Portfolio Management - WordPress.com · 2017. 4. 21. · Portfolio Management Prepared By:...
Transcript of Portfolio Management - WordPress.com · 2017. 4. 21. · Portfolio Management Prepared By:...
Portfolio Management
Prepared By:
Noorulhadi QureshiLecturer Govt College of Management
Sciences Peshawar
FUNDAMENTAL ANALYSIS
(INDUSTRIES AND COMPANIES)
Industry & Company Analysis
• Company can be characterized as belonging
to an industry. The performance of
companies would, therefore, be influenced by
the fortune of the industry it belongs.
• An Analyst has to undertake an industry
analysis so as to study the fundamental
factors affecting the performance of different
industries.
Industry & Company Analysis
• An Industry is generally described as a
homogenous group of companies. Or group
of firms producing reasonably similar
products which serves the same needs of
common set of buyers.
• Industry analysis refers to an evaluation of
the relative strengths and weaknesses of
particular industries.
Industries are traditionally classified
on the basis of product
PHARMACEUTICAL
TEXTILE CEMENT
OIL AND GAS
STEEL
INDUSTRIES
Product life-cycle (PLC) Like human beings, products also have an arc. From birth to death, human beings pass through various stages e.g. birth, growth, maturity, decline and death. A similar life-cycle is seen in the case of products. The product life cycle goes through multiple phases, involves many professional disciplines, and requires many skills, tools and processes. Product life cycle (PLC) has to do with the life of a product in the market with respect to business/commercial costs and sales measures. To say that a product has a life cycle is to assert three things:
The four main stages of a product's life cycle and the accompanying characteristics are:
StageCharacteristics
1. Market introduction stage
2. Growth stage
3. Maturity stage
4. Saturation and decline stage
The four main stages of a product's life cycle and the accompanying characteristics are:
Stage Characteristics
1. Market introduction stage
• costs are very high
• slow sales volumes to start
• little or no competition
• demand has to be created
• customers have to be prompted to try the product
• makes no money at this stage
2. Growth stage
• costs reduced due to economies of scale
• sales volume increases significantly
• profitability begins to rise
• public awareness increases
• competition begins to increase with a few
new players in establishing market
• increased competition leads to price
decreases
3. Maturity stage
• costs are lowered as a result of production volumes increasing and experience curve effects
• sales volume peaks and market saturation is reached
• increase in competitors entering the market
• prices tend to drop due to the proliferation of competing products
• brand differentiation and feature diversification is emphasized to maintain or increase market share
• Industrial profits go down
4. Saturation and decline stage
• costs become counter-optimal
• sales volume decline
• prices, profitability diminish
• profit becomes more a challenge of
production/distribution efficiency than
increased sales
Definition of 'Industry Lifecycle'
A concept relating to the different stages an
industry will go through, from the first product
entry to its eventual decline.
• A form of fundamental analysis involving the
process of making investment decisions based
on the different stages an industry is at during a
given point in time. The type of position taken
will depend on firm specific characteristics, as
well as where the industry is at in its life cycle.
Industry Life Cycle
• According to Julius Grodinsky industry life cycle theory-the life of an industry can be segregated into the-
• Pioneering Stage
• Expansion Stage
• Stagnation Stage
• Decay Stage
Introduction stage/ Pioneering
Stage:
• This is the first stage in the industrial life cycle of a new industry where the technology as well as the product are relatively new and have not reached a state of perfection. The pioneering stage is characterized by rapid growth in demand for the output of industry. As a result, there is a great opportunity for profit & highly risk. It’s also called sunrises industries. For example, ‘a leasing industry’ Computer Software & information technology etc.
Growth stage /Expansion Stage:
• This is second stage of expansion or
growth and survived the pioneering stage.
The stage of an industry are quite
attractive for investment purposes.
Investors cab get high returns at low risk
because demand exceeds supply in the
this stage. Companies will earn increasing
amounts of profits and pay attractive
dividends.
Maturity stage/Stagnation Stage:
• This is the third stage in the industry life
cycle. In this stage, the growth of the
industry stabilizes. The ability of the
industry to grow appears to have been
lost. sales may be increasing but at a
slower rate than that experienced by
competitive industries or by the overall
economy. For example, Desktop PC
Computers.
Decline stage/ Decay Stage:
• From the stagnation sage the industry passes to
the decay stage. This occurs when the products
of the industry are no longer in demand. New
products and new technologies have come to
the market. Customers have change their habits,
style and liking. As a result, the industry
becomes obsolete and gradually ceases to exist.
Thus, changes in social habits, changes in
technology and declining demand are the
causes of decay of an industry.
• The industry life cycle approach has
important implications for the investor. It
gives an insight into the apparent of
investment in given industry a t a given
time. In fact, each development stage is
unique and exhibits different characteristic
Competitive Conditions in the
Industry
Permanance
Labour Conditions
Attitude of Government
Supply of Raw Materials
Cost Structure
Fixed Cost
The higher the fixed cost
Component. The higher is
the sales volume necessary
To achieve break-even point.
Variable Cost
The lower the proportion of
fixed cost relative to
variable cost, lower would
be the break-even point.
Industry Analysis includes the cost structure of the industry i.e
Fixed Cost and Variable Cost
Lower break even point provides higher margin of safety.
An analyst would consider lower break even point industry
For his investment.