ECONOMIC RESEARCH / ANALYSIS

Economic Sector: consists of group of industries that are engaged in related activities.
For example consumer goods define an electronic sector consisting of firms those
manufacture goods for consumers. Within each sector there are many industries.
Industries are defined by the nature of the goods or services that is provided by the
businesses. They all affect each other.
Moving down in the order, almost all businesses have a direct exposure to the national
economy. You should be aware of the expected economic growth, political riss and
currency riss in the economy in which the company is operating. To understand overall
state of the domestic economy and its future prospects, it is necessary to understand and
review following economic information!
a. "ross domestic product! it measures the maret value of final goods and services
produced domestically.
b. #ational income.
c. $conomic growth rate.
d. %toc maret performance both in general and specific to industry in which
business competes.
e. Interest rates! it reflects cost of borrowing money.
f. Inflation! it can be defined as general ris in the price level.
g. Foreign exchange rates! it describes how many units of a currency can be bought
with a unit of another currency.
h. &il prices.
i. &ther ey commodity prices lie "old, %ilver, food grains etc.
'. (edging.
. )hange in government fiscal policy.
l. )hange in import*export tariffs and foreign trade relations with respect to the
products of the business.
Ministry of statistics and program implementation! the website of ministry of statistics
and program implementation +M&%,I- is excellent starting point for collection of
relevant economic data.
INDUSTRY RESEARCH / ANALYSIS
.efore analy/ing the individual firm, it is necessary to understand the broad
characteristics of the industry that the firm resides in. Industry analysis has three prime
ob'ectives!
To understand the sensitivity of the industry to ey macroeconomic factors lie "0,,
Interest rate and oil prices.
To understand, how the industry operates and the ey performance ratios and statistics
+which show the financial health of the industry and firms in that industry- for
evaluating these operations.
To understand the competitive structure of the industry +to assess the intensity of
competition in the industry-.
The industry analysis should provide a picture of where industry is going and how the
sub'ect company fits in. The following 1uestions need to be answered!
a. "rowth prospects in the industry.
b. )ompetitive forces operating and their strength.
c. 2ey drivers in the industry and their effects.
d. %trongest and weaest competitors.
e. 3verage profit margins.
f. %i/e of industry.
g. #ature of industry as in whether it is dominated by a few large players.
h. $ntry barriers.
i. 4egularity conditions, if any.
'. Target customers and growth potentials.
Information about the industry may be taen from the following sources!
3nnual reports of publicity traded companies in the same industry.
4ecent filling of public offering documents and prospectus of companies in the same
industry.
Industry or trade associations.
Internet searches, business newspapers and trade 'ournals.
Industry specific regulations.
4esearch reports regarding the industry prepared by the financial analysts, economists
and other external parties.
HISTORICAL ANALYSIS
5oo bac as far as possible +at least ten years-. This will help in understanding
whether the company and the industry tend to revert to some normal level of
performance and whether short term trends are liely to be permanent breas from the
past.
"o deep into the value drivers and getting as close to operational performance
measures as possible.
If there are any radical changes in performance, identify the source of change and
determine whether it is real or perhaps 'ust as according effect and whether any
changes is liely to be sustained.
%teps for .usiness * (istorical 3nalysis!
6nderstanding the business
6nderstanding the regulatory framewor for the industry
6nderstanding the value drivers
3ccounting analysis
3ccounting policy review
5ength of financial history
3d'ustments to financial statements
3ssets and liability analysis including contingent assets and liabilities
Income and expenses analysis
Financial analysis
o 4atio analysis
o Trend analysis
o )ash flow analysis