Tài chính doanh nghiệp - Chapter 17: Macroeconomic and industry analysis

Chapter 17Macroeconomic and Industry AnalysisFundamental AnalysisApproach to Fundamental Analysis:Domestic and global economic analysisIndustry analysisCompany analysisWhy use the top-down approach?Framework of AnalysisPerformance in countries and regions is highly variable.Political riskExchange rate riskSalesProfitsStock returnsGlobal Economic ConsiderationsGross domestic productUnemployment ratesInterest rates & inflationInternational measuresConsumer sentimentKey Economic VariablesFiscal Policy - government spending and taxing actions.Direct policySlowly implementedFederal Government PolicyMonetary Policy - manipulation of the money supply to influence economic activity.Initial & feedback effectsTools of monetary policyOpen market operationsDiscount rateReserve requirementsFederal Government Policy (cont’d)Demand shock - an event that affects demand for goods and services in the economy.Tax rate cutIncreases in government spendingDemand ShocksSupply shock - an event that influences production capacity or production costs.Commodity price changesEducational level of economic participantsSupply ShocksBusiness CyclePeakTroughIndustry relationship to business cyclesCyclical DefensiveBusiness CyclesLeading Indicators - tend to rise and fall in advance of the economy.Examples:Avg. weekly hours of production workersStock Prices NBER Cyclical Indicators: LeadingCoincident Indicators - indicators that tend to change directly with the economy.Examples:Industrial productionManufacturing and trade salesNBER Cyclical Indicators: CoincidentLagging Indicators - indicators that tend to follow the lag economic performance.Examples:Ratio of trade inventories to salesRatio of consumer installment credit outstanding to personal incomeNBER Cyclical Indicators: LaggingSensitivity to business cyclesFactors affecting sensitivity of earnings to business cycles:Sensitivity of sales of the firm’s product to the business cyclesOperating leverageFinancial leverageIndustry life cyclesIndustry AnalysisStage Sales GrowthStart-up Rapid & IncreasingConsolidation StableMaturity SlowingRelative Decline Minimal or NegativeIndustry Life CyclesSector RotationPortfolio is adjusted by selecting companies that should perform well for the stage of the business cyclePeaks – natural resource extraction firmsContraction – defensive industries such as pharmaceuticals and foodTrough – capital goods industriesExpansion – cyclical industries such as consumer durables