ANALYSIS OF INVESTMENT AND PORTFOLIO

MANAGEMENT
GROUP NO(7)
MEHWISH MUNIR 14
MEHARULNISA 35
MUQADDAS ZUBAIR 32
SANA NAZIR 42
Security valuation priniciples

 What are the specifics and logic of the top-down (three-step) approach?
The top-down, three
step valuation approach holds that both the economy/market and the industry effect have a significant im
pact on the total returns for individual securities
 the three steps in the valuation process which involve
1.  the influence of the economic environment on the firms,
2.   the importance of the industry environment on the firms and 
3.  the fundamentals of individual firms.
A Three-Step Process approach


 Industry Influences – We seek to determine which industries will likely do better than others in the exp
ected economic environment – Also, changing demographic factors have different effects across industrie
s

   Company Analysis – Individual investments will either make or break portfolio performance – Once w
ell-positioned industries are determined, find well-positioned firms within those industries
What are the two primary approaches to the
valuation of common stock

 two approaches have developed

 Discounted cash-flow valuation
Present value of some measure of cash flow, including dividends, operating cash flow, and
free cash flow
 Relative valuation technique Value
estimated based on its price relative to significant variables, such as earnings, cash flow,
book value, or sales
Under what conditions is it best to use the present value of cash
flow approach for valuing a company’s equity?