SOUTH EASTERN UNIVERSITY OF SRI LANKA

DEPARTMENT OF MANAGEMENT
FACULTY OF MANAGEMENT AND COMMERCE

COURSE TITLE : INVESTMENT ANALYSIS &

PORTFOLIO MANAGEMENT

SUBJECT CODE : FIM 41063

PARTICIPANTS : BBA (ACC/FIN) ; BBA (Spl)
ACADEMIC YEAR : 2020/2021
SEMESTER :I
UNIT NAME : SECURITY ANALYSIS
(FUNDAMENTAL ANALYSIS)
LECTURER
IN-CHARGE : DR.S.SAFEENA MG. HASSAN
 What is Security Analysis?

Security analysis is the analysis of tradable financial instruments called

securities. These are usually classified into debt securities, equities, or some
hybrid of the two. Tradable credit derivatives are also securities. Commodities
or futures contracts are not securities.

The types of Security Analysis:

• Fundamental Analysis
• Technical Analysis
• Quantitative Analysis
Types of Securities

• Shares - A share is an equity security.

• Bonds - A bond is a debt security.

• Open-end funds: An - open-end fund stands for a diversified portfolio of securities

and similar investments, chosen and professionally managed by a fund management
company.
- Trading in open-end funds Open-end funds do normally not trade on exchanges, and
there are indeed few exchanges worldwide where open-end fund shares can be bought;
but there are exceptions.

• Index open-end funds - With an index open-end fund, fund management companies
allot investors’ assets to a basket of securities making up a chosen index that thus
tracks the yield of the mentioned index.
- Trading in index open-end fund shares on primary market before purchasing index
open-end fund units, a declaration of accession must be signed.
- Trading in index open-end fund shares on secondary market Minor investors can buy
index open-end fund shares on the exchange at the price that forms on the market.
• Close-end funds (ID) - ID is a close-end investment fund investing its capital into
securities by other issuers.

• Investment certificates - Investment certificates are debt securities issued by a bank,

and are designed to offer the investor an agreed yield under pre-defined conditions
stipulated in the prospectus. Issuers are mainly large banks, and an important criterion in
selecting the bank in whose investment certificates you would like to invest is its credit
rating.

• Warrants - Warrants are options issued by a joint-stock company, which give holders the
right to purchase a certain quantity of the respective company’s shares at a pre-determined
price. After a certain period, the right to purchase shares terminates.

Fundamental Analysis Comprises

1. Economic Analysis
2. Industry Analysis
3. Company Analysis
ECONOMIC ANALYSIS
For the security analyst or investor, the anticipated economic environment, and
therefore the economic forecast, is important for making decisions concerning both
the timings of an investment and the relative investment desirability among the
various industries in the economy.

INDUSTRY ANALYSIS
The mediocre firm in the growth industry usually out performs the best stocks in a
stagnant industry. Therefore, it is worthwhile for a security analyst to pinpoint growth
industry, which has good investment prospects.

INDUSTRY LIFE CYCLE ANALYSIS

Many industrial economists believe that the development of almost every industry
may be analysed in terms of following stages
INDUSTRY LIFE CYCLE ANALYSIS

Many industrial economists believe that the development of almost every industry
may be analysed in terms of following stages
1. Pioneering stage
2. Rapid growth stage
3. Maturity and stabilization stage:
4. Decline stage:

CLASSIFICATION OF INDUSTRY

Industry means a group of productive or profit making enterprises or

organizations that have a similar technically substitute goods, services or
source of income. Besides Standard Industry Classification (SIC), industries
can be classified on the basis of products and business cycle i.e. classified
according to their reactions to the different phases of the business cycle.
These are classified as follows
1. Growth Industries
2. Cyclical Industries
3. Defensive Industries
4. Cyclical-growth Industries

CHARACTERISTICS OF AN INDUSTRY ANALYSIS

• In an industry analysis, the following key characteristics should be considered by the

analyst.
• Post sales and Earnings performance
• Nature of Competition
• Raw Material and Inputs
• Attitude of Government towards Industry
• Management
• Labour Conditions and Other Industrial Problems
• Nature of Product Line
• Capacity Installed and Utilized
• Industry Share Price Relative to Industry Earnings
• Research and Development
• Pollution Standards
COMPANY ANALYSIS:
THE STUDY OF FINANCIALS STATEMENTS

Financial statement means a statement or document which explains necessary

financial information. Financial statements express the financial position of a business
at the end of accounting period (Balance Sheet) and result of its operations performed
during the year (Profit and Loss Account). In order to determine whether the financial
or operational performance of company is satisfactory or not, the financial data are
analysed. Different methods are used for this purpose. The main techniques of
financial analysis are:

1. Comparative Financial Statements

2. Trend Analysis
3. Common Size Statement
4. Fund Flow Statement
5. Cash Flow Statement
6. Ratio Analysis