Chapter 5 SECURITIES ANALIST

Definition of fundamental analysis• is a method of stock analysis based on basic factors which have influence on or lead to change of stock prices in order to show the intrinsic value

Chapter 5

Securities analysis

Chapter 5: Securities analysis

5.1 Some concepts

5.2 Fundamental analysis (lesson 8)

5.3 Technical analysis (lesson 9)

Definition of securities analysis activity

• Securities analysis is analysis of micro and macro data base in order to give basis of making decisions of securities investors

• Securities analysis activity need to solve

following basic questions:

– When should invest and what kinds of

securities should invest in at which price?

Analysis methods

• Analysis of top to bottom (top down)

• Analysis of bottom to top (bottom up)

Analysis of top to bottom

Macroeconomics inside and outside of the country

Branch

Analysis of bottom to top

Macroeconomics inside and outside of the country

Branch

Enterprise

The database of stocks analysis

– database for the macro analysis

– the database for the sector analysis

– database for the company analysis

Database for the macro analysis

Database for the sector analysis

• Average profit rate

• P/E

• Business cycles

• Existence period of the products, and short-term and long-term developed outlook of the sector, etc

Database for the company analysis

• Balance sheets

• Business reports

• Monetary circulation reports and groups of financial target

The analytical models

• The fundamental analysis

• The technical analysis

Definition of fundamental analysis

• is a method of stock analysis based on basic factors

which have influence on or lead to change of stock

prices in order to show the intrinsic value of stocks on

the market.

• Basic factors comprise analysis of basic information

about the company, analysis of the company's financial statements, analysis of the company's business

operations, analysis of the industry in which the

company is operating and analysis of macroeconomic conditions affecting the common stock prices

• After analyzing, analysts are supposed to have to predict important targets such as expected income, the book

value per share, fair value of share, assessments as well

as recommendations to trade shares on the market.

Fundamental analysis norms

• Financial statements of the company

• Financial index

Financial statements of the company

• The balance sheets

• Reports on results of business operations

• Reports on monetary circulation

Financial index

• Group of norms for insolvency assessment

• Group of norms for profitability

Group of norms for insolvency

assessment

Liquid assets Ratio (Current Ratio):

Liquid assets Liquid assets Ratio = -

Total current liabilities

Sensitive assets ratio (Quick Ratio):

Cash Ratio:

Liquid assets – Inventory Sensitive Ratio = -

Total current liabilities

Cash+ negotiable Stock

Debt ratio:

Times interest earned ratio:

Total debt Debt ratio = -

-Group of norms for profitability

assessment

Rate of Returns (EBIT Margin)

Rate of Net Profit (ROS, Net Profit Margin)

Income from business operations Rate of Returns = -

(OPM) Real sales

Return On Assets (ROA)

Return On Equity (ROE)

Net Profit After Taxes ROA = -

Total Assets

Net Profit After Taxes ROE = -

Equity

Group of norms for results assessments

on business operations

Inventory Turnover Ratio: describes the turnover of

products a year

Day Sales Outstanding: Describes the period between

selling products and getting money

Sales Inventory Turnover Ratio = -

Inventory

Fix assets turnover Ratio: Measures the company's effect

of using fix assets

Total assets turnover Ratio:

Sales Fix assets turnover Ratio = -

Net fix assets

Sales Total assets turnover assets = -

Total assets

Group of norms for stock analysis

Earnings per Share (EPS)

Price to Earning Ratio (P/E)

Net Profit - Preferential dividend EPS = -

Number of oustanding shares

Dividend to Earnings (D/E )

Dividend to Price ( D/P )

Dividend D/E = -

Earning per Share

Dividend D/P = -

The current market price

Market Price Ratio/ Book Value

Total assets – Total Debt

-Preferential Share Book Value= -

Number of Outstanding

Shares Market Price per Share

5.3.4 The "Random Walk" theory

5.3.5 The "Dow" theory

5.3.6 "Elliot Wave Fibonacci Numbers" theory

5.3.7 Method of effectively selecting stock

Definition of Technical Analysis

• Technical Analysis is the study of market

fluctuation, primarily via using graphs, which

aims at forecasting the trend of price fluctuation

in future

Basic assumptions of technical

analysis

• The fluctuation of market represents all

• Price is moving directionally

• History repeats itself

Definitions and basic tools used in

the Technical Analysis

• Types of chart

• Trend, The Trend line, Channel

• Retracement, Trading Range, Support and Resistance

• The technical models (further text)

Definitions and basic tools used in

the Technical Analysis

• Types of chart

• Trend, The Trend line, Channel

• Retracement, Trading Range, Support and Resistance

• The technical models (further text)

Types of chart

• Line chart

• Bar chart

• Candlestick chart

Line chart

Bar chart

• Two terms used in bar chart:

The highest price

The highest price

Opening

price

Closing price Opening

price

Closing price

The lowest price

Candlestick line

• Two terms used in this chart are:

Opening price

Trend, The Trend line, Channel

• Trend

Trend consists of "bull trend" and "bear trend" The bull trend includes

consecutively increasing peaks and

bottoms of price (the former peak and bottom are at the higher level than the

• The trend line: The bull trend line

connects gradually increasing peaks and the bear trend line links gradually

decreasing peaks

• Channel

is a corridor, within which the price chart is moving Channel is defined by two parallel lines called trend line and channel line

Retracement, Trading Range,

Support and Resistance

Retracement.

After a period of moving in accordance with the market trend, prices will retrace a little before moving in accordance with the

previous trend The price movement in the opposite direction of the previous trend is often able to be forecasted and is

Retracement.

• The most popular average retracement is 50% The lowest and highest retracements are 33% and 66% respectively: price will retrace at least

by 1/3 increase (or decrease) level that it

reached in the previous trend and the

retracement will not exceed 2/3 increase (or

decrease) level in the previous trend If the

retracement is higher, there will be a reversal of market It means that price movement is in the

Trading Range

Support and Resistance

• Support: is the price level at which

demand is thought to be strong enough to prevent the price from declining in a long period

• Resistance: is the price level at which

selling is thought to be strong enough to meet demands of buying and prevent the price from rising in a specific period

Support

Resistance

The "Random Walk" theory

• The "Random Walk" states that stock price

changes have the same distribution and are

independent of each other, so the past

movements of a stock price cannot be used to predict its future movement

• The theory, which is based on the "Efficient

Market" theory, claims that market prices follow the random path up and down According to this

The "Dow" theory - basis of Technical

Analysis

• The Dow theory is basis of all technical

analysis on the market

The theory is based on fluctuations of the market, which are shown in the average

index of the market, to be built The theory

is not based on statistics of enterprises'

business operations of Fundamental

Analysis

The "Dow" theory - basis of Technical

Analysis

• When market prices increase, prices of some

securities rise faster than other ones

• When market prices decline, although prices of some securities decrease quickly and the other ones decrease slightly or increase, prices of

almost securities move in the same trend.

• Charles Dow launched the concept of average price index in order to discuss the same trend of

The principles of Dow theory

• Market average index identifies all

• Three trends within the market: primary, secondary and minor trends.

• Bull Market and Bear Market

• All average index lines of the market have to

confirm the market trends.

• Trading volume is carried out with market trends

• Horizontal lines can replace for secondary trends.

• Only closing price is used to study

• A trend needs being supposed to be on until a sign

of reversing the trend has identified