Essentials of Investment 9ed Chaps 12-13

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1、CHAPTER12MACROECONOMICANDINDUSTRYANALYSIS1.Atop-downapproachtosecurityvaluationbeginswithananalysisoftheglobalanddomesticeconomy.Analystswhofollowatop-downapproachthennarrowtheirattentiontoanindustryorsectorlikelytoperformwell,giventheexpectedperformanceofthebroadereconomy.Finally,theanal

2、ysisfocusesonspecificcompanieswithinanindustryorsectorthathasbeenidentifiedaslikelytoperformwell.Abottom-upapproachtypicallyemphasizesfundamentalanalysisofindividualcompanystocksandislargelybasedonthebeliefthatundervaluedstockswillperformwellregardlessoftheprospectsfortheindustryorthebroa

3、dereconomy.Themajoradvantageofthetop-downapproachisthatitprovidesastructuredapproachtoincorporatingtheimpactofeconomicandfinancialvariables,ateverylevel,intoanalysisofacompany’sstock.Onewouldexpect,forexample,thatprospectsforaparticularindustryarehighlydependentonbroadereconomicvariables.

4、Similarly,theperformanceofanindividualcompany’sstockislikelytobegreatlyaffectedbytheprospectsfortheindustryinwhichthecompanyoperates.2.Theyieldcurve,bydefinition,incorporatesfutureinterestrates.Assuch,itreflectsfutureexpectationsandisaleadingindicator.3.c.Adefensivefirm.Defensivefirmsandi

5、ndustrieshavebelow-averagesensitivitytothestateoftheeconomy.4.Itwouldbeconsideredasupplyshockwhichaffectsproductioncapacityandcosts.5.a.Financialleverageincreasesthesensitivityofprofitsinthebusinesscyclesincetheinterestpaymentshavetobemaderegardlessofthebusinesscycle.Companieswouldthusbec

6、omemoresensitivetothebusinesscyclewhileincreasingtheirfinancialleverage.b.Firmswithhighfixedcostsaresaidtohavehighoperatingleverage.Assmallswingsinbusinessconditionscanhavelargeimpactsonprofitability,theyaremoresensitivetothebusinesscycle.6.d.Assetplay.Someofthevaluableassetsofthecompanya

7、renotcurrentlyreflectedinthepresentvalue.7.Apeakisthetransitionfromtheendofanexpansiontothestartofacontraction.Atroughoccursatthebottomofarecessionjustastheeconomyentersarecovery.Contractionistheperiodfrompeaktotrough.Expansionistheperiodfromtroughtopeak.1CHAPTER13E