Porfolio Analysis
Porfolio Analysis
Porfolio Analysis
THEORY
PORTFOLIO THEORY
This theory was developed
by Nobel Economist Harry
Markowitz in 1952
Dont put all your eggs in
one basket.
PORTFOLIO THEORY
General assumption: Investors want to
maximize the returns from the total set
of investments for a given level of risk.
Portfolio theory also assumes that
investors are basically risk averse
RETURN
The gain or loss of a security in a
particular period. The return
consists of the income and the
capital gains relative on an
investment.
RISK ATTITUDES
PORTFOLIO THEORY
This portfolio variance formula not
only indicated the importance of
diversifying investments to reduce
the total risk of a portfolio but also
showed how to effectively diversify.
ALTERNATIVE MEASURES
OF RISK
Expected Value
Variance or Standard Deviation
Measure of spread of the outcomes around the
expected value.
MEASURING RISKS
Design probability distribution of anticipated
future outcomes
Establish
- Probability distribution
- Determine expected value
- Calculate dispersion around expected value
PORTFOLIO THEORY
THE EFFICIENT FRONTIER
Represents the set of
portfolios that has the
maximum rate of
return for every given
level of risk or the
minimum risk for
every level of return.
CORRELATION
Statistical measure of the relationship
between two series of numbers representing
data
Positively Correlated items move in the
same direction.
Negatively Correlated items move in
opposite directions.
Correlation Coefficient is a measure of the
degree of correlation between two series of
numbers representing data.
CORRELATION
Perfectly Positively Correlated describes
two positively correlated series having a
correlation coefficient of +1
Perfectly Negatively Correlated describes
two negatively correlated series having a
correlation coefficient of -1
Uncorrelated describes two series that
lack any relationship and have a
correlation coefficient of nearly zero
FUNDAMENTA
L ANALYSIS
What to Expect?
a.Introduction to Fundamental
Analysis
b.Aspects of Fundamental Analysis
c. Financial Statements
d.Example
WHAT IS FUNDAMENTAL
ANALYSIS?
Fundamental analysis is a technique that attempts to
determine a securitys value by focusing on underlying
factors that affect a company's actual business and its future
prospects.
WHY FUNDAMENTAL ANALYSIS?
Fundamental analysis answers the following questions
1. Is the companys revenue growing?
2. Is it actually making a profit?
3. Is it in a position strong-enough to outrun its competitors
in the future?
4. Is it able to repay its debts?
5. Is management trying to "cook the books"?
WHAT IS FUNDAMENTAL
ANALYSIS?
Fundamental analysis can be composed of many different
aspects: the analysis of the economy as the whole, the
analysis of an industry or that of an individual company.
ECONOMIC ANALYSIS
The performance of a company depends much on the
performance of the economy.
The first step to this type of analysis includes looking at the
macroeconomic situation.
GDP/growth
rate
Tax rates
Balance of
payments
Inflation
Domestic
savings rate
Infrastructure
Interest rates
FDI/FII
Political
stability
Exchange
rates
Agricultural
production/m
onsoon
Goals of Policy
Full Employment
Interest Rates
Money Supply
Economic Growth
Interest Rates
Money Supply
FAVOURABLE UNFAVOURAB
IMPACT
LE IMAPACT
GDP/GROWTH RATE
DOMESTIC SAVINGS
RATE
HIGH
LOW
INTEREST RATES
LOW
HIGH
TAX RATES
LOW
HIGH
INFLATION
LOW
HIGH
IIP/INDUSTRIAL
PRODUCTION
HIGH
LOW
NEGATIVE
BALANCE OF
PAYMENTS
NEGATIVE
POSITIVE
FAVOURABLE UNFAVOURAB
IMPACT
LE IMAPACT
FOREIGN
EXCHANGE
POSITION
HIGH
LOW
DEFICIT
FINANCING/FISCAL
DEFICIT
LOW
HIGH
AGRICULTURAL
PRODUCTION
HIGH
LOW
INFRASTRUCTURAL
FACILITIES
GOOD
NOT GOOD
Industry Analysis
An industry intelligence is a business
tool carried out to assess profit
potential and the complexity of a
particular industry.
Industry intelligence is assessed based of
key factors relating to the industry such as
the history of the industry,
industry life cycle,
a review of how differing trends such as
seasonal fluctuations affect the industry,
external influences on the industry such as
government laws and
a review of levels of competition both
present and future for the specific industry.
2.
3.
4.
5.
Competitors intelligence
Competitors intelligence in international business is an assessment of
the strengths and weaknesses of current and potential competitors.
Develo
Develo
ping
ping
Marketi
Marketi
ng
ng
Strateg
Strateg
y
y
Compa
Compa
rison of
rison
of
your
your
potenti
potenti
als
als
with
with
compet
compet
itors
itors
Sedans
(Large
Cars)
Soft
Drinks
Movies
Colleges
Transportation
Total
Generic
Brand
Product
Budget
Competito
Competitors
Competitors Rental cars,
Competitor
Maruti
Suzuki, Ford Jeeps,
car-sharing,
riders
Hyundai, Toyota
Hatchbacks, SUVs, Bikes, BMTC,
sharing,sliftHonda, Nissan
Minivans, MUVs
Metro.
sharing
Refreshment
Coca-Cola, Pepsi,
Tropicana, Frooti
Minute Maid, Appy
Tea, Coffee,
Badam Milk, Fruit
Juice, Lime soda,
Butter milk.
Tap water,
Prasadam
(given in
religious places)
Avengers,
Cable TV, Pay-perSpiderman, Ice
view on DTH, DVD
age, Shrek,
rentals
Batman, Immortals,
Mission Impossible.
Sporting events
like IPL, Music
Concerts,
Exhibitions,
Melas.
Relative and
friends house,
reading, Parks,
Museum.
Books, Internet,
Apprenticeship,
Seminars.
Public Colleges
Need
Entertainment
Education
Distance
Education,
Community
college.
Company Analysis
It involves a close investigative scrutiny of the
companies financial and non financial aspects with
a view to identifying its strength, weaknesses and
future business prospects.
Company
Analysis
financial
non financial
Non Financial Factors
Marketing success
Business Model
Competitive Advantage
Management
Corporate Governance
Company Analysis-Non
Financial
Sales Revenue (growth)
Profitability (trend)
Product line (turnover, age)
Output rate of new products
Product innovation strategies
R&D budgets
Pricing Strategy
Patents and technology
Company Analysis-Non
Financial
Organizational performance
Effective application of company resources
Efficient accomplishment of company
goals
Management functions
Planning - setting goals/resources
Organizing - assigning tasks/resources
Leading - motivating achievement
Controlling - monitoring performance
Company Analysis-Non
Financial
Evaluating Management Quality
Age and experience of management
Strategic planning
Understanding of the global environment
Adaptability to external changes
Marketing strategy
Track record of the competitive position
Sustainable growth
Public image
Finance Strategy - adequate and appropriate
Employee/union relations
Effectiveness of board of directors
Strengths
Latest Technology
SWOT
ANALYSI
S
Established products
Committed manpower
Advantageous location
Weaknesses
Strong finances
Opportunities
Loose controls
Family funds
Weaknesses
Growing domestic
demand
Price War
Expanding export
markets
Undependable component
Cheap labour
Booming capital markets
Low interest rates
Intensive competition
Suppliers
Infrastructure bottlenecks
Power cuts
Company Analysis-Financial
Operating efficiency
Productivity
Production function
Regression analysis
Forecast Revenues, Expenses, Net Income
Forecast Assets, Liabilities, External
Capital Requirements
Company Analysis-Financial
Balance Sheet
Snapshot of companys Assets,
Liabilities and Equity.
Income statement
Sales, expenses, and taxes incurred
to operate
Earnings per share
Cash flow statement
Sources and Uses of funds
Company Analysis-Financial
Financial Ratio Analysis
Liquidity (ability to pay bills)
Debt (financial leverage)
Profitability (cost controls)
Efficiency (asset management)
DuPont Analysis
Top-down analysis of company
operations
Objective: increase ROE
Company Analysis-Financial
Liquidity Ratios
Measure ability to pay maturing obligations
Current ratio
Current assets / current liabilities
Quick ratio
(Current assets less inventories) / current
liabilities
Company Analysis-Financial
Debt Ratios
Measure extent to which firm uses debt to
finance asset investment (risk attribute)
Debt-equity ratio
Total long-term debt / total equity
Company Analysis-Financial
Profitability Ratios
Measure profits relative to sales
Gross profit margin ( % ) = Gross profit / sales
Operating Profit Margin = Operating profits /
sales
Net profit margin = Net profit after taxes / sales
ROA = Net Profit / Total Assets
ROE = Net Profit / Stockholder Equity*
* Excludes preferred stock balances
Company Analysis-Financial
Profitability Ratios
Measure effectiveness of asset management
Average collection period (in days)
Average receivables / Sales per day
Company Analysis-Financial
Other Ratios
Earnings per share (EPS): (Net income after
taxes preferred dividends)/ number of shares
Price-earnings (P/E): Price per share/expected
EPS
Dividend yield: Indicated annual dividend/price
per share
Dividend payout: Dividends per share/EPS
Cash flow per share: (After-tax profits +
depreciation and other noncash
expenses)/number of shares
Book value per share: Net worth attributable
to common shareholders/number of shares
Company Analysis-Financial
Net Profits Net Profits
Sales
Total Assets
ROE
Equity
Sales
Total Assets
Equity
Ratio 1
ROE
Ratio 1 = NPM
Ratio 2
Ratio 3
Ratio 2 = TATO
The DuPont System suggests that ROE (which drives stock price) is a function
of cost control, asset management, and debt management.
Conclusion
The end goal of performing fundamental analysis is to produce a
value that an investor can compare with the underlying assets
current price in hopes of figuring out what sort of position to take
with that security(under priced = buy, overpriced = sell).
Valuation of Stock
The intrinsic value of a share is the present value of all future cash flows
INTRINSIC VALUE = DIVIDENDS + CAPITAL APPRECIATION
Investment decision:
1. If the market price of a share is currently lower than its intrinsic
value, such a share would be bought because it is perceived to be
under-priced.
2. A share whose current market price is higher than its intrinsic value
would be considered as overpriced and hence sold.
REFERENCES
Modern Portfolio Theory: Why It's Still Hip | Investopedia
http://www.investopedia.com/articles/06/mpt.asp#ixzz3y9Sm161d
http://www.investopedia.com/
Investment Analysis and Portfolio Management By: Reilly & Brown
http://philpad.com/list-of-accredited-online-trading-brokers-in-the-philippine
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/
http://www.pinoymoneytalk.com/philippine-stocks-exchange-complete-list /
http://philpad.com/list-of-accredited-online-trading-brokers-in-the-philippine
s
/
https://www.youtube.com/watch?v= lSY4L5Y2q1E
https://www.youtube.com/watch?v= tE5Py6Vt61w
Philippine Stock Exchange
http://www.slideshare.net/delasalask/philippine-stock-exchange- 30869666
http://www.investopedia.com/financial-edge/0511/the-top-17-investing-quote
s-of-alltime.aspx
http://www.investopedia.com/walkthrough/corporate-finance/1/financialmarkets.aspx
THANK YOU!!!