Unlike debt securities, equity securities do no impose an obligation on the issuer to repay the amount financed. Instead, shareholders act as owners of a company with a claim on the company’s net assets and expect that management will act…

Investment Characteristics: Public Equity: Offers easier market entry and exit, and is subject to market fluctuations and transparency. Private Equity: Provides potential for higher returns due to illiquidity and limited access, with a focus on long-term growth and strategic development….

The type of security and its features affect its risk/return profile. Therefore, as an investor’s risk increases, its expected return should also increase to compensate. Equity Return Characteristics There are two main sources of total return for equity securities –…

Companies issue equity securities in the primary markets to raise capital and increase liquidity. Having public shares also gives the company another currency to make acquisitions with or incentivize employees. Raising capital aims to maximize shareholder wealth, which may be…

The book value of a company’s equity reflects the historical operating and financing decisions of its management. The market value of the company’s equity reflects these decisions as well as investors’ collective assessment and expectations about the company’s future cash…

Effective industry analysis helps to provide a framework for company analysis. Uses of Industry Analysis Understanding a company’s business and business environment: a critical step in stock valuation and credit analysis Identifying active equity investment opportunities: helps active investors with…

Industry classification attempts to place companies into groups based on commonalities. There are three major approaches to industry classification. Current Industry Classification Systems Commercial Industry Classification Systems Global Industry Classification Standard: developed by Standard & Poor’s and MSCI Barra. Each…

Sensitivity Factors A cyclical company is likely to experience wider-than-average fluctuations in demand, high demand in economic expansion, and low demand in economic contraction. It may be subject to greater-than-average profit variability related to high operating leverage. Non-cyclical companies produce…

Thorough industry analysis will often split the industry into strategic groups (groups sharing distinct business models or catering to specific market segments in an industry). The analysis will likely involve identifying the industry’s life-cycle, usually placing the industry somewhere along…