《Macroeconomic and Industry Analysis》.docxVIP

Chapter17: Macroeconomic and Industry AnalysisChapter Openerp. 548TO DETERMINE A proper price for a firms stock, the security analyst must forecast the dividend and earnings that can be expected from the firm. This is the heart of fundamental analysis Research to predict stock value that focuses on such determinants as earnings and dividends prospects, expectations for future interest rates, and risk evaluation of the firm.—that is, the analysis of the determinants of value such as earnings prospects. Ultimately, the business success of the firm determines the dividends it can pay to shareholders and the price it will command in the stock market. Because the prospects of the firm are tied to those of the broader economy, however, fundamental analysis must consider the business environment in which the firm operates. For some firms, macroeconomic and industry circumstances might have a greater influence on profits than the firms relative performance within its industry. In other words, investors need to keep the big economic picture in mind.?Therefore, in analyzing a firms prospects it often makes sense to start with the broad economic environment, examining the state of the aggregate economy and even the international economy. From there, one considers the implications of the outside environment on the industry in which the firm operates. Finally, the firms position within the industry is examined.?This chapter treats the broad-based aspects of fundamental analysis—macroeconomic and industry analysis. The two chapters following cover firm-specific analysis. We begin with a discussion of international factors relevant to firm performance, and move on to an overview of the significance of the key variables usually used to summarize the state of the macroeconomy. We then discuss government macroeconomic policy. We conclude the analysis of the macroenvironment with a discussion of business cycles. Finally, we move to industry analysis, treating issues concerning the sen