Stock Analysis Techniques

• Stock Portfolio model: A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. … Portfolios are held directly by investors and/or managed by financial professionals and money managers.                                                                            
• Descriptive Statistics Models: Descriptive statistics are brief descriptive coefficients that summarize a given data set, which can be either a representation of the entire or a sample of a population. Descriptive statistics are broken down into measures of central tendency and measures of variability (spread).                     
• Understanding Standard Deviation & Variance: The standard deviation is a statistic that measures the dispersion of a dataset relative to its mean and is calculated as the square root of the variance. It is calculated as the square root of variance by determining the variation between each data point relative to the mean. If the data points are further from the mean, there is a higher deviation within the data set; thus, the more spread out the data, the higher the standard deviation. The variance in probability theory and statistics is a way to measure how far a set of numbers is spread out. Variance describes how much a random variable differs from its expected value. The variance is defined as the average of the squares of the differences between the individual (observed) and the expected value.                          
• Understanding CAL, SML & CML equations: Call and Put Options-If you buy an options contract, it grants you the right, but not the obligation to buy or sell an underlying asset at a set price on or before a certain date. A call option gives the holder the right to buy a stock and a put option gives the holder the right to sell a stock. The security market line (SML) is a line drawn on a chart that serves as a graphical representation of the capital asset pricing model (CAPM), which shows different levels of systematic, or market, risk of various marketable securities plotted against the expected return of the entire market at a given point in time.                                                                                    
• Markowitz Modern portfolio model: Modern Portfolio Theory is Markowitz’s theory regarding maximizing the return investors could get in their investment portfolio considering the risk involved in the investments. Markowitz theorized that investors could design a portfolio to maximize returns by accepting a quantifiable amount of risk.                                                              
• Skewness, Kurtosis & Range: Skewness is a measure of symmetry, or more precisely, the lack of symmetry. A distribution, or data set, is symmetric if it looks the same to the left and right of the center point. Kurtosis is a measure of whether the data are heavy-tailed or light-tailed relative to a normal distribution. To find the mean, add up the values in the data set and then divide by the number of values that you added. Range, which is the difference between the largest and smallest value in the data set, describes how well the central tendency represents the data.            
• Net Asset Value Analysis: Net asset value (NAV) is defined as the value of a fund’s assets minus the value of its liabilities. The term “net asset value” is commonly used in relation to mutual funds and is used to determine the value of the assets held. According to the SEC, mutual funds and Unit Investment Trusts (UITs) are required to calculate their NAV at least once every business day.                                                                                   
• Canslim model by William J. ONeil: CANSLIM is a stock investing strategy designed by William J. O’Neil to produce market-beating profit performance. Using the CAN SLIM criteria in your investing should mean profitable returns. Current Earnings, Annual Earnings, New Products, Supply, Leaders, Institutional Sponsorship & Market Direction are key criteria.         
• Relative & Comps Techniques: Comparably Company Analyses, or “Comps”, are a relative valuation technique used to value a company by comparing that company’s valuation multiples to those of its peers. Typically, the multiples are a ratio of some valuation metric (such as equity Market Capitalization or Enterprise Value) to some financial performance metric (such as Earnings/Earnings Per Share (EPS), Sales, or EBITDA).               
• Dividend Discount Model: The dividend discount model (DDM) is a method of valuing a company’s stock price based on the theory that its stock is worth the sum of all of its future dividend payments, discounted back to their present value. In other words, it is used to value stocks based on the net present value of the future dividends.

MODULES

                       Module 07 Governance & Ethics

• Evaluating Management & Learning: A management system is a set of policies, processes and procedures used by an organization to ensure that it can fulfill the tasks required to achieve its objectives. Ethical behavior and corporate social responsibility can bring significant benefits to a business. For example, they may: attract customers to the firm’s products, thereby boosting sales and profits. make employees want to stay with the business, reduce labor turnover and therefore increase productivity.                                                                                      
• Corporate Governance: Corporate governance is the combination of rules, processes or laws by which businesses are operated, regulated or controlled. The term encompasses the internal and external factors that affect the interests of a company’s stakeholders, including shareholders, customers, suppliers, government regulators and management.                      
• Quantitative Analysis: Quantitative analysis (QA) is a technique that seeks to understand behavior by using mathematical and statistical modeling, measurement, and research. This analysts aim to represent a given reality in terms of a numerical value. Quantitative analysis is employed for several reasons, including measurement, performance evaluation or valuation of a financial instrument, and predicting real-world events, such as changes in a country’s gross domestic product (GDP).

Module 07 Governance & Ethics

                   Discounted Cash flow Approach

Time Value of Money: The time value of money (TVM) is the concept that money available at the present time is worth more than the identical sum in the future due to its potential earning capacity. This core principle of finance holds that provided money can earn interest, any amount of money is worth more the sooner it is received. TVM is also sometimes referred to as present discounted value.

Forecasting Techniques: There are four main types of forecasting methods that financial analysts use to predict future revenues, expenses, and capital costs for a business. While there are a wide range of frequently used quantitative budget forecasting tools, in this article we focus on the top four methods: straight-line, moving average, simple linear regression, and multiple linear regression.

Revenue Builders: Business sell products or services in order to generate revenue. Business can also generate money through licensing (which can be thought of as selling their name or their brand as a product), through investments, and other means, but selling products and/or services is the most common method. In this segment we learn about various on how company increases their revenues.

Building the asset and depreciation schedule: Fixed Asset Schedule. The Fixed Asset Schedule defines all of the types of equipment, software, and other tangible property that the Company needs to acquire. It defines the cost of these items and calculates the quantities purchased over time and the resulting cash outflow and depreciation charges. A depreciation schedule is required in financial modeling to forecast the value of a company’s fixed assets (balance sheet), depreciation expense (income statement) and capital expenditures (cash flow statement).

Building P&L & Balance sheet: The profit and loss (P&L) statement is a financial statement that summarizes the revenues, costs and expenses incurred during a specified period, usually a fiscal quarter or year. These records provide information about a company’s ability or inability to generate profit by increasing revenue, reducing costs or both. A balance sheet is a financial statement that reports a company’s assets, liabilities and shareholders’ equity at a specific point in time, and provides a basis for computing rates of return and evaluating its capital structure.

Building Assumptions & Debt schedule: The first step in building our debt schedule is to enter assumptions related to the characteristics of any debt and preferred stock financing. These assumptions include interest rates, conversion prices for convertible securities, and scheduled amortization for debt requiring periodic repayment of principal.

Understanding FCFF, FCFI: Free cash flow to the firm (FCFF) is the cash available to pay investors after a company pays its costs of doing business, invests in short-term assets like inventory, and invests in long-term assets like property, plants and equipment.

Building Capex Schedule: A capital expenditure (“CapEx” for short) is the payment with either cash or credit to purchase goods or services that are capitalized on the balance sheet. To put it another way, it is any expenditure that is capitalized (i.e., not expensed directly on a company’s income statement) and is considered to be an investment by a company in expanding its business.

Decoding Ke, Kd&Kp with WACC: The weighted average cost of capital (WACC) definition is the overall cost of capital for all funding sources in a company. … A company can raise its money from the following three sources: equity, debt, and preferred stock. The total cost of capital is defined as the weighted average of each of these costs

CAPM and its understanding: The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. CAPM is widely used throughout finance for pricing risky securities and generating expected returns for assets given the risk of those assets and cost of capital

EV/EBITDA & SOTP: Earnings before interest, tax, depreciation and amortization (EBITDA) is a measure of a company’s operating performance. Essentially, it’s a way to evaluate a company’s performance without having to factor in financing decisions, accounting decisions or tax environments. The sum-of-the-parts valuation (SOTP) is a process of valuing a company by determining what its aggregate divisions would be worth if they were spun off or acquired by another company. The equity value is then derived by adjusting the company’s net debt and other non-operating assets and expenses.

Module 06 Financial modelling

MODULES

                                     Ratio Analysis

Decoding various Ratios

Ratio Analysis e.g. ICR, Debt Equity, Pat Margin, Debtors equity etc: Ratio analysis is a quantitative method of gaining insight into a company’s liquidity, operational efficiency, and profitability by comparing information contained in its financial statements. Ratio analysis is a cornerstone of fundamental analysis.

Step Wise DuPont Analysis: DuPont analysis examines the return on equity (ROE) analyzing profit margin, total asset turnover, and financial leverage. It was created by the DuPont Corporation in the 1920s.

Sharpe & Treynor Ratio, Alpha & Beta Analysis: The difference between the two metrics is that the Treynor ratio utilizes a portfolio beta, or systematic risk, to measure volatility instead of adjusting portfolio returns using the portfolio’s standard deviation as done with the Sharpe ratio.

Alpha and beta are standard technical risk calculations. They are used by investment managers to calculate and compare an investment’s returns, along with standard deviation, R-squared, and the Sharpe ratio. Both alpha and beta are historical measures.

PE, EPS, ROI, ROA Analysis: Price to Earnings, Earning Per Share, Return on Investment, Return on Assets.

Capital Budgeting & Cost of capital: Capital budgeting is the process that a business uses to determine which proposed fixed asset purchases it should accept, and which should be declined. This process is used to create a quantitative view of each proposed fixed asset investment, thereby giving a rational basis for making a judgment.

Capital Asset Pricing Model: The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. CAPM is widely used throughout finance for pricing risky securities and generating expected returns for assets given the risk of those assets and cost of capital.

Weak form, semi strong form, and strong form market efficiency: Though the efficient market hypothesis as a whole theorizes that the market is generally efficient, the theory is offered in three different versions: weak, semi-strong and strong. The weak form suggests that today’s stock prices reflect all the data of past prices and that no form of technical analysis can be effectively utilized to aid investors in making trading decisions.

The semi-strong form efficiency theory follows the belief that because all information that is public is used in the calculation of a stock’s current price, investors cannot utilize either technical or fundamental analysis to gain higher returns in the market.

The strong form version of the efficient market hypothesis states that all information – both the information available to the public and any information not publicly known – is completely accounted for in current stock prices, and there is no type of information that can give an investor an advantage on the market.

Module 05 Ratio Analysis

MODULES

                 Module 04 Quarterly Results Analysis

• Annual Reports Analysis: Companies released their annual report on a yearly basis which requires some knowledge to understand about the various information that comes with the report.                                                                                              
• Management Discussion: Management discussion is the part of a public company’s annual report or quarterly filing. Under this the management addresses the company’s performance during the period under review.                                                                           
• Directors Reports: A directors’ report is a financial document that larger limited companies are required to file at end of the financial year. Among these accounts is the directors’ report, which is produced by the board of directors and outlines the financial state of the company.                                                        
• How to read company Annual Report & DRHP: Understanding the annual report comes from understanding the various factors like Business operation, Risk Factors, Legal Proceedings,  Financial Data and Management’s Discussion.                               
• NPV & IRR Rules: Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. By contrast, the internal rate of return (IRR) is a calculation used to estimate the profitability of potential investments.                                                
• HPR & HPY: Holding period return is the total return received from holding an asset or portfolio of assets over a period of time, known as the holding period, generally expressed as a percentage. Holding period return is calculated on the basis of total returns from the asset or portfolio (income plus changes in value). It is particularly useful for comparing returns between investments held for different periods of time.                                 
• Demand Supply & Elasticity Concepts: An elastic demand or elastic supply is one in which the elasticity is greater than one, indicating a high responsiveness to changes in price. An inelastic demand or inelastic supply is one in which elasticity is less than one, indicating low responsiveness to price changes.                      
• Comparative Analysis: The item-by-item comparison of two or more comparable alternatives, processes, products, qualifications, sets of data and systems. The comparative analysis was especially useful as each example served as a great guide or template for understanding the other.                        
• IPO Analysis: The IPO views provide detail analysis of company background, offer detail, company valuation, capital structure, financial performance, strength, risks & benefits of investment, peer comparison and recommendation about IPO. These IPO note are presented to keep both short and long term investors in mind.

MODULE 05 RATIO ANALYSIS

           Module 03 Business Model & Industry Analysis

• Macro & Micro Aspects in relation to stock markets: Like the economy the Stock market is influenced by both the Macro and Micro aspects that keeps it functioning day to day. Here we can learn of the various factors that surround the working around the stock market.                                                                                                
• Markets affects by IIP, Inflation, PMI, Monetary Policy etc.: The stock market is vulnerable to many factors like IIP, Inflation, PMI etc.. These factors can either be a benefit or disadvantage for an investor.           
• Correlation & Covariance Analysis: In this chapter we learn about the relationship and the dependency between two variables. “Covariance” indicates the direction of the linear relationship between variables. “Correlation” measures both the strength and direction of the linear relationship between two variables.                                                 
• Financial Terminology such as Buy back, Bonus, and Corporate Actions etc: In this particular section we can learn about the various meaning use in finance which eventually will help a student in gaining more understanding.

Module 03 Business Model & Industry Analysis

MODULE 02 UNDERSTANDING FINANCIAL STATEMENTS

                     Understanding Financial Jargon

• Overview on NSE BSE MCX etc.: It contains the overview working of the BSE and NSE. Sensex is the benchmark index of S&P BSE (Bombay Stock Exchange), whereas NIFTY is benchmark index of NSE (National Stock Exchange). The word fifty is used because; the index consists of 50 actively traded stocks from various sectors. NIFTY is also known as CNX NIFTY or NIFTY 50                                                                                      
• Understanding Income Statements: An income statement is one of the three important financial statements. The statement is  used for reporting a company’s financial performance over a specific accounting period. The other two key statements being the balance sheet and the statement of cash flows. Also known as the profit and loss statement or the statement of revenue and expense, the income statement primarily focuses on the company’s revenues and expenses during a particular period.                                        
• Balance Sheet Analysis: A deep analysis on the Balance Sheet to know about its importance in a firm. It’s here that we can understand about the assets, liabilities and equity of a company.   
• Brief on various software’s: A financial application is a software program that facilitates the management of business processes that deal with money. Types of finance applications include: accounts receivable software – allows a business to efficiently manage customer activity while automate invoice processing ensure timely revenue collection.                              
• How do Capital Markets work worldwide: A study on the working of capital markets globally. The study include how the Markets provides financial services and products to corporates, governments and institutions worldwide.                                                                      
• Fundamental vs Technical Analysis Top down and Bottom up Approach: Learning the two important types of analysis and how they work while dealing with a company. Top down and bottom up approach teach about investment strategy to help investors achieve their financial objectives.

       Module 02 Understanding Financial Statements

                            Equity Analysis & Investing

• Company Analysis – Qualitative Dimensions:                    Qualitative analysis of companies applies investors’ subjective judgments to information that cannot be quantified. These can be company’s research and development, labor-management relations and management expertise, as well as the company’s overall position within its industry. This separates qualitative analysis from quantitative analysis. The later focuses on earnings, assets, liabilities, price-to-earnings ratios and other numerical factors.                                                                                             
• Company Analysis – Quantitative Dimensions:              Quantitative research is all about numbers. It uses mathematical analysis and data to shed light on important statistics. These statistics can be about your business and market. This type of data, found via tactics such as multiple-choice questionnaires, can help you gauge interest in your company and its offerings.                                                       
• Banking Sector Terminology:                                                    There are a lot of banking terms, to which we are not that much familiar. Hoewever, we find questions related to some of the banking terms in the bank exams in the banking awareness section. These banking terms are not only important from the exam point of view, but also asked in the interviews                                           
• Basic use of Excel & Techniques:                                            Data entry and storage. At its most basic level, Excel is an excellent tool for both data entry and storage, Collection and Verification of Business Data, Administrative and managerial duties, Accounting and budgeting.                                                  
• Qualities of a good Research Report:                                         A good Research Report needs to have certain qualities like Suitable Title, Promptness, Comparability, Consistency, Precise and Accurate and Relevant Information.                                    Equity Analysis & Investing

MODULE 02 UNDERSTANDING FINANCIAL STATEMENTS