Lesson#13Economy and Market analysis

Presented BySami ur RahmanIhsan ullahMudassirSayafMBA (3.5) 7th

Dividend per share: Shows that how much profit are paid to

shareholders in a specific time period Higher the ratio, higher the performance of the

firm Can be calculated by

=Dividend paid/Number of outstanding shares Sometime we compare the previous year

performance with current

Investment Ratios

Company dividend that how much dividend they pay each year relative to its Market Price per Share

Investor compare the dividend received with current market share price

Can be calculate by=Annual dividend per share/ MPS

When dividend or share price change, the yield also change.

Example: ◦ If a company share price is $20 and paying dividend $1◦ And if a company share price is $100 and paying $1 dividend,

which one you will buy?

Dividend yield

Important ratio for investor because it shows the confidence of investor

Investors are more concern with future, rather then past

A low price-earning ratio means greater the risk because of higher the ratio (low earnings)

Higher leverage tends to produce low earnings Because higher leverage increases volatility in

earnings and hence greater the risk Increased uncertainty in earnings may depress the

stock price and hence produce a lower P/E

Price to earning ratio

it can be calculate by;

=Market price per share/Earning per share

While earnings per share can be calculated by,

=Net income – Preferred dividends/outstanding shares

Outstanding shares are the amount of shares that are currently held by the shareholders

Conti..

The business cycle reflects the movements in economic activity as a whole

business cycle have start and end points

Economic activity starts in depressed condition and ends in the recession

NBER’s (national bureau of economic research) defines the turning points of the businesses

The business cycle

Composite economic indexes are used to indicate peaks and toughs in the business cycle.

Composite indexes are leading, coincident and lagging◦ Leading indexes are; stock prices, index of consumer

expectation, money supply, and interest rate spread

◦ Coincident indicators consist on industrial production and manufacturing and trade sales

◦ Lagging indicators are the duration of unemployment, commercial and industrial loans outstanding

Cont..

Stock market and business cycle have strong relationship

Bad economy– poor performance of the companies– poor stock price

Well economy– companies doing well– stock market reflect well

Stock prices typically turn before the economy Sometime market gives false signal As a famous joke is; “the market has predicted

nine out of the last five recession”

Stock market and the business cycle

Good economic forecast are of obvious significant value to investor

Good forecast of macroeconomic variables are very useful

Traditionally monetary policy has been assumed to have an important effect on the economy

Forecast the Economy

Yield curve is the graphs plots between the maturity or time and yield

It show how interest rate (yield) vary from time to time

It reflect the bond trader Professional use the yield curve as an indicator of

how the Fed is managing the economy When Fed rises rates, a rate hike will come and the bull

market will stumble, bond yields will climb and the economy will slip into a recession

Insights for the yield curve

• A steeping yield curve suggest that the economy is accelerating in terms of activity as monetary policy stimulates the economy

•Flat in the graphs shows that economy is going down, in fact businesses are going down•Every business have end stage

Market index simply refers to; aggregates of all security prices

Measure by some index or average of stock prices

E.g. KSE 100 index Market measure show that whether the stocks

are moving up word or down word Some investor prefer to invest, if the stock

market is going up word

What do we means by the market?

Use by shareholders and investors If the market measures show up word

moment, it mean that market is performing well

Use of market Measures