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How to evaluate an action?

Before I begin, I must confess that future articles are designed primarily to enable me to properly review the various models for the CFA Level II. This is a form of summary for 750 book pages in 4 sections. It will discuss methodologies for financial analysis and the next three will address the following topics:

1. models discount
2. models by multiple
3. residual income (revenu residual )

The importance a comprehensive analysis
Have an overview on the economy is essential before starting the analysis of a title. Normally, we proceed in order:

1. Analysis of the global economy and / or local
2. Analysis of the global industry and / or local
3. Company analysis

Thus, before analyzing a company, we'll start to see in what universe it operates. The best company in an industry fail is still a company to avoid (eg the best company in the production of DVD discs and is doomed to failure today). The presence of "and / or" points 1 and 2 is that some companies operate around the world (and requires a global analysis) while others are smaller and only local.

In point 1, we try the economic and politico-economic factors that may affect the industry. For example, U.S. protectionism has an important impact in agriculture. Political instability in Africa could affect the operations of mining companies therein. In the same vein, the runaway inflation in Zimbabwe (98% per day at last count in 2008 ... so prices doubling every 24.7 hours) can quickly kill economic potential.

In point 2, it is important initially to define the industry. If one wants to study CN, we take as the rail industry, transportation or transportation of goods in general? And can we use as comparable European companies in the industry or whether to restrict themselves in Canada and the United States? Once the list of companies forming the defined area, we try to evaluate the following:

• stages (starting, growing, mature)
• External Factors Affecting the
• Technology: How technological advancements change the industry?
• Government: government regulation could it affect the industry?
• Demographics: demographic changes they will force the industry to adapt?
• Social Change: how social changes affect the industry?
• Development of demand and supply at the aggregate level
• Factors strengths and weaknesses points

If we take the example of the tobacco industry, we know that she is mature or even declining. The new laws banning the consumption of tobacco in public places and tax increases (as well as new and future regulations) result in lower sales in the industry. The aging population should mean lower sales. The change in public attitudes in relation to cigarette smoking makes it difficult for industry growth. With these new external factors, aggregate demand will decline over time. However, major barriers to entry protect reasonably well the current players of future competition, but the smuggling of cigarettes is a scourge that hurts the industry's sales.

With such an analysis of the industry, we are now able to analyze our business. This step will be described in future articles.

Top-Down vs.. Bottom-Up
The top-down method is to study the industry to extrapolate the overall situation in our company analyzed. For example, one could determine the expected sales for grocery stores in Quebec and use that with the market shares of Metro to evaluate its sales.

The Bottom-Up method rather seeks from micro variables. Thus, one could take the sales per square foot historic Metro and predict the next values of this ratio. For sales, simply multiply the number of square feet planned in the future.

The industry Either method seems more appropriate. For example, the Bottom-Up in the tobacco industry is unattractive. But in retail it is appropriate.

I tried here to write the process as possible as a recipe, but much of the work of an analyst is to see when certain "ingredients" are irrelevant and that others would be more relevant.