles of running it. Investing in
REIGs requires a capital cushion and access to financing.
REIGs are like small mutual funds that invest in rental properties.5 In a
typical real estate investment group, a company buys or builds a set of
apartment blocks or condos, then allows investors to purchase them
through the company, thereby joining the group.
A single investor can own one or multiple units of self-contained living
space, but the company operating the investment group collectively
manages all of the units, handling maintenance, advertising vacancies,
and interviewing tenants. In exchange for conducting these management
tasks, the company takes a percentage of the monthly rent.
A standard real estate investment group lease is in the investor’s name,
and all of the units pool a portion of the rent to guard against occasional
vacancies. To this end, you'll receive some income even if your unit is
empty. As long as the vacancy rate for the pooled units doesn’t spike too
high, there should be enough to cover costs.
2. House Flipping
House flipping is for people with significant experience in real estate
valuation, marketing, and renovation. House flipping requires capital and
the ability to do, or oversee, repairs as needed.
This is the proverbial "wild side" of real estate investing. Just as day
trading is different from buy-and-hold investors, real estate flippers are
distinct from buy-and-rent landlords. Case in point—real estate flippers
often look to profitably sell the undervalued properties they buy in less
than six months.
Pure property flippers often don't invest in improving properties.
Therefore, the investment must already have the intrinsic value needed to
turn a profit without any alterations, or they'll eliminate the property from
contention.
Flippers who are unable to swiftly unload a property may find themselves
in trouble because they typically don’t keep enough uncommitted cash on
hand to pay the mortgage on a property over the long term. This can lead
to continued, snowballing losses.
There is another kind of flipper who makes money by buying reasonably
priced properties and adding value by renovating them. This can be a
longer-term investment, wherein investors can only afford to take on one
or two properties at a time.

3. Rental Properties
Owning rental properties can be a great opportunity for individuals
who have do-it-yourself (DIY) renovation skills and the patience to
manage tenants. However, this strategy does require substantial capital to
finance upfront maintenance costs and to cover vacant months.
 According to U.S. Census Bureau data, the sales prices of new
homes (a rough indicator for real estate values) consistently increased in
value from the 1960s to 2007, before dipping during the financial
crisis. Subsequently, sales prices resumed their ascent, even surpassing
pre-crisis levels. The long-term effects of the coronavirus pandemic on
real estate values remain to be seen.
4. Online Real Estate Platforms
Real estate investing platforms are for those who want to join others in
investing in a bigger commercial or residential deal. The investment is
made via online real estate platforms, which are also known as real estate
crowdfunding. This still requires investing capital, although less than
what's required to purchase properties outright.
Online platforms connect investors who are looking to finance projects
with real estate developers. In some cases, you can diversify your
investments with not much money.

5. Real Estate Investment Trusts (REITs)

A real estate investment trust (REIT) is best for investors who want
portfolio exposure to real estate without a traditional real estate
transaction.
A REIT is created when a corporation (or trust) uses investors’ money to
purchase and operate income properties. REITs are bought and sold on the
major exchanges, like any other stock.6
A corporation must payout 90% of its taxable profits in the form of
dividends in order to maintain its REIT status. By doing this, REITs avoid
paying corporate income tax, whereas a regular company would be taxed
on its profits and then have to decide whether or not to distribute its after-
tax profits as dividends.7
Like regular dividend-paying stocks, REITs are a solid investment for
stock market investors who desire regular income. In comparison to the
aforementioned types of real estate investment, REITs afford investors
entry into nonresidential investments, such as malls or office buildings,
that are generally not feasible for individual investors to purchase directly.
5. Online Real Estate Platforms
Real estate investing platforms are for those who want to join others in
investing in a bigger commercial or residential deal. The investment is
made via online real estate platforms, which are also known as real estate
crowdfunding. This still requires investing capital, although less than
what's required to purchase properties outright.
Online platforms connect investors who are looking to finance projects
with real estate developers. In some cases, you can diversify your
investments with not much money.

Objectives of Security Analysis.( सुरक्षा विश्लेषण)

Security Analysis is the analysis of trade-able financial instruments
called securities. It deals with finding the proper value of individual
securities (i.e., stocks and bonds). These are usually classified into debt
securities, equities, or some hybrid of the two. Commodities or futures
contracts are not securities.
There are many objectives of Security Analysis. They are –
1.Capital appreciation,
2.Regular Income,
3.the Safety of Capital,
4.Hedge against Inflation, and
5Liquidity.
It is a method of evaluating the intrinsic value of an asset and analyzing the
factors that could influence its price in the future.
 1.Capital appreciation
Capital appreciation refers to the portion of an investment where the
gains in the market price exceed the original investment's purchase price
or cost basis. Capital appreciation can occur for many different reasons in
different markets and asset classes. Some of the financial assets that are
invested in for capital appreciation include:
• Real estate holdings
• Mutual funds or funds containing a pool of money invested in various
securities
• ETFs or exchange-traded funds or securities that track an index such as the
S&P 500
• Commodities such as oil or copper
• Stocks or equities
2.Regular Income,
Regular Income means the total amount of the Users’ Payments actually
received by the Licensee for the use of the Game, within the scope of the
Agreement for the Reporting Period, less the amount of applicable taxes
(including VAT, sales tax, other similar taxes, as well as tax on digital
services and other similar taxes), and Fraudulent Payments. The Regular
Income does not include any revenue of the Licensee received in
connection with the Lootdog.

3.the Safety of Capital

There are multiple options available to investors through traditional

brokerage firms and digital platforms, for which one does not need to be
financially sophisticated.
What is needed in order to choose the right alternative is to be aware of
the elements of risk involved with each investment and which will offer
better security and consistent ROI.
 Specialty agriculture products like cacao are less speculative
investments and can produce a continuous, passive cash flow for many
years. Specialty agriculture investments translate into the safety of capital.
So, whether you are an investor looking to diversify your portfolio or
desire to invest capital to create income for the future, investing in cacao
represents a safe option for you and your family.
4.Hedge against Inflation

Inflation is defined by the rate at which the value of a currency is

falling and, consequently, the general level of prices for goods and
services is rising. Inflation is a natural occurrence in an economy,
but inflation hedging can be used to offset the anticipated drop in a
currency's price, thus protecting the decreased purchasing power
• Inflation hedge refers to investments that protect investors from the
declining purchasing power of money due to inflation.
• The investments are expected to maintain or increase in value during
inflationary cycles.

5Liquidity.
the state of owning things of value that can be exchanged for cash.
रोकडीच्या बदल्यात दे ता येतील अशा मौल्यवान वस्तू स्वतःकडे असण्याची स्थथती;
रोकड-सुलभता.

In financial markets, liquidity refers to how quickly an investment

can be sold without negatively impacting its price. The more liquid an
investment is, the more quickly it can be sold (and vice versa), and the
easier it is to sell it for fair value or current market value. All else being
equal, more liquid assets trade at a premium and illiquid assets trade at
a discount.
Chapter II
Fundamental Analysis - Industry Analysis – Company Analysis .

Fundamental Analysis

Fundamental analysis (FA) measures a security's intrinsic value by

examining related economic and financial factors. Intrinsic value is the value
of an investment based on the issuing company's financial situation and
current market and economic conditions.
Fundamental analysts study anything that can affect the security's
value, from macroeconomic factors such as the state of the economy and
industry conditions to microeconomic factors like the effectiveness of the
company's management.
The end goal is to determine a number that an investor can compare
with a security's current price to see whether the security is undervalued or
overvalued by other investors.

Fundamental analysis is a method of assessing the intrinsic value

of a stock. It combines financial statements, external influences, events,
and industry trends. It is important to note that the intrinsic value or a fair
value of a stock does not change overnight. Such analysis helps you
identify key attributes of the company and analyze its actual worth, taking
into account macro and microeconomic factors.
 Fundamental analysis uses three sets of data:
1. historical data to check how things were in the past
2. publicly known information about the company, including
announcements made by the management and what others say about the
company
3. information that is not known publicly but is useful, i.e., how the
leadership handles crises, situations, etc.
For a stock, fundamental analysis typically includes reviewing many
elements related to stock prices, including:
• Performance of the overall industry the company participates in
• Domestic political environment
• Relevant trade agreements and external politics
• The company’s financial statements
• The company’s press releases
• News releases related to the company and its business
• Competitor analysis
If a company’s fundamental indicators suggest a negative impact, it will
likely hurt its share price. On the other hand, if the data is positive, for
instance, a favorable earnings report, it can boost the company’s share
price.

How to do Fundamental Analysis of Stocks:

1. Understand the company

2. Check the debt
3. Find the company’s competitors
4. Study the financial reports of the company
5. Analyse the future prospects
6. Review all the aspects time to time
1. Understand the company
It is very important that you understand the company in which you intend
to invest. It will give you further insight as to how the company is
performing, whether the company is taking right decisions towards its
future goal, and whether you should hold or sell the stock. Visiting its
website and learning about the company, its management, its promoters
and its products is a good way to mine such information.
2. Check the debt
Debt is an important factor - one which can bring down a company’s
performance. A security cannot perform well and reward you if it has a
huge debt of its own. It is recommended that you avoid companies with
huge debt.
3. Find the company’s competitors
The company you want to invest in must be one of the best among its
peers. Try to find a company which is performing better than the other
companies. It should have better future prospects, upcoming projects, new
plant etc.
4. Study the financial reports of the company
Once you are done understanding the company, you should start analysing
its financials such as balance sheet, profit-loss statements, cash flow
statements, operating cost, revenue, expenses etc. You can evaluate its
compounded annual growth rate (CAGR), sales and if the net profit has
been increasing for the last 5 years, it can be considered a healthy sign for
the company.
5. Analyse the future prospects
Fundamental analysis is most effective when you want to stay invest long
term. Invest in those companies whose product will still be useful 15-25
years down the line.
6. Review all the aspects time to time
Do not invest in a company and forget about it. Stay updated about the
company you have invested in. You should be updated about all its news
and financial performance. Sell the security if there is a problem in the
company.
 Industry Analysis
Industry analysis, for an entrepreneur or a company, is a method
that helps to understand a company’s position relative to other
participants in the industry. It helps them to identify both the
opportunities and threats coming their way and gives them a strong idea
of the present and future scenario of the industry. The key to surviving in
this ever-changing business environment is to understand the differences
between yourself and your competitors in the industry and use it to your
full advantage.
Industry analysis is a market assessment tool used by businesses
and analysts to understand the competitive dynamics of an industry. It
helps them get a sense of what is happening in an industry, e.g., demand-
supply statistics, degree of competition within the industry, state of
competition of the industry with other emerging industries, future
prospects of the industry taking into account technological changes, credit
system within the industry, and the influence of external factors on the
industry.

Types of industry analysis

There are three commonly used and important methods of performing
industry analysis. The three methods are:
1. Competitive Forces Model (Porter’s 5 Forces)
2. Broad Factors Analysis (PEST Analysis)
3. SWOT Analysis
1 .Competitive Forces Model (Porter’s 5 Forces)

One of the most famous models ever developed for industry analysis,
famously known as Porter’s 5 Forces, was introduced by Michael Porter in
his 1980 book “Competitive Strategy: Techniques for Analyzing
Industries and Competitors.”
According to Porter, analysis of the five forces gives an accurate
impression of the industry and makes analysis easier. In our Corporate &
Business Strategy course, we cover these five forces and an additional
force — power of complementary good/service providers.

The above image comes from a section of CFI’s Corporate & Business
Strategy Course.
A. Intensity of industry rivalry

The number of participants in the industry and their respective market

shares are a direct representation of the competitiveness of the industry.
These are directly affected by all the factors mentioned above. Lack of
differentiation in products tends to add to the intensity of competition.
High exit costs such as high fixed assets, government restrictions, labor
unions, etc. also make the competitors fight the battle a little harder.
 B. Threat of potential entrants

This indicates the ease with which new firms can enter the market of a
particular industry. If it is easy to enter an industry, companies face the
constant risk of new competitors. If the entry is difficult, whichever
company enjoys little competitive advantage reaps the benefits for a
longer period. Also, under difficult entry circumstances, companies face a
constant set of competitors.
C. Bargaining power of suppliers

This refers to the bargaining power of suppliers. If the industry relies on a

small number of suppliers, they enjoy a considerable amount of bargaining
power. This can particularly affect small businesses because it directly
influences the quality and the price of the final product.
D. Bargaining power of buyers

The complete opposite happens when the bargaining power lies with the
customers. If consumers/buyers enjoy market power, they are in a position
to negotiate lower prices, better quality, or additional services and
discounts. This is the case in an industry with more competitors but with a
single buyer constituting a large share of the industry’s sales.
E. Threat of substitute goods/services

The industry is always competing with another industry producing a

similar substitute product. Hence, all firms in an industry have potential
competitors from other industries. This takes a toll on their profitability
because they are unable to charge exorbitant prices. Substitutes can take
two forms – products with the same function/quality but lesser price, or
products of the same price but of better quality or providing more utility.
2. Broad Factors Analysis (PEST Analysis)

Broad Factors Analysis, also commonly called the PEST

Analysis stands for Political, Economic, Social and Technological. PEST
analysis is a useful framework for analyzing the external environment.

The above image comes from a section of CFI’s Corporate & Business
Strategy Course.
To use PEST as a form of industry analysis, an analyst will analyze each
of the 4 components of the model. These components include:
A. Political
Political factors that impact an industry include specific policies and
regulations related to things like taxes, environmental regulation, tariffs,
trade policies, labor laws, ease of doing business, and overall political
stability.
B.Economic
The economic forces that have an impact include inflation, exchange rates
(FX), interest rates, GDP growth rates, conditions in the capital markets
(ability to access capital), etc.
C. Social
The social impact on an industry refers to trends among people and
includes things such as population growth, demographics (age, gender,
etc.), and trends in behavior such as health, fashion, and social
movements.
D.Technological
The technological aspect of PEST analysis incorporates factors such as
advancements and developments that change the way a business operates
and the ways in which people live their lives (e.g., the advent of the
internet).

3 .SWOT Analysis

SWOT Analysis stands for Strengths, Weaknesses, Opportunities, and

Threats. It can be a great way of summarizing various industry forces and
determining their implications for the business in question.
 Company Analysis
Introduction to company analysis
Company analysis is a process carried out by investors to evaluate
securities, collecting info related to the company’s profile, products and
services as well as profitability. It is also referred as ‘fundamental
analysis.’ A company analysis incorporates basic info about the company,
like the mission statement and apparition and the goals and values. During
the process of company analysis, an investor also considers the company’s
history, focusing on events which have contributed in shaping the
company.
Also, a company analysis looks into the goods and services proffered
by the company. If the company is involved in manufacturing activities,
the analysis studies the products produced by the company and also
analyzes the demand and quality of these products. Conversely, if it is a
service business, the investor studies the services put forward.

Company analysis contains an evaluation & examination of a

company, its financial health & prospects, management strategy or
marketing activities & its strengths & weaknesses.

There are several types of company analysis:

1. The Company Financial Report
2. Marketing Management Report
3. Articles
4. Sec Filling
5. Wall street transcript (Earning Calls)
6. Swot Report
7. Analyst Report
 1.COMPANY FINANCIAL REPORTS
• Bloomberg Professional (Baruch users only)
Available at the Reuters terminals in the Subotnick Center. Type the
company's ticker, hit the key, type ANR and press
• EMIS
News from emerging market countries along with company profiles and
industry information from analysts, rating agencies, stock exchanges,
government agencies and independent consulting firms.
• Mergent Online
Capital and operational histories on over 10,000 U.S. public companies
and 17,000 non-U.S. public companies. Details property, subsidiaries,
executives, equity, debt, financial statements, and ratio analysis. Supply
Chain tab, formerly Mergent Horizon, details company relationships:
competitors, suppliers, partners, corporate customers, and
interrelationships of product and services.
• S&P NetAdvantage
Current and past stock prices, annual reports, SEC and Canadian SEDAR
filings for publicly-traded companies; industry surveys; analyst reports;
private company, and US and international markets information and data
for research and analysis. If you're unable to login, try clearing your
browser cache and using our link again.
• Value Line
Company ratings and reports with over 10 years of historical data
including sales, profits, and earnings per share. Reports include share price
projections and a financial forecast.

2.MARKETING/MANAGEMENT REPORTS

• e Marketer
Analysis and reports on Internet companies and companies involved in
digital marketing.

• FAITS (Faulkner Advisory for IT Studies)

 Market research reports covering industry sectors in information
technology, telecommunications, and the Internet.

• IBIS World
Market research reports on industries & product categories. Each report
discusses major players (companies) and brands within the category.

• Mintel Academic (Baruch & SPS users only)

Market research reports, analyst insights, and other media intelligence on
numerous industries (known as “sectors”), thematic trends and consumers.
Only US and UK information is provided with the Baruch subscription.

• Passport (Euromonitor) (Baruch & SPS users only)

In addition to industry and product category analysis, Passport contains
excellent and in-depth corporate reports. Select the "Companies" tab at the
top of the page and type in the company name.

3.ARTICLES
• ABI/INFORM Global
Find articles from trade journals and magazines, scholarly journals, and
general interest magazines covering accounting, advertising, business,
company information, industry Information, management, marketing, real
estate, economics, finance, human resources, and international business.
• Business Source Complete
Over 3000 business magazines, trade journals and academic business
journals are included in this database. Business Source complete also has
SWOT reports on companies.
• Emerald Insight
A collection of over 130 journals concentrated in the fields of
management, HR, marketing, operations and training
• Factiva
 Type name of company in the “look up Factiva code” section on right.
Click “look up”. Click on company name. Click on “add to search”. Type
“and, or, etc. to search statement and add any additional terms.
• SAGE Business Cases
Over 4,000 case studies on companies, industries, and business issues.
• WARC
Articles & case studies covering a company's advertising and marketing
strategies.

4.SEC FILINGS
Look to the company's annual 10K for an in-depth overview of the
company's finances and activities. In particular, look to:
• Section 1 -- Risk Factors - a discussion of company or industry
operational risks impacting the company.
• Section 7 -- Management Discussion and analysis of corporate activities
• Section 7A -- An overview of market risk - a discussion of financial and
market factors that could have an impact on the company.
• Mergent Online
Click on the "Annual Reports" tab for 10Ks. Click on the "Filings" tab
other SEC filings.
SEC EDGAR Filings Search
• click +More Search Options.
• In the "Document word or phrase" search box, type the term(s) you are
looking for (e.g. mission).
• In the "Company name, ticker, CIK number or individual's name" search
box, begin typing the company name.
• Select the date range.

5.WALL STREET TRANSCRIPTS (EARNINGS CALLS)

• Factiva
Factiva content includes full text Wall Street transcripts for individual
companies. For the most precise search,
- Click "subjects" on the left side. Begin typing earn & click the blue
arrow next to "earnings" from the drop-down.
 - Click "subjects" on the left side. Begin typing transc & click on the blue
arrow next to "transcripts" from the drop-down.
- Click "company" on the left side. Begin typing your company name.
Click on the blue arrow next to your company.
- Scroll up to the top and type the word and in between each code. EX:
ns=ntra and fds=amzcom and ns=c151
-Select the time-frame (one year, two years, etc.)
• Seeking Alpha
Search for Earnings transcripts. Search for a company and then screen for
transcripts.
Company Websites - See the Investor Relations page(s) for current
Earnings Call transcripts.

6.SWOT REPORTS
• SWOT Analysis: A Guide
• Business Insights: Global
Mouse over the "Companies" tab and select "SWOT Reports"
• Business Source Complete
Type company name into search box and change the drop down menu
from "Select a Field (Optional) to CO Company Entity. Scroll down and
look on the right side for "Publication Type" box. Select "SWOT
Analysis". Scroll back up and click the green search button.
• FitchConnect
Industry profiles, country risk analysis, financial market reports, and
company profiles with SWOT analysis. Covers 22 industry sectors in 70
global markets.

7.ANALYST REPORTS
• Bloomberg Professional (Baruch users only)
Search for an individual company (equity) & access analyst reports in the
Bloomberg Research Portal -BRC
• S&P NetAdvantage
Select company and then select either "Equity Research" or "Investment
Research" from the column on the left side of the screen.
Chapter III
Technical Analysis(विश्लेषण ) – Dow Theory –
Breadth (रुंदी)of Market Analysis(विश्लेषण ) –
Stock Analysis( विश्लेषण )
Technical Analysis

Technical Analysis is at the other end of the stock analysis spectrum.

It uses charts instead of annual reports and charts and patterns instead of
arriving at an intrinsic value. Stock market technical analysis does use the
market price of the stock to predict future patterns and analyze historical
ones but does not concern itself with analyzing factors affecting the
market price. It studies trends in price, volumes, and moving averages
over a period of time.

Technical Analysis Tools

Using a few basic principles and tools, anyone can learn technical analysis
and in no time become an expert themselves. Familiarizing oneself with
the meaning of the below terms will be an important first step.

1.Trend Lines
2.Support and Resistance Levels
3.Moving Averages
4.Trading Volume
5.Chart Patterns
6.Candlesticks
7.Indicators
1.Trend Lines
Trend lines are lines drawn on a price chart of an asset, just under or over
the asset’s local pivot highs or lows, to indicate that price is following a
particular direction. These lines exist based on the natural placement of
buy or sell orders by market participants, and the raising or lowering of
stop loss levels, or where natural profit-taking may occur.
A trend line typically is required to have multiple touches to be considered
valid, and traders are recommended to watch for a break and close above
or below trend lines, before taking any action. However, trendlines can
also be used to help a trader make a decision even before the trendline has
been breached and is no longer valid.
These trendlines also represent helpful guides for where a trader or
investor may be interested in opening or exiting a position to maximize
gain and minimize risk.

2.Support and Resistance Levels

Support and resistance levels can either be horizontal, or diagonal.
Trendlines often rise and fall, and represent diagonal support or resistance.
Horizontal resistance or support are often prices that represent a historic
level or are a significant rounded number.
Support is a level on price charts in which price has typically rebounded
from in the past and could provide yet another bounce if the price gets
there and buyers step in.
Resistance is a level on price charts in which price has typically been
rejected from, representing an area of interest for sellers to begin taking
profit.
3.Moving Averages
Moving averages are an indicator layered over price charts that represents
the average price of an asset across a certain time period. Moving averages
can be short- or long-term, across daily, weekly, or even longer
timeframes.
Investors and traders typically use moving averages not only to find levels
that may act as support or resistance but to understand if a trend in an asset
class is changing.
When short term moving averages cross below or above a longer-term
moving average, the event is called either a death cross or golden cross,
named for the corresponding price action that typically follows. Death
crosses are bearish, and often indicate that the asset will soon fall into a
downtrend, while golden crosses are bullish and represent the wealth that
investors are likely to generate from the trend that follows such an
occurrence.

4.Trading Volume
Trading volume is another extremely important tool for traders to use to
determine interest in an asset. Volume typically proceeds price action, and
keen-eyed technical analysts can often spot trend changes in the price of
an asset by watching trading volume.
Trading volume also is used to confirm the validity of a movement.
Oftentimes, an asset will break down or up, but volume doesn’t follow,
suggesting buyers or sellers are hesitant and uncomfortable with taking an
actionable position. However, if the same movement occurs with strong
volume, chances are that much higher for the move to be valid, and not
result in a fakeout.
5.Chart Patterns
One of the most helpful tools a trader can use when performing technical
analysis is to watch for certain patterns to appear on price charts before
taking a position. Using trend lines, technical analysis can draw triangles
and other geometric shapes on price charts.
If an asset trades within one of these patterns, detailed statistical analysis
has been performed that suggests certain patterns will break in one
direction over another, providing traders who spot such patterns an
advantage in the market.
In addition to knowing which way a pattern might break, oftentimes these
patterns can also tip traders off as to the target of the ultimate price
movement that occurs, allowing traders to prepare in advance and ensure
take profit levels are determined ahead of time.
Common bullish price patterns include ascending triangles, falling
wedges, inverse head and shoulders, and more. Bearish price patterns
include descending triangles, rising wedges, double tops, and head and
shoulders patterns.

6.Candlesticks
Japanese candlesticks were introduced to assist technical analysts and
traders in getting tipped off of upcoming price movements. Depending on
how a candlestick opens, closes, and the price action within each candle
can cause a candlestick to close in a particular shape or pattern.
These shapes or patterns of candlesticks can also be used to predict future
price movements. A Doji, for example, is a type of candlestick pattern that
often tells analysts that there is indecision in the market, and a trend
change could soon occur.
While candlesticks aren’t always effective in and of themselves,
combining the analysis of candlesticks with chart patterns, moving
averages, trading volume, and more can have a dramatic effect on
increasing a trader’s success rates.

Fractals
Fractals are repeating patterns that play out on price charts, oftentimes on
increasingly lower timeframes. Fractals add validity and credence to the
idea that markets are cyclical, and each cycle is a direct impact of the
emotional state of traders. These emotions lead to repeating patterns on
price charts, that if spotted well enough in advance, can tip a trader off as
to how the price action may unfold.

7.Indicators
In addition to volume, other helpful indicators have been developed to add
to a trader’s arsenal and offer even more changes to determine future price
movements before they occur.
Commonly used indicators include the Stochastic Oscillator, Bollinger
Bands, the Acceleration Deceleration indicator, and the MACD – the
Moving Average Convergence Divergence indicator.
 Technical Analysis Examples

1.Gold Market, Peter Brand

In the below technical analysis from career trader Peter Brandt, the
experienced trader uses chart patterns, trend lines, and support and
resistance levels to chart out the performance expected within gold
markets.
Fast forward to today and Peter’s charts played out perfectly with gold
closing back in on its previous all-time high. If resistance at $1792 can be
breached, by measuring the pattern, a target of $2637 can be expected.

2.Bitcoin Market, Bloomberg

In the chart offers by Bloomberg reviewing two important moving
averages on Bitcoin, and the MACD, a bearish trend could be spotted
before a further fall ever occurs. The chart, from early 2018, was able to
call for the eventual bearish breakdown of Bitcoin, to as low as $3,000
before it rebounded.
 Dow Theory
The Dow theory on stock price movement is a form of technical
analysis that includes some aspects of sector rotation. The theory was
derived from 255 editorials in The Wall Street Journal written by Charles
H. Dow (1851–1902), journalist, founder and first editor of The Wall
Street Journal and co-founder of Dow Jones and Company. Following
Dow's death, William Peter Hamilton, Robert Rhea and E. George
Schaefer organized and collectively represented Dow theory, based on
Dow's editorials. Dow himself never used the term Dow theory nor
presented it as a trading system.

Six basic tenets of Dow theory

1. The market has three movements

(1) The "main movement", primary movement or major trend may
last from less than a year to several years. It can be bullish or bearish.
(2) The "medium swing", secondary reaction or intermediate reaction may
last from ten days to three months and generally retraces from 33% to
66% of the primary price change since the previous medium swing or start
of the main movement.
(3) The "short swing" or minor movement varies with opinion from hours
to a month or more. The three movements may be simultaneous, for
instance, a daily minor movement in a bearish secondary reaction in a
bullish primary movement.
2. Market trends have three phases
Dow theory asserts that major market trends are composed of three
phases: an accumulation phase, a public participation (or absorption)
phase, and a distribution phase. The accumulation phase (phase 1) is a
period when investors "in the know" are actively buying (selling) stock
against the general opinion of the market. During this phase, the stock
price does not change much because these investors are in the minority
demanding (absorbing) stock that the market at large is supplying
 (releasing). Eventually, the market catches on to these astute investors and
a rapid price change occurs (phase 2). This occurs when trend followers
and other technically oriented investors participate. This phase continues
until rampant speculation occurs. At this point, the astute investors begin
to distribute their holdings to the market (phase 3).
3. The stock market discounts all news
Stock prices quickly incorporate new information as soon as it
becomes available. Once news is released, stock prices will change to
reflect this new information. On this point, Dow theory agrees with one of
the premises of the efficient-market hypothesis.
4. Stock market averages must confirm each other
In Dow's time, the US was a growing industrial power. The US had
population centers but factories were scattered throughout the country.
Factories had to ship their goods to market, usually by rail. Dow's first
stock averages were an index of industrial (manufacturing) companies and
rail companies. To Dow, a bull market in industrials could not occur
unless the railway average rallied as well, usually first. According to this
logic, if manufacturers' profits are rising, it follows that they are producing
more. If they produce more, then they have to ship more goods to
consumers. Hence, if an investor is looking for signs of health in
manufacturers, he or she should look at the performance of the companies
that ship their output to market, the railroads. The two averages should be
moving in the same direction. When the performance of the averages
diverge, it is a warning that change is in the air.
Both Barron's Magazine and The Wall Street Journal still publish the
daily performance of the Dow Jones Transportation Average in chart
form. The index contains major railroads, shipping companies, and air
freight carriers in the US.
5. Trends are confirmed by volume
Dow believed that volume confirmed price trends. When prices move
on low volume, there could be many different explanations. An overly
aggressive seller could be present for example. But when price movements
are accompanied by high volume, Dow believed this represented the
"true" market view. If many participants are active in a particular security,
and the price moves significantly in one direction, Dow maintained that
this was the direction in which the market anticipated continued
movement. To him, it was a signal that a trend is developing.
6. Trends exist until definitive signals prove that they have ended
Dow believed that trends existed despite "market noise". Markets
might temporarily move in the direction opposite to the trend, but they
will soon resume the prior move. The trend should be given the benefit of
the doubt during these reversals. Determining whether a reversal is the
start of a new trend or a temporary movement in the current trend is not
easy. Dow Theorists often disagree in this determination. Technical
analysis tools attempt to clarify this but they can be interpreted differently
by different investors.

Analysis
Alfred Cowles in a study in Econometrica in 1934 showed that trading
based upon the editorial advice would have resulted in earning less than a
buy-and-hold strategy using a well diversified portfolio. Cowles
concluded that a buy-and-hold strategy produced 15.5% annualized
returns from 1902 to 1929 while the Dow theory strategy produced
annualized returns of 12%.
 Breadth (रुंदी)of Market Analysis
The breadth of market theory is a technical analysis methodology
that measures the strength of the market according to the number of
stocks that advance or decline in a particular trading day, or how much
upside volume there is relative to downside volume.
There are multiple ways to analyze market breadth, which is a
measure of the robustness of the stock market as a whole. The overall
robustness of the stock market may not be evident by only looking at
major market indexes such as the S&P 500, Nasdaq 100, or Dow Jones
Industrial since these indexes only hold a select group of stocks.
Breadth is typically a measure of how many stocks are advancing
relative to the number declining. Alternatively, it may also
include volume studies, such as volume in rising stocks versus volume in
falling stocks.
Breadth of Market Theory Example
The S&P 500 could be compared with the NYSE A/D line to monitor
underlying strength or weakness. The NYSE A/D line is looking at all
stocks listed on the NYSE, while the S&P 500 is only tracking a select
group of 500 stocks. The NYSE A/D line provides a broader measure of
how most stocks are doing.

Market Breadth Indicators

1. Percent/Number of Stocks above Moving Average

A breadth indicator gauges internal Strength or weakness in the underlying
index by the percentage of stocks trading above a specified moving
average.
Short-to-medium-term periods are covered by the 50-day moving average,
while the 150-day and 200-day moving averages cover medium-to-long-
term timescales.
2. Percent/Number of Stocks above Relative Strength 55
A breadth indicator also gauges internal Strength or weakness in the
underlying index by the percentage of stocks trading above a specified
relative strength period.
Relative Strength refers to the measurement of the stock’s performance as
compared to its benchmark or another stock.
RS compares the performance of stock “X” vs “Y”, measured over a
period. For example, “X” may increase more or less than “Y” in a rising
market, or “X” may fall more or less as compared to “Y” in a falling
market.
3. Periodic High and Low
The high and low levels in a specific period are referred to as periodic
highs and lows. Users can see the number of stocks trading around their
periodic high or low for various periods.
When securities trade at a price within 20% of its High-Low range, it is
eligible to be included in the Period High/Low Analysis.
4. Advance/Decline
The advance-decline ratio refers to the number of advancing shares
divided by the number of declining shares. The advance-decline ratio can
be used for various timeframes, such as one day, one week or one month.
This indicator indicates whether the market is overbought or oversold on a
standalone basis.
5. Net New High and Net New Lows
Net New 52-Week Highs is a simple breadth indicator which is calculated
by subtracting new lows from new highs.
“New lows” is the number of stocks recording new 52-week lows, and
“New highs” is the number of stocks making new 52-week highs.
This indicator provides help in gauging the internal Strength or weakness
in the market.
 14 Breadth Indicators that Trader should know:
Below is the list of 15 Breadth Indicators that Trader should know to
understand the stock market sentiment:
1. Breadth Line:
Breadth line is also known as the Advance/Decline line which is one of
the best ways of measuring market internal strength.
This line is the cumulative sum of advances minus decline. The formula for
the same is shown below:
Breadth Line Value= (No. of Advance Stocks – No of Decline Stocks) +
Breadth Line Value of the Previous day.
2. McClellan Oscillator:
McClellan Oscillator is the difference between two exponential moving
averages of advance and declines. The two averages are 19 days EMA and
30 days EMA.
The positive and negative values of this indicator indicate whether more
stocks are advancing or declining. The indicator is positive when the 19-
day EMA is above the 39-day EMA, and negative when the 19-day EMA
is below the 39-day EMA.
This indicator usually oscillates between the range of +100/+150 or -100/-
150.
This oscillator can also be used to spot negative and positive divergences.
3. McClellan Ratio-Adjusted Oscillator:
As Mcclellan found out that the advance and decline alone can be
influenced by the total number of issues traded, he developed the
Mcclellan Ratio-Adjusted Oscillator.
Mcclellan Ratio-Adjusted Oscillator is the ratio of net of advances minus
decline divided by total number of issues traded.
The ratio is multiplied by 100 to make it easier to read.
4. McClellan Summation Index:
This summation index is the area under the Mcclellan Ratio-Adjusted
Oscillator.
The McClellan summation has multiple interpretations and it is
considered neutral at a reading of +1,000. During the 1960s, the
McClellan Summation Index generally stayed within the bounds of 0 and
+2,000.
The interpretation of this indicator is almost the same as the Mcclellan
Ratio-Adjusted Oscillator.
5. Breadth Thrust:
Thrust is when the deviation from the norm is sufficiently large to be
identified and when that deviation signals either the end of an old trend or
beginning of the new trend.
One of the breadth indicators to analyze breadth thrust was developed by
Mark Zweig which calculates a 10 day Simple Moving Average of
Advances divided by the sum of Advances and Declines.
6. Advance- Decline ratio:
The advance-decline ratio refers to the number of advancing shares
divided by the number of declining shares.
The advance-decline ratio can be used for various timeframes, such as one
day, one week or one month.
7. ARMS Index:
ARMS Index also known as TRIN and MKDS is one of the popular up
and low volume indicators.
Up Volume is the volume traded in all advancing stocks and down volume
is the volume traded in all declining stocks which is another way of
gauging market strength.
When a large amount of down volume occurs when the market is at or
close to the bottom and when a large amount of up volume occurs when
the market is at or close to the top.
This indicator is calculated as Advance/Decline divided by Up
Volume/Down Volume and it has an inverse relationship with the market
prices.
8. Net New High and Net New Lows:
Net New 52-Week Highs is a simple breadth indicator which is calculated
by subtracting new lows from new highs.
“New lows” is the number of stocks recording new 52-week lows and
“New highs” is the number of stocks making new 52-week highs.
This indicator provides help in gauging the internal strength or weakness
in the market.
It indicates that there are more new highs when the indicator is positive.
On the other hand there are more new lows when the indicator is negative.
9. New High Versus New Lows:
This is the simplest indicator which suggests buying when the number of
new highs exceeds the number of new lows on a daily basis.
On the other hand, one should sell when the number of new lows exceeds
the number of new highs on a daily basis.
Read our latest article on 20 technical indicators you can trust while stock
trading in 2021
10. Plurality Index :
Plurality Index is calculated as the 25 day sum of the absolute difference
between the advances and declines and it is always a positive number.
High numbers in the plurality index suggest impending bottom and lower
High numbers in the plurality index suggest impending top.
11. 90% Downside Days:
This indicator is a reliable measure for identifying stock market bottoms
which uses daily upside and downside volume and also daily points gained
and lost.
A 90% downside day occurs when on a particular day the percentage of
the downside volume exceeds the total of upside and downside volume by
90% and percentage of downside points exceeds the total of gained points
and lost points by 90%.
12. Absolute Breadth Index:
This is a breadth indicator which is calculated by taking the absolute
difference between the advances and declining stocks.
Usually, large numbers suggest volatility is increasing, which indicates
significant changes in stock prices in the coming weeks.
13. High-Low Logic Index:
The high-low index compares stocks that are reaching their 52-week highs
with stocks that are hitting their 52-week lows.
The high-low index is mainly used by investors and traders for confirming
the prevailing market trend of a broad market index.
14. Ticks Index:
This index is calculated by taking all the stocks in the market that have
had an uptick minus all the stocks that had a down tick and then the result
is displayed on a chart based on a particular time frame.
It is an intraday indicator as it is using data on a tick basis but is useful for
finding inefficiencies in the market.
 Stock Analysis ( विश्लेषण )
Stock analysis is the evaluation of a particular trading instrument, an
investment sector, or the market as a whole. Stock analysts attempt to
determine the future activity of an instrument, sector, or market.
Stock analysis is a method for investors and traders to make buying
and selling decisions. By studying and evaluating past and current data,
investors and traders attempt to gain an edge in the markets by making
informed decisions.
Stock analysis is a process followed by traders to evaluate and
understand the value of a security or the stock market.Stock analysis
follows the idea that analysts can create methodologies to select stocks by
studying past and present data.Fundamental analysis and technical
analysis are two broad types of stock analysis.

Types of Stock Analysis

Stock analysis can be grouped into two broad categories:

1. Fundamental Analysis
2. Technical Analysis
1. Fundamental Analysis

The fundamental stock analysis method involves the evaluation of a

business at a basic financial level. Investors use fundamental analysis to
determine whether the current price of a company’s stock reflects the
future value of the company.
Fundamental analysis uses different factors such as the current economic
environment and finances of the company to estimate its stock value.
Different key ratios are also used to determine the financial health and
understand the true value of a company’s stock.
• Earnings per share (EPS) – The EPS is useful when companies
operating in the same industry need to be compared. A company’s EPS
indicates its profitability; hence, traders consider an increasing EPS a good
sign. The higher the value of EPS, the more the company shares are worth
buying.
• Price to Earnings ratio (P/E) – The P/E ratio indicates how much
investors are willing to pay for the earnings of a company. A higher P/E
value could mean an overvalued stock. Or, it could imply that the market
is expecting the company to perform extremely well over time. On the
other hand, a low P/E value is seen as unfavorable by the market.
• Price to Earnings to Growth ratio (PEG) – The PEG ratio helps to
determine the value of a company’s stock while considering the earnings
growth of the company. The PEG ratio, along with the P/E ratio, can help
obtain a clearer picture of a company’s stock than the P/E value alone.
• Price to Book ratio (P/B) – The P/B ratio is used to compare the market
value of a company with its book value. It seeks the value that the stock
market places on a company’s stock relative to the book value of the
company. A company with sound financial health will trade for more than
its book value since investors will consider the company’s future growth
while pricing the stocks.
• Return on Equity (ROE) – It measures how effectively a company uses
its assets for producing earnings. A high ROE implies that a company
squeezes out greater profits with available assets. Hence, with all other
things equal, it will be better to invest in high ROE companies in the long
run.
• Dividend Payout Ratio – It measures the percentage of the company’s
earnings paid to shareholders or owners. The earnings of the company,
which are not passed on to the shareholders, are used to pay off debts,
reinvest in business operations, or are retained for future use
 2. Technical Analysis
The technical analysis method involves examining data generated through
market activities, such as volume and prices. Analysts following such a
type of stock analysis use technical indicators and tools like charts and
oscillators to identify patterns that can indicate future price trends or
direction.
Technical analysts examine the historical trading data of a security and
estimate the future move of the security. It is frequently used for forex and
commodities. The technical analysis is based on the following
assumptions:
• The market knows it all. Technical analysis assumes that the market
price of a stock reflects all that has or can affect a company. Technical
analysts consider that all the factors affecting the company are priced into
the security.
• Price follows a trend. It implies that once a trend is established, future
prices tend to follow the direction of the trend. Such an assumption is the
basis of many strategies for technical trading.
• History is likely to be repeated. History repeats itself mainly concerning
price movement. Market psychology causes price movements to repeat.
Technical analysis involves using chart patterns to analyze the movements
in the market and study trends. Charts that have been used for over 100
years are still relevant since price movement patterns are often repetitive.
 Chapter IV
Investment Management
Investment Objectives & Constraints (मर्ाादा)
Investment motives & goals
Process of Investment Management

Investment Management

The business of investment has several facets, the employment of

professional fund managers, research (of individual assets and asset
classes), dealing, settlement, marketing, internal auditing, and the
preparation of reports for clients. The largest financial fund managers are
firms that exhibit all the complexity their size demands. Apart from the
people who bring in the money (marketers) and the people who direct
investment (the fund managers), there is compliance staff (to ensure
accord with legislative and regulatory constraints), internal auditors of
various kinds (to examine internal systems and controls), financial
controllers (to account for the institutions' own money and costs),
computer experts, and "back office" employees (to track and record
transactions and fund valuations for up to thousands of clients per
institution).
Investment Objectives & Constraints (गुुंतिणूक मर्ाादा)
Investment motives & goals:-
An investment objective is used by asset managers to determine
the optimal portfolio mix for a client. Investments are chosen using the
guidelines of the investment objective.
An investor questionnaire often defines financial goals and objectives
and determines the asset allocation within the portfolio based on an
individual's time horizon, risk tolerance, and financial situation.

Definition of Investment Objectives

“Investment objectives are related to what the client wants to achieve
with the portfolio of investments. Objectives define the purpose of setting
the portfolio. Generally, the objectives are concerned with return and risk
considerations. These two objectives are interdependent as the risk
objective defines how high the client can place the return objective.”

The investment objectives are mainly of two types:

A. Risk Objective
1.Specify Measure of Risk
2.Investor’s Willingness
3.Investor’s Ability
B.Return Objective
1.Specify Measure of Return
2.Desired Return
3.Required Return
4.Specific Return Objectives
A. Risk Objective
Risk objectives are the factors associated with both the willingness and the
ability of the investor to take the risk. When the ability to accept all types
of risks and willingness is combined, it is termed risk tolerance. When the
investor is unable and unwilling to take the risk, it indicates risk aversion.

The following steps are undertaken to determine the risk objective:

1.Specify Measure of Risk: Measurement of risk is the most important

issue in portfolio management. Risk is either measured in absolute or
relative terms. Absolute risk measurement will include a specific level of
variance or standard deviation of total return. Relative risk measurement
will include a specific tracking risk.
2.Investor’s Willingness: Individual investors’ willingness to take risks is
different from institutional investors. For individual investors, willingness
is determined by psychological or behavioral factors. Spending needs,
long-term obligations or wealth targets, financial strength, and liabilities
are examples of factors that determine an investor’s willingness to take the
risk.
3.Investor’s Ability: An investor’s ability to take risk depends on
financial and practical factors that bound the amount of risk taken by the
investor. An investor’s short-term horizon will negatively affect his
ability. Similarly, if the investor’s obligation and spending are less than
his portfolio, he clearly has more ability.

B.Return Objective
The following steps are required to determine the return objective of the
investor:

1.Specify Measure of Return: A measure of return needs to be specified.

It can be specified in an absolute term or a relative term. It can also be
specified in nominal or real terms. Nominal returns are not adjusted for
 inflation, whereas real returns are. One may also distinguish pre-tax
returns from post-tax returns.
2.Desired Return: A return desired by the investor needs to be
determined. The desired return indicates how much return is expected by
the investor. E.g., higher or lower than average returns.
3.Required Return: A return required by the investor also needs to be
determined. A required return indicates the return which needs to be
achieved at the minimum for the investor.
4.Specific Return Objectives: The investor’s specific return objectives
also need to be determined so that they are consistent with his risk
objectives. An investor having a high return objective needs to have a
portfolio with a high level of expected risk.

Investment Constraints
When creating a policy statement, it is important to consider an investor’s
constraints. There are five types of constraints that need to be
considered when creating a policy statement. They are as follows:
1. Liquidity Constraints
2. Time Horizon
3. Tax Concerns
4. Legal and Regulatory
5. Unique Circumstances

1. Liquidity Constraints – Liquidity constraints identify an investor’s need

for liquidity, or cash. For example, within the next year, an investor needs
$50,000 for the purchase of a new home. The $50,000 would be
considered a liquidity constraint because it needs to be set aside (be liquid)
for the investor.
2. Time Horizon – A time horizon constraint develops a timeline of an
investor’s various financial needs. The time horizon also affects an
investor’s ability to accept risk. If an investor has a long time horizon, the
 investor may have a greater ability to accept risk because he would have a
longer time period to recoup any losses. This is unlike an investor with a
shorter time horizon whose ability to accept risk may be lower because he
would not have the ability to recoup any losses.
3. Tax Concerns – After-tax returns are the returns investors are focused on
when creating an investment portfolio. If an investor is currently in a high
tax bracket as a result of his income, it may be important to focus on
investments that would not make the investor’s situation worse, like
investing more heavily in tax-deferred investments.
4. Legal and Regulatory – Legal and regulatory factors can act as an
investment constraint and must be considered. An example of this would
occur in a trust. A trust could require that no more than 10% of the trust be
distributed each year. Legal and regulatoryconstraints such as this one often
can’t be changed and must not be overlooked.
5. Unique Circumstances – Any special needs or constraints not recognized
in any of the constraints listed above would fall in this category. An example
of a unique circumstance would be the constraint an investor might place on
investing in any company that is not socially responsible, such as a tobacco
company.

Investment motives & goals

1. To Keep Money Safe
2. To Help Money Grow
3. To Earn a Steady Stream of Income
4. To Minimize the Burden of Tax
5. To Save up for Retirement
6. To Meet your Financial Goals

Before you decide to invest your earnings in any one of the many
investment plans available in India, it’s essential to understand the reasons
behind it and the investment meaning. While the individual objectives of
investment may vary from one investor to another, the overall goals of
investing money may be any one of the following reasons..

Reasons to Start Investing Today

1. To Keep Money Safe

Capital preservation is one of the primary objectives of investment for
people. Some investments help keep hard-earned money safe from being
eroded with time. By parking your funds in these instruments or schemes,
you can ensure that you do not outlive your savings. Fixed deposits,
government bonds, and even an ordinary savings account can help keep
your money safe. Although the return on investment may be lower here,
the objective of capital preservation is easily met.
2. To Help Money Grow
Another one of the common objectives of investing money is to ensure
that it grows into a sizable corpus over time. Capital appreciation is
generally a long-term goal that helps people secure their financial future.
To make the money you earn grow into wealth, you need to consider
investment objectives and options that offer a significant return on the
initial amount invested. Some of the best investments to achieve growth
include real estate, mutual funds, commodities, and equity.
3. To Earn a Steady Stream of Income
Investments can also help you earn a steady source of secondary (or
primary) income. Examples of such investments include fixed deposits
that pay out regular interest or stocks of companies that pay investors
dividends consistently. Income-generating investments can help you pay
for your everyday expenses after you have retired. Alternatively, they can
also act as excellent sources of supplementary income during your
working years by providing you with additional money to meet outlays
like college expenses or EMIs.
4. To Minimize the Burden of Tax
Aside from capital growth or preservation, investors also have other
compelling objectives for investment. This motivation comes in the form
of tax benefits offered by the Income Tax Act, 1961. Investing in options
such as Unit Linked Insurance Plans (ULIPs), Public Provident Fund
(PPF), and Equity Linked Savings Schemes (ELSS) can be deducted from
your total income. This has the effect of reducing your taxable income,
thereby bringing down your tax liability.
5. To Save up for Retirement
Saving up for retirement is a necessity. It is essential to have a retirement
fund you can fall back on in your golden years, because you may not be
able to continue working forever. By investing the money you earn during
your working years in the right investment options, you can allow your
funds to grow enough to sustain you after you’ve retired.
6. To Meet your Financial Goals
Investing can also help you achieve your short-term and long-term
financial goals without too much stress or trouble. Some investment
options, for instance, come with short lock-in periods and high liquidity.
These investments are ideal instruments to park your funds in if you wish
to save up for short-term targets like funding home improvements or
creating an emergency fund. Other investment options that come with a
longer lock-in period are perfect for saving up for long-term goals.

Process of Investment Management

As with any investment in life - a family, a home, a college education, the
best results are achieved by carefully constructing a plan and following
that plan consistently over time. A well-crafted investment plan allows
you to set specific investment goals and the strategies by which to attain
those goals.
While each investor’s situation is unique, investment plans always address
certain factors, including the reasons for the investment, the investing
horizon and the degree of risk that an investor can comfortably tolerate.
The investment plan will serve to guide us as we work together to achieve
your long-term financial success.
Investment Management process centers around six steps:
1. Assess your goals and circumstances
2. Set long-term investment objectives
3. Plan your asset allocation
4. Select your investment approach
5. Build your portfolio
6. Report, Rebalance, Review Progress

1. Assess your goals and circumstances

The investment plan process begins during our first meeting with a
discussion of your financial and non-financial values and goals, as well as
your existing assets.

2. Set long-term investment objectives

Taking into account the long-term nature of successful investing, we set
objectives for your portfolio that are appropriate for your attitude towards
risk and investment horizon.
3. Plan your asset allocation
Because it is so important, asset allocation is the first investment decision.
During this process, we decide how much of your portfolio to invest in
each of the different investment types, or asset classes, including stocks,
bonds, real estate, commodities, cash, short-term investments, domestic
and international.
4. Select your investment approach
With an asset allocation in place, we now select the investment vehicles
that you will use to implement your portfolio strategy. Two key investing
principles guide these decisions: the importance of diversification and the
value of remaining invested.
5. Build your portfolio
Building on the first four steps, we construct a portfolio suited to your
needs, goals, investment horizon, and risk tolerance. The building blocks
for the portfolio are ETF’s and low cost, tax efficient index funds which
provide the optimal way to implement a diversified portfolio.
6. Report, Rebalance, Review Progress
When our ongoing review of your situation indicates that changes and re-
balancing in your portfolio are warranted, we make those changes as
needed. On a quarterly basis, we review: portfolio performance, tax
planning, progress towards your personal financial planning goals, and
any changes in your personal circumstances that might warrant a change
in strategy.
 Chapter V
Efficient Market Theory
Weak form Efficiency
Semi -Strong Form Efficiency
Strong Form Efficiency
Measuring Method Of Risk & Return of Securities

Efficient Market Theory

Benoit Mandelbrot claimed the efficient markets theory was first

proposed by the French mathematician Louis Bachelier in 1900 in his PhD
thesis "The Theory of Speculation" describing how prices of commodities
and stocks varied in markets.
The efficient-market hypothesis (EMH) is a hypothesis in financial
economics that states that asset prices reflect all available information. A
direct implication is that it is impossible to "beat the market" consistently
on a risk-adjusted basis since market prices should only react to new
information.
Because the EMH is formulated in terms of risk adjustment, it only
makes testable predictions when coupled with a particular model of
risk.[1] As a result, research in financial economics since at least the 1990s
has focused on market anomalies, that is, deviations from specific models
of risk
The efficient market hypothesis (EMH) or theory states that share
prices reflect all information. The EMH hypothesizes that stocks trade at
their fair market value on exchanges. Proponents of EMH posit that
investors benefit from investing in a low-cost, passive portfolio.
Theoretical Background
Suppose that a piece of information about the value of a stock (say,
about a future merger) is widely available to investors. If the price of the
stock does not already reflect that information, then investors can trade on
it, thereby moving the price until the information is no longer useful for
trading.
Note that this thought experiment does not necessarily imply that stock
prices are unpredictable. For example, suppose that the piece of
information in question says that a financial crisis is likely to come soon.
Investors typically do not like to hold stocks during a financial crisis, and
thus investors may sell stocks until the price drops enough so that the
expected return compensates for this risk.
How efficient markets are (and are not) linked to the random walk theory
can be described through the fundamental theorem of asset pricing. This
theorem provides mathematical predictions regarding the price of a stock,
assuming that there is no arbitrage, that is, assuming that there is no risk-
free way to trade profitably. Formally, if arbitrage is impossible, then the
theorem predicts that the price of a stock is the discounted value of its
future price and dividend:
Pt =Et {M t+1(Pt+1+ Dt+1)}
where is the expected value given information at time , is the stochastic
discount factor, and is the dividend the stock pays next period.
Note that this equation does not generally imply a random walk. However,
if we assume the stochastic discount factor is constant and the time
interval is short enough so that no dividend is being paid, we have
Pt = M Et (Pt+1)

Taking logs and assuming that the Jensen's inequality term is negligible,
we have
log Pt = log M Et (Pt+1)

which implies that the log of stock prices follows a random walk (with a
drift).
Although the concept of an efficient market is similar to the assumption
that stock prices follow:
E[St+1/ St]= St
Weak form Efficiency(कमकुित आकार कार्ाक्षमता)

Weak form efficiency claims that past price movements,

volume, and earnings data do not affect a stock’s price and can’t be used
to predict its future direction.
The Basics of Weak Form Efficiency
Weak form efficiency, also known as the random walk theory,
states that future securities' prices are random and not influenced by past
events. Advocates of weak form efficiency believe all current
information is reflected in stock prices and past information has no
relationship with current market prices.
The concept of weak form efficiency was pioneered by
Princeton University economics professor Burton G. Malkiel in his 1973
book, "A Random Walk Down Wall Street." The book, in addition to
touching on random walk theory, describes the efficient market
hypothesis and the other two degrees of efficient market
hypothesis: semi-strong form efficiency and strong form efficiency.
Unlike weak form efficiency, the other forms believe that past, present,
and future information affects stock price movements to varying
degrees.1
Uses for Weak Form Efficiency
The key principle of weak form efficiency is that the
randomness of stock prices make it impossible to find price patterns and
take advantage of price movements. Specifically, daily stock price
fluctuations are entirely independent of each other; it assumes that price
momentum does not exist. Additionally, past earnings growth does not
predict current or future earnings growth.
Weak form efficiency doesn’t consider technical analysis to be
accurate and asserts that even fundamental analysis, at times, can be
flawed. It’s therefore extremely difficult, according to weak form
efficiency, to outperform the market, especially in the short term. For
example, if a person agrees with this type of efficiency, they believe that
there’s no point in having a financial advisor or active portfolio manager.
Instead, investors who advocate weak form efficiency assume they can
randomly pick an investment or a portfolio that will provide similar
returns.

Real-World Example of Weak Form Efficiency

Suppose David, a swing trader, sees Alphabet Inc.
(GOOGL) continuously decline on Mondays and increase in value on
Fridays. He may assume he can profit if he buys the stock at the
beginning of the week and sells at the end of the week. If, however,
Alphabet’s price declines on Monday but does not increase on Friday, the
market is considered weak form efficient.
Similarly, let’s assume Apple Inc. (APPL) has beaten analysts’
earnings expectation in the third quarter consecutively for the last five
years. Jenny, a buy-and-hold investor, notices this pattern and purchases
the stock a week before it reports this year’s third quarter earnings in
anticipation of Apple’s share price rising after the release. Unfortunately
for Jenny, the company’s earnings fall short of analysts’ expectations. The
theory states that the market is weakly efficient because it doesn’t allow
Jenny to earn an excess return by selecting the stock based on historical
earnings data.
 Semi -Strong Form Efficiency(अर्ा मजबूत आकार
कार्ाक्षमता)
Semi-Strong Form Efficiency?
Semi-strong form efficiency is an aspect of the Efficient Market
Hypothesis (EMH) that assumes that current stock prices adjust rapidly to
the release of all new public information.

Basics of Semi-Strong Form Efficiency

Semi-strong form efficiency contends that security prices have
factored in publicly-available market and that price changes to new
equilibrium levels are reflections of that information. It is considered the
most practical of all EMH hypotheses but is unable to explain the context
for material nonpublic information (MNPI). It concludes that
neither fundamental nor technical analysis can be used to achieve superior
gains and suggests that only MNPI would benefit investors seeking to
earn above average returns on investments.
EMH states that at any given time and in a liquid market, security
prices fully reflect all available information. This theory evolved from a
1960s PhD dissertation by U. S. economist Eugene Fama. The EMH
exists in three forms: weak, semi-strong and strong, and it evaluates the
influence of MNPI on market prices. EMH contends that since markets
are efficient and current prices reflect all information, attempts to
outperform the market are subject to chance not skill. The logic behind
this is the Random Walk Theory, where all price changes reflect a random
departure from previous prices. Because share prices instantly reflect all
available information, then tomorrow’s prices are independent of today’s
prices and will only reflect tomorrow’s news. Assuming news and price
changes are unpredictable then novice and expert investor, holding a
diversified portfolio, would obtain comparable returns regardless of their
expertise.
Efficient Market Hypothesis Explained
The weak form of EMH assumes that the current stock prices reflect all
available security market information. It contends that past price and
volume data have no relationship to the direction or level of security
prices. It concludes that excess returns cannot be achieved using technical
analysis.
The strong form of EMH also assumes that current stock prices reflect all
public and private information. It contends that non-market and inside
information as well as market information are factored into security prices
and that nobody has monopolistic access to relevant information. It
assumes a perfect market and concludes that excess returns are impossible
to achieve consistently.
EMH is influential throughout financial research, but can fall short in
application. For example, the 2008 Financial Crisis called into question
many theoretical market approaches for their lack of practical perspective.
If all EMH assumptions had held, then the housing bubble and subsequent
crash would not have occurred. EMH fails to explain market anomalies,
including speculative bubbles and excess volatility. As the housing bubble
peaked, funds continued to pour into subprime mortgages. Contrary to
rational expectations, investors acted irrationally in favor of potential
arbitrage opportunities. An efficient market would have adjusted asset
prices to rational levels.

Example of Semi-Strong Efficient Market Hypothesis

Suppose stock ABC is trading at $10, one day before it is scheduled to
report earnings. A news report is published the evening before its
earnings call that claims ABC's business has suffered in the last quarter
due to adverse government regulation. When trading opens the next day,
ABC's stock falls to $8, reflecting movement due to available public
information. But the stock jumps to $11 after the call because the
company reported positive results on the back of an effective cost-cutting
strategy. The MNPI, in this case, is news of the cost-cutting strategy
which, if available to investors, would have allowed them to profit
handsomely.
 Strong Form Efficiency(मजबूत आकार कार्ाक्षमता)
Strong form efficiency is the most stringent version of the efficient
market hypothesis (EMH) investment theory, stating that all information
in a market, whether public or private, is accounted for in a stock's price.
Practitioners of strong form efficiency believe that even insider
information cannot give an investor an advantage. This degree of market
efficiency implies that profits exceeding normal returns cannot be
realized regardless of the amount of research or information investors
have access to.

Understanding Strong Form Efficiency

Strong form efficiency is a component of the EMH and is considered
part of the random walk theory. It states that the price of securities and,
therefore the overall market, are not random and are influenced by past
events.
Strong form efficiency is one of the three different degrees of the
EMH, the others being weak and semi-strong efficiency. Each one is
based on the same basic theory but varies slightly in terms of stringency.

History of Strong Form Efficiency

The concept of strong form efficiency was pioneered by
Princeton economics professor Burton G. Malkiel in his book published
in 1973 entitled "A Random Walk Down Wall Street."
Malkiel described earnings estimates, technical analysis, and investment
advisory services as “useless.” He said the best way to maximize returns
is by following a buy-and-hold strategy, adding that portfolios constructed
by experts should fare no better than a basket of stocks put together by a
blindfolded monkey.
Example of Strong Form Efficiency
Most examples of strong form efficiency involve insider information.
This is because strong form efficiency is the only part of the EMH that
takes into account proprietary information. The theory states that contrary
to popular belief, harboring inside information will not help an investor
earn high returns in the market.
Here’s an example of how strong form efficiency could play out in real
life. A chief technology officer (CTO) of a public technology company
believes that his firm will begin to lose customers and revenues. After the
internal rollout of a new product feature to beta testers, the CTO's fears
are confirmed, and he knows that the official rollout will be a flop. This
would be considered insider information.
The CTO decides to take up a short position in his own company,
effectively betting against the stock price movement. If the stock price
declines, the CTO will profit and, if the stock prices increases, he will
lose money.
However, when the product feature is released to the public, the stock
price is unaffected and does not decline even though customers are
disappointed with the product. This market is strong form efficient
because even the insider information of the product flop was already
priced into the stock. The CTO would lose money in this situation.
Measuring Method Of Risk & Return of Securities
(जोखीम आवण परतावा मोजण्याची पद्धत)
Measuring Method Of Risk
Risk measures are statistical measures that are historical predictors of
investment risk and volatility, and they are also major components
in modern portfolio ((एखाद्या व्यक्तीच्या वकंवा बंकेच्या) मालकीची तारणपत्रे (वसक्युररटीझ)
रोखे इ. ची यादी)theory (MPT). MPT is a standard financial and academic
methodology for assessing the performance of a stock or a stock fund
as compared to its benchmark index.
There are five method of risk measures, and each measure
provides a unique way to assess the risk present in investments that are
under consideration. The five measures include the alpha, beta, R-
squared, standard deviation, and Sharpe ratio. Risk measures can be used
individually or together to perform a risk assessment. When comparing
two potential investments, it is wise to compare like for like to determine
which investment holds the most risk.
1.Standard Deviation
2.Sharpe Ratio
3.Alpha
4.Beta
5.R-Squared

1.Standard Deviation
Standard deviation is a method of measuring data dispersion in regards to
the mean value of the dataset and provides a measurement regarding an
investment’s volatility.
As it relates to investments, the standard deviation measures how much
return on investment is deviating from the expected normal or average
returns.
2.Sharpe Ratio
The Sharpe ratio measures performance as adjusted by the associated
risks. This is done by removing the rate of return on a risk-free
investment, such as a U.S. Treasury Bond, from the experienced rate of
return.
This is then divided by the associated investment’s standard deviation and
serves as an indicator of whether an investment's return is due to wise
investing or due to the assumption of excess risk.

3.Alpha
Alpha measures risk relative to the market or a selected benchmark index.
For example, if the S&P 500 has been deemed the benchmark for a
particular fund, the activity of the fund would be compared to that
experienced by the selected index. If the fund outperforms the benchmark,
it is said to have a positive alpha. If the fund falls below the performance
of the benchmark, it is considered to have a negative alpha.
4.Beta
Beta measures the volatility or systemic risk of a fund in comparison to
the market or the selected benchmark index. A beta of one indicates the
fund is expected to move in conjunction with the benchmark. Betas below
one are considered less volatile than the benchmark, while those over one
are considered more volatile than the benchmark.
5.R-Squared
R-Squared measures the percentage of an investment's movement
attributable to movements in its benchmark index. An R-squared value
represents the correlation between the examined investment and its
associated benchmark. For example, an R-squared value of 95 would be
considered to have a high correlation, while an R-squared value of 50 may
be considered low.
 Return of Securities(वसक्युररटीजचा परतावा)
As most of us know, return on security investment is basically the amount
of risk reduced, less the amount spent, divided by the amount spent on
controls. Net amount of risk per amount of control is the essential formula for
any "return on" ratio -- return on investment, equity, assets and so on.

A return is the change in price of an asset, investment, or project

over time, which may be represented in terms of price change or
percentage change.A positive return represents a profit while a negative
return marks a loss.

Understanding a Return
Prudent(दु रदर्शी) investors know that a precise definition of return is
situational and dependent on the financial data input to measure it. An
omnibus term like profit could mean gross, operating, net, before tax, or
after tax. An omnibus term like investment could mean selected, average,
or total assets.
A holding period return is an investment's return over the time it is
owned by a particular investor. Holding period return may be expressed
nominally or as a percentage. When expressed as a percentage, the term
often used is rate of return (RoR).
For example, the return earned during the periodic interval of a
month is a monthly return and of a year is an annual return. Often, people
are interested in the annual return of an investment, or year-on-year
(YoY) return, which calculates the price change from today to that of the
same date one year ago.
Types Of Return of Securities
1.Real Return
2.Nominal Return
3.Return Ratios
4.Return on Assets (ROA)
5.Return on Investment (ROI)
6.Return on Equity (ROE)
7.Return on Assets (ROA)

1.Real Return
A real rate of return is adjusted for changes in prices due to inflation or
other external factors. This method expresses the nominal rate of return in
real terms, which keeps the purchasing power of a given level of capital
constant over time.
Adjusting the nominal return to compensate for factors such as inflation
allows you to determine how much of your nominal return is real return.
Knowing the real rate of return of an investment is very important before
investing your money. That’s because inflation can reduce the value as
time goes on, just as taxes also chip away at it.

2.Nominal Return
A nominal return is the net profit or loss of an investment expressed in the
amount of dollars (or other applicable currency) before any adjustments
for taxes, fees, dividends, inflation, or any other influence on the amount.
It can be calculated by figuring the change in the value of the investment
over a stated time period plus any distributions minus any outlays.
Distributions received by an investor depend on the type of investment or
venture but may include dividends, interest, rents, rights, benefits, or
other cash-flows received by an investor. Outlays paid by an investor
depend on the type of investment or venture but may include taxes, costs,
fees, or expenditures paid by an investor to acquire, maintain, and sell an
investment
3.Return Ratios
Return ratios are a subset of financial ratios that measure how effectively
an investment is being managed. They help to evaluate if the highest
possible return is being generated on an investment. In general, return
ratios compare the tools available to generate profit, such as the
investment in assets or equity to net income.
Return ratios make this comparison by dividing selected or total assets or
equity into net income. The result is a percentage of return per dollar
invested that can be used to evaluate the strength of the investment
by comparing it to benchmarks like the return ratios of similar
investments, companies, industries, or markets. For instance, return of
capital (ROC) means the recovery of the original investment.
4.Return on Assets (ROA)
Return on assets (ROA) is a profitability ratio calculated as net income
divided by average total assets that measures how much net profit is
generated for each dollar invested in assets. It determines financial
leverage and whether enough is earned from asset use to cover the cost of
capital. Net income divided by average total assets equals ROA.
For example, if net income for the year is $10,000, and total average
assets for the company over the same time period is equal to $100,000,
the ROA is $10,000 divided by $100,000, or 10%.

5.Return on Investment (ROI)

A percentage return is a return expressed as a percentage. It is known as
the return on investment (ROI). ROI is the return per dollar invested. ROI
is calculated by dividing the dollar return by the initial dollar investment.
This ratio is multiplied by 100 to get a percentage. Assuming a $200
return on a $1,000 investment, the percentage return or ROI = ($200 /
$1,000) x 100 = 20%.
6.Return on Equity (ROE)
Return on equity (ROE) is a profitability ratio calculated as net income
divided by average shareholder's equity that measures how much net
income is generated per dollar of stock investment. If a company makes
$10,000 in net income for the year and the average equity capital of the
company over the same time period is $100,000, the ROE is 10%.
7.Return on Assets (ROA)
Return on assets (ROA) is a profitability ratio calculated as net income
divided by average total assets that measures how much net profit is
generated for each dollar invested in assets. It determines financial
leverage and whether enough is earned from asset use to cover the cost of
capital. Net income divided by average total assets equals ROA.
For example, if net income for the year is $10,000, and total average
assets for the company over the same time period is equal to $100,000,
the ROA is $10,000 divided by $100,000, or 10%.