Investment model

Investment Analyses

Market Analysis

Cross sectional: fundamental analyses

Time serial: technical analyses

Industry Analysis

Cross sectional

Time serial

Company analysis

Cross sectional

Profit analyses:

Profitability ratios: ROA, ROE, ROCE, EARNINGS/SALES, Cash flow/TA.

Activity: inventory turnover, asset turnover

Risk analyses: liquidity w/ cash position, solvency, credit.

Growth analyses: earnings growth, sales growth, assets growth

Select the best:

Creating composite indices using results from 3-a-I, ii, iii, & others.

Establish selection process:

Aggressive approach: consider

Growth potential measures first,

Profit measures second

Then, risk measures.

Conservative approach: consider

risk measure first ,

profit measures second,

Then growth potential measures.

Using valuation models.

Choose the most under- valued item which has the largest gap between the intrinsic value from the model and the current market value.

Methods to find intrinsic values:

Present value methods:

Cash flow based.

Earnings based.

Dividend based.

CAPM for expected return: Ri = Rf +βi (E(Rm) - Rf ) +εi

Other methods to find under-valued stocks:

Using P/E ratios

Using BV/MV ratios.

Time series: Trend analyses.

Growing vs. shrinking in value.