Economics and Financial

Accounting Module
By :
Mrs.Shubhangi Dixit

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DAY 1

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FUNDAMENTAL ANALYSIS:

• Fundamental analysis is used to determine the intrinsic value of the

share by examining the underlying forces that affect the well being of
the economy, Industry groups and companies.
• Fundamental analysis is to first analyze the economy, then the
Industry and finally individual companies.
• This is called as top down approach.
• The actual value of a security, as opposed to its market price or book
value is called intrinsic value. The intrinsic value includes other
variables such as brand name, trademarks, and copyrights that are
often difficult to calculate and sometimes not accurately reflected in
the market price.
• One way to look at it is that the market capitalization is the price (i.e.
what investors are willing to pay for the company and intrinsic value
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is the value (i.e. what the company is really worth).
TECHNICAL ANALYSIS

• Technical analysis involves a study of market generated data

like prices and volumes to determine the future direction of
price movement.
• Martin J.Pring explains as The technical approach to investing
is essentially a reflection of the idea that prices move in trends
which are determined by the changing attitudes of investors
toward a variety of economic, monetary, political and
psychological forces.
• The art of technical analysis-for it is an art-is to identify trend
changes at an early stage and to maintain an investment
posture until the weight of the evidence indicates that the trend
has been reversed.
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DIFFERENCES BETWEEN TECHNICAL ANALYSIS AND
FUNDAMENTAL ANALYSIS

The key differences between technical analysis and fundamental

analysis are as follows:
1. Technical analysis mainly seeks to predict short term price
movements, whereas fundamental analysis tries to establish long
term values.
2. The focus of technical analysis is mainly on internal market
data, particularly price and volume data. The focus of
fundamental analysis is on fundamental factors relating to the
economy, the industry, and the firm.
3. Technical analysis appeals mostly to short-term traders,
whereas fundamental analysis appeals primarily to long-term
investors.
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FUNDAMENTAL ANALYSIS:

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FUNDAMENTAL ANALYSIS:

• At the economy level, fundamental analysis focus on economic

data (such as GDP, Foreign exchange and Inflation etc.) to
assess the present and future growth of the economy.
• At the industry level, fundamental analysis examines the
supply and demand forces for the products offered.
• At the company level, fundamental analysis examines the
financial data (such as balance sheet, income statement and
cash flow statement etc.), management, business concept and
competition.

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Economic Analysis

• Systematic approach in which economists and other

professionals will estimate the Economic environment and its
strengths and weaknesses. Economic analysis plays an
important role in determining how a trader will want to 
position themselves in a market.

For Economic Analysis ,

One should be familiar with Economics

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INTRODUCTION TO ECONOMICS
Choices, Choices, Choices, . . .

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Why Study Economics
• To understand the world better
• You’ll begin to understand the cause of many of the things that
affect your life
• To gain self-confidence
• You’ll lose that feeling that mysterious, inexplicable forces are
shaping your life for you
• To achieve social change
• You’ll gain tools to understand origins of social problems and
design more effective solutions
• To help prepare for other careers
• You’ll discover that a wide range of careers deal with economic
issues on many levels
• To become an economist
• You’ll begin to develop a body of knowledge that could lead you 10
to become an economist in the future
WHAT IS ECONOMICS?
• Economics – the study of how
individuals and societies make
decisions about ways to use scarce
resources to fulfill wants and needs.

• Economics is a social science that

examines how people choose among
the alternatives available to them. It
is social because it involves people
and their behavior. It is a science
because it uses, as much as possible,
a scientific approach in its
investigation of choices. 11
What is Economics in General?
• Economics is the science of scarcity.
• Scarcity is the condition in which our wants
are greater than our limited resources.
• Since we are unable to have everything we
desire, we must make choices on how we will
use our resources.
• In economics we will study the choices of
individuals, firms, and governments.
Economics is the study of _________.choices 12
Examples:
You must choose between buying jeans or buying shoes.
Businesses must choose how many people to hire
Governments must choose how much to spend on welfare.

Economics Defined
Economics-Social science concerned with the
efficient use of limited resources to achieve
maximum satisfaction of economic wants.
(Study of how individuals and societies deal
with ________)
scarcity 13
The Methods of Economics

• Economics relies heavily on modeling

• Economic theories must have a well-constructed model
• While most models are physical constructs
• Economists use words, diagrams, and mathematical statements
• What is a model?
• Abstract representation of reality

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Two Fundamental Assumptions
• The economy is complex
• Economists make sense of all this activity in two steps
• First, the decision makers in the economy are divided into three broad
groups:
• Households
• Business
• Government agencies
• In Microeconomic models
• Individual households
• firms
• Government agencies
• In Macroeconomic models
• Household sector
• Business sector
• Government sector
• Foreign sector
• The next step in understanding the economy is to make two critical
assumptions about decision makers
1) Every economic decision maker tries to make the best out of any
situation. 15
2) Every economic decision maker faces constraints.
The Study of Economics

• Macroeconomics
• The big picture: growth,
employment, etc.
• Choices made by large groups
(like countries)

• Microeconomics
• How do individuals make
economic decisions

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