Chapter 1

What is Financial Analysis?

Defining Financial Analysis

Financial analysis is the process of
evaluating financial and other information
for decision-making.
A six-step approach is suggested for
systematic financial analysis.

Six-step Process

Identify purpose of financial analysis

Corporate overview
Financial analysis techniques
Detailed accounting analysis
Comprehensive analysis
Decision or recommendation

Corporate Overview
Industry analysis--key economic
characteristics, historical context, profit
drivers, business risks
Firms business strategy--competitive
strategy given the industry characteristics

Industry Analysis
Competition--growth rates, concentration
ratios, degree of product differentiation,
economies of scale (& relative fixed &
variable costs), substitute products
Legal barriers--patent & copyrights,
licensing, regulation
bargaining power of buyers (& suppliers) &
price sensitivity

Industry Analysis Criteria

What is the industry?

Relative size & significance
Largest companies
Geographic presence
Business cycle effects, current situation
Future potential

Business Strategy
Cost leadership: low cost producer,
economies of scale, efficient production,
low input prices
Product differentiation: specific attributes
that customers value (e.g., quality, variety,
service, delivery time), brand name
Importance of core competencies

Business Strategy Criteria

Historical perspective
Primary focus of operations
Most important strategy
Major operating segments
Corporate outlook/ forecast

Qualitative Analysis--Dell
Computer
Industryprimarily PCs: high tech, competitive (e.g.,
Gateway, IBM, Apple, others), changing products,
high growth rates, low barriers of entry
Business strategy--(1) cost leadership strategy: direct
selling, made-to-order manufacturing, early on the
internet, low receivables; (2) product differentiation??
[IBM clones, Intel & Microsoft components]
Current situationmarket share; what is the impact of
the business cycle (e.g., PCs are durable goods)?

Quantitative Financial Analysis

Systematic analysis of key elements based
on analysis context
Ratios, cash flows, common-size, time
series, comparative (e.g., specific firms,
industry, all firms), models (e.g., DuPont,
Altmans)
In-depth analysis for red flag items

Quantitative Financial Analysis

Financial Statements
Common-size Analysis
Financial Ratios
Growth/trend Analysis
Quarterly analysis
DuPont Model
Market Analysis

Detailed Accounting Analysis

Does accounting information capture the
underlying business reality?
Identify areas of accounting flexibility &
evaluate accounting policies (choices) &
disclosures; especially notes & MD&A
Evaluate earnings management potential
Recast accounting numbers when necessary

Comprehensive Analysis
Summarize key points: what is particularly
important for decision making?
Red flags are particularly important
Consider a written executive summary
Consider a rating scale, such as 1-10

Decision
What is the recommendation or decision?
What is the key rationale for this decision?
[This is based on the specific decision: for
a credit decision the key factors relate to
credit risk, with particular focus on leverage
and liquidity.]
Be prepared to defend this decision.

Chapter 2
The Financial Environment

Capital Markets
Equity

Primary

Secondary

Initial public
offering

Debt

Bank loan,
initial debt
security offering
Buying &
Buying &
selling of stocks selling on
on securities
secondary debt
markets
market

Credit Decisions
Commercial banks provide short-term
commercial loans
The major concern: will the company pay
interest & principal when due?
Loan terms: interest rate, collateral, debt
covenants

Equity Investment Decisions

Public securities trade on formal market
exchanges (these are secondary markets)
Buying & selling are now relatively cheap
transactions
Mutual funds are a useful alternatives to
individual securities
Stock investing has high short-term risks

SEC Regulation
Mission: Protect investors & maintain integrity of
the securities markets
Established following the Great Market Crash
(SEC Act of 1934)
SEC requires public registration, proxy statements
& annual (10-K) and quarterly (10-Q) reports, 8-K
for specific events
Update: Sarbanes-Oxley Act of 2002 & Public
Company Accounting Oversight Board; DoddFrank, 2010

Goals of Financial Accounting in

a Market Economy?
Capture business economics of the firm
(e.g., relationship to industry, competitive
strategy, business model). How does firm
create value?
Reduce management discretion on financial
reporting (what is reality? Vs. misleading
information--analysts sort this out). Note
management incentives for earnings
management

Accounting Regulators
Securities & Exchange Commission (SEC)-regulates securities markets and financial
reporting (10-K, 10-Q, 8-K)
Financial Accounting Standards Board (FASB)-promulgates GAAP
International Accounting Standards Board
(IASB)issuing International Financial Reporting
Standards (IFRS)

U.S. Standard Setters:

1938-Present
Committee on Accounting Procedures (CAP)
issued 51 Accounting Research Bulletins
(ARBs)--1938-59
Accounting Principles Board (APB) issued 31
Opinions--1959-73
Financial Accounting Standards Board (FASB)
has issued 168 Statements through 2009
(SFASs) plus other standardsnow Standards
Codification in 4 volumes, by topic

The FASB Structure

Sponsoring Organizations

FAF

FASAC

FASB

GASB

Due Process

Due Process

Pronouncements

Pronouncements

GASAC

The FASB
Seven member board, full time, appointed by
FAF, presumed independent
Extensive due process: agenda items, discussion
memoranda (DM), exposure drafts (ED),
pronouncements, public exposure with written &
oral comments
Super-majority (5-2 vote) [simple majority used
1977-90]
Standard setting a political process

Annual Report Information

Corporate Overview
MD&A
Financial Statements: Balance Sheet,
Income Statement, Statement of Cash
Flows, Statement of Equity
Notes to financial statements
Auditors Opinion

Management Incentives
Managers have incentives to present information
in the most favorable light (e.g., bonuses, stock
options, promotions)
Accounting choice: accounting polities, estimates,
additional disclosures
Standardize vs. estimates: what is reality?
Management have best information, but
communications to investors may not be
completely credible

Financial Statement
Considerations
Managers information on economic reality
Estimation errors
Distortion from managers accounting
choices & disclosure
Question: Can investor perceptions be
manipulated?

Finance Theory Perspectives

Efficient Markets
Random Walk
Portfolio Theory
Beta Analysis
Economic Behavior & Agency Theory
Earnings Management & Accounting
Choice

Efficient Markets
Markets are efficient if information is
impounded immediately in capital prices in
an unbiased fashion
Research supports market efficiency in the
semi-strong form, for short windows
Why?Analyst following
Note long-term anomalies & other
challenges (e.g., behavioral economics)

Random Walk
The concept that a professional portfolio
cannot outperform a randomly selected
stock portfolio
Research generally confirms this result
Consistent with efficient markets; that is, all
information has been impounded in stock
price

Portfolio Theory
Harry Markowitz introduced the concept of
portfolio diversification with his 1952
dissertation
Portfolio theory insists that investment
portfolios should be diversified to reduce
the risk relative to return
Capital asset pricing model: E(Ri) = Rf +
[E(Rm) Rf)

Beta Analysis
Beta () comes directly from the slope of
the market model: Rit = i + iRmt + eit
Beta measures the relationship between
price movements of the individual stock to
market averages
Beta is a measure of systematic risk, where
a =1 stock should move with the market; a
>1 stock has greater market risk

Economic Behavior
Rationality: assume bounded rationality
people are intendedly rationale but limited
Self-interest behavior:
Obedience
Simple self interest
Opportunism (self interest with guile-that is, willing to violate normal ethical
boundaries for personal benefit)

Agency Theory
Contracts have a principal (e.g., owners)
and agent (e.g., managers). The principal
will attempt to maximize wealth, contract to
avoid conflict, and minimize transaction
and agency costs.
Agency costs: information asymmetries
(limited information by one side), adverse
selection, moral hazard (e.g., shirking).

How to Reduce Agency Costs

Better acquisition decisions
Monitoring--including audits and financial
reporting
Align preferences of agents with principals
(e.g., debt covenants, management
compensation)--a reason for stock options
Control devises such as budgets

Earnings Management
Operations and discretionary accounting
methods to adjust earnings to a desired
outcome, often income smoothing
Underlying theory: agency theory,
transaction cost economics
Importance of efficient contracting:
corporations are a network of contracts and
exist because they write contracts efficiently

Accounting Choice
Discretionary choices to optimize behavior,
using techniques such as:
1. Select alternative accounting
methods (e.g., inventory) & level
of disclosure (e.g., contingencies)
2. Lobbying (e.g., on proposed
standards)
3. Financial, production & investment
activities

Discretion Under GAAP

Taking a bath
Creating hidden reserves
Off-balance-sheet financing
Overstating performance (e.g., aggressive
revenue recognition)
Not reporting obligations (contingencies,
commitments, other liabilities)

Earnings Manipulation
Because alternatives are allowed, financial
accounting has many discretionary aspects.
Managers can manipulate income by timing (e.g.,
recognition this year v next year) and
classification (e.g., ordinary v extraordinary)
Accruals can be mandatory (e.g., other post
employment benefits) or voluntary (e.g.,
depreciation)

Earnings Quality

Importance of full disclosure

Look for conservative reporting
Review indicators of high quality
Relationship of risk to earnings quality
Be aware of earnings management
incentives and evidence of earnings
manipulation

Normalizing Income
Attempt to determine earning power--related to
normal operating earnings
Remove the noise--usually associated with
nonrecurring items
Separate analysis of nonrecurring items-reorganization, big bath write-offs, changing
GAAP
Evidence of earnings manipulation may require
substantial adjustments to arrive at normal
earnings

Financial Analysis Decision

Based on Elliotts value chain of
information: this is the $1,000 per hour
stage
The purpose of financial analysis is to arrive
at an informed recommendation or decision

Chapter 3
The Financial Statements

Financial Statements

Balance Sheet
Income Statement
Statement of Cash Flows
Statement of Stockholders Equity

Balance Sheet
Assets: probable future economic benefits
Liabilities: probable future economic
sacrifices
Stockholders Equity: residual interest,
representing ownership interest (also called
net assets)

Assets
Current Assets (cash & cash equivalents,
short-term marketable securities), accounts
receivable, inventory, other)
Property, plant & equipment
Long-term investments
Other assets

Liabilities
Current Liabilities (accounts payable,
accrued & other current liabilities)
Long-term debt
Commitments & contingencies
Other liabilities
Potential off-balance sheet debt

Stockholders Equity

Preferred stock
Common stock
Other paid-in capital
Retained earnings
Treasury stock
Other comprehensive income
Other equity items

Income Statement
Revenues: inflows from major operations
Expenses: outflows from major operations
Gains & Losses: changes in equity from
peripheral activities
Net income: bottom line all operating
activities recorded on the income statement
Comprehensive income: Changes in equity
from all non-owner sources

Revenue

Sales
Services
Other revenue items
Importance of revenue recognition criteria

Operating Expenses
Cost of goods sold (manufacturing)
Cost of sales (services or services included)
Operating expenses (selling, general &
administrative, research & development,
other)
Interest income & expenses & related
Provision for tax

Non-recurring Items

Extraordinary items
Discontinued operations
Accounting changes
Other non-recurring items
Other gains & losses

Earnings Measures

Gross profit
Operating income
Income before tax
Income from continuing operations
Net income
Comprehensive income

Cash Flow Statement

Cash Flows from Operations

Cash Flows from Investing Activities
Cash Flows from Financial Activities
Statement of Stockholders Equity

Cash From Operations

Net income
Depreciation & amortization
Other operating adjustments
Changes in non-cash working capital items

Cash From Investing &

Financing
Cash from investing
Investment purchases
Investment maturities & sales
Capital expenditures
Cash from financing
Issuance of equity
Purchase/acquisition of equity
New debt
Debt maturities or retirement
Dividends
Treasury Stock

Statement of Stockholders
Equity
Reconciliation of stockholders equity,
alternative formats used
Key categories (changes)
Common stock, other paid-in capital
Retained earnings
Treasury stock
Other comprehensive income

Chapter 4
Quantitative Financial Analysis
Using Financial Statement
Information

Quantitative Financial Analysis

Systematic analysis of key elements based
on analysis context
Quantitative techniques to standardize
financial information for relevant
comparisons
In-depth analysis for key factors, including
red flags

Quantitative Financial Analysis

Financial Statements
Common-size Analysis
Financial Ratios
Growth Analysis
Du Pont Model
Earnings Quality/Normalizing Earnings

Useful Financial Comparisons

Benchmarks: rules of thumb or averages

Common Sense
Trend Analysis (analysis over time)
Near Competitors
Industry Averages
Market Averages

Common-size Analysis
Overview vs. detail
Balance sheet: total assets = 100%
Income Statement: sales (or total revenues)
= 100%
Comparisons over time & across firms (or
industry averages)
Useful starting point for financial overview

Ratio Analysis
A ratio converts financial information to a
percentage, one approach to standardization
Each ratios provides a somewhat different analysis
Ratios overlapa problem in one area should
show up as problems in other areas
The importance of specific ratios differs, based on
the purpose of the financial analysis
Ratios for the most recent period are usually the
most important

Ratio Categories
Liquiditycash, working capital & cash
flow related
Activityturnover ratios as possible
efficiency measures
Leveragedebt & solvency analysis
Performance (or profitability)bottom line
or earnings related

Liquidity Ratios
Current ratio: current assets/current
liabilities
Quick (acid test) ratio: (cash+marketable
securities+net receivables)/current liabilities
Cash ratio: (cash+marketable
securities)/current liabilities
Operating ratio: cash flows from
operations/current liabilities

Leverage Ratios
Debt to equity ratio: total liabilities/total stockholders
equity
Debt ratio: total liabilities/total assets
Interest coverage: (income before tax +interest
expense)/interest expense [note that the numerator is
earnings before interest and taxes or EBIT]*
Long-term debt to equity: long-term liabilities/total
stockholders equity
Debt to market equity: total liabilities at book value/total
equity at market value
*alternatively: (income from continuing operations
+ interest expense + tax expense)/interest expense

Activity Ratios
Inventory turnover: cost of sales [or
COGS]/average inventory
Receivables turnover: sales/average accounts
receivable
Payables turnover: sales/average accounts payable
Working capital turnover: sales/average working
capital
Fixed asset turnover: sales/average property, plant
& equipment
Total asset turnover: sales/average total assets

Activity Ratios in Days

Average days inventory in stock:
365/inventory turnover
Average days receivables outstanding:
365/receivables turnover
Average days payable outstanding:
365/payables turnover
Length of operating cycle: average days
inventory + average days receivables

Profitability

Gross margin: (Sales-cost of sales)/sales

Return on sales: net income/sales
Return on assets: net income/average total assets
Pretax return on assets: earnings before interest &
taxes/average total assets
Return on total equity: net income/average
stockholders equity
Dividend payout: common dividends/net income
[per share basis: dividends per share / EPS]

Du Pont Model
ROE = Profitability x Activity x Solvency
Net Income / Average Common Equity =
(Net Income / Sales) x (Sales / Average
Total Assets) x (Average Total Assets /
Average Common Equity)
ROA = Profitability x Activity

Decomposition using Du Pont

Start with Return on Sales
Activity is avg. total asset ratiothis is a measure of asset
turnover or efficiency
ROS x ATAR is Return on Assets (calculate as net income
/ average total assets)
Solvency is ATA / Avgas. Common Equitythis is a
standard leverage ratio
ROA x Solvency is Return on Equity (calculate as net
income / average common equity)
In summary, the differences between ROS, ROA & ROE
depend on activity & solvency

Du Pont Model
Ratio
Profit (Return on Sales)
Activity (Asset
Turnover)
Return on Assets
Solvency (Common
Equity Leverage)
Return on Equity

Calculation
Net Income/Sales
Sales/Avg. Total Assets
(ATA)
Net Income/ATA
ATA/Average Common
Equity (ACE)
Net Income/ ACE

Ratio Analysis Limitations

Ratios are presented on a percentage basis
Relative size is ignored (e.g., both large &
small firms can be compared)
It is assumed that all numbers used are
correct (consider both possible errors and
earnings management)
If the numbers are not reliable, ratios are not
particularly useful

Rating the PC Companies

Dell

Gateway

Apple

Liquidity

Activity

Leverage

Perform.

1 RF

2 RF

Du Pont

1 RF

2 RF

Overall

2 RF

Chapter 5
Multiperiod Quantitative Financial
Analysis

Growth Analysis
(period-by-period change)
Long-term trends over time can be significant. Are
current year performance measures consistent with
earlier years (e.g., maintaining consistent ratios
while sales are rising smoothly)?
As a first step, present growth rates (including %
increases) for the last 5-10 years
Declining or negative growth rates might be
obvious red flags; Red flags and other indicators
of poor growth performance require further
analysis

Base-Year Analysis
(also called Trend Analysis)
Set the earliest year, evaluated as the base
year, at 100. [Note: this assumes that
earliest year is normal.] Calculate growth
by dividing the more current year numbers
by the base year number.
This is an alternative presentation to growth
rate percentages over 5-10 years (or more)

Quarterly Analysis
The most recent financial data is presented
quarterly (e.g., 10-Q). [The one exception is at
year end, with annual information is presented]
Financial analysts focus on quarterly data and the
quarterly earnings announcement is the most
important (& earliest) information
Common-size and ratios analysis is conducted,
and compared over earlier quarters: particularly
important are current quarter data to (1) the
previous quarter and (2) the same quarter one year
ago

Chapter 6
Quantitative Financial Analysis
Techniques: Incorporating Market
Information

Quantitative Market Analysis

Stock prices & stock charts

Earnings per shareactual & forecast
Price earnings ratios (PE)
Dividend yield
Market value & market-to-book
Price earnings to growth ratios (PEG)
Valuation models

Stock Prices

Prices change continuously

Using daily closing price
Stock charts, various periods
Industry & market comparisons
Internet sites

Earnings Per Share (EPS)

Performance measure on per share basis
Basic vs. diluted
Forecasted EPS (Analysts Estimates on
Yahoo)
Annual vs. quarterly EPS
Annuallast 4 quarters
5 year forecasts (relevance vs. reliability)

PE Ratios
Stock price as a market premium for
earnings
Which price? (most current, historic)
Which EPS? (current year actual--usually
last 4 quarters, future forecast, basic vs.
diluted)
Closing prices
Alternatives & how to evaluate them

Market-based Ratios
Price earnings ratio (PE): Stock price / EPS
Dividend Yield: Dividend per share / Stock
price
Market value: stock price x shares
outstanding
Market-to-book: market value /
stockholders equity

Dividends
Dividends given on a per share basis; focus on
dividends per share, last 4 quarters. [Note
equivalent to dividends/shares outstanding.]
Dividend yield: dividends per share/stock price
income focus; average yield is about 2% for the
S&P 500.
Dividend payout: dividends per share/earnings per
share.

Market-related Ratios
Market-to-book: market value / stockholders
equity [or measure on a per share basisstock
price / book value per share]why is a market
premium to book common?
Sales to market value: annual sales to
outstanding shares x (1) year-end closing market
price or (2) most recent closing market price.

Price Earnings to Growth (PEG)

High PE is usually associated with the expectation
of high earnings growth, which can be evaluated
with PEG
Historic PEG = PE based on actual EPS / 5-year
historic earnings growth
Forecast PEG = PE based on forecast EPS / 5year earnings forecast
PEG is useful to evaluate growth stocks, less
useful for income stocks

Earnings-based Growth Model

P = kE / (r g) where P is expected stock price,
k is dividend payout rate (actual or predicted), E is
EPS, r is the discount rate, and g the projected
earnings growth rate
This model requires dividends, the discount rate is
arbitrary (it could be the actual cost of capitalor
based something else), and the growth rate is a
forecast; results can change substantially using
different assumptions

Stock Screening
The purpose of stock screening is the
determine which firms meet specific criteria
(such as minimum ROE or dividend yield)
Several internet sites have stock screeners,
such as Yahoo
The technique is useful to limit the number
of companies on which to conduct a
complete financial analysis

Chapter 11
Capital Structure & Credit Risk

Corporate Liabilities
Accounts Payable
Commercial Paper & other short-term
market liabilities
Other current liabilities
Corporate Bonds
Other long-term market debt
Other liabilities (including off-balancesheet)

Credit Risk
Credit risk: probability that a corporation
will either default on debt or declare
bankruptcy.
Default risk: probability that a
corporation will not pay interest &
principal when they come due
Bankruptcy risk: probability that a
corporation will file for bankruptcy

Default Risk
What is the chance (probability) that the
corporation will fail to make interest or principal
payments when due?
Because of high collection costs, creditors
evaluate credit risk carefully
Failure events: restructurings, especially troubled
debt restructuring; default; bond rating downgrading; going-concern qualifications; bankruptcy

Bankruptcy Risk
Probability that a firm will file for Chapter
11 bankruptcy.
Importance of failure events: losses,
defaults, troubled debt restructuring, going
concern qualified audit opinion
Altmans Z-score can be used as a
prediction model for credit risk

Financial Leverage
Financial leverage is the relative mix of debt (especially
long-term debt) & equity
Long-term debt increases credit risk & has interest charges
The financial leverage index (FLI) is ROE/ROA
A high FLI indicates the increasing use of leverage to raise
ROE relative to ROA
The financial structure leverage ratio (FSLR) is average total
assets/average common equity. This is the same ratio used in
the DuPont Model for solvency. A higher ratio means higher
leverage, but also a higher ROE. The ratio is identical to FL1
if there is no preferred stock. When preferred stock is
present, the FSLR is higher than FLI.

Altmans Z-score, 1983 Model

6.56 x (working capital / total assets)

+ 3.26 x (retained earnings / total assets)
+ 6.72 x (EBIT / total assets)
+ 1.05 x (book value of equity / book value
of debt)
= Altmans Z-score

Altmans Z-score
Indicator of overall financial health
Cutoffs: les than 1.1
bankrupt
1.1 2.6
gray area
greater than 2.6
healthy
A Z-score of 1.1 or less does not mean the
company is bankrupt, but does suggest that
financial problems may exist

Bond Ratings
Bond rating agencies include Standard &
Poors & Moodys
Corporations are expected to have
investment grade ratings, Baa and above
(for Moodys)
Bond ratings below investment grade are
junk bonds, which is usually recognized as
a red flag

Bond Ratings
Highest
Very High
High Qual.
High Qual.
Speculative
Speculative
Speculative
Speculative

S&P
AAA
AA
A
BBB
BB
B
CCC
D

Moodys
Aaa
Aa
A
Baa
Ba
B
Caa
C

Category
Investment
Investment
Investment
Investment
Below
Below
Below
Below

Chapter 12
Credit Analysis

Credit Analysis Process

Loan Purpose
Corporate Overview
Financial Analysis
Accounting Analysis
Comprehensive Analysis
Loan Decision

Loan Purpose
Commercial Bank Loan:
term loan
revolving line of credit
other
Commercial Paper
Corporate Bonds

Corporate Overview
Wide variety of firms need bank loans
Size characteristicslocal or regional to
national & global
Industry specializations, including impact
on bank credit risk
Large companies have more credit options

Quantitative Financial Analysis

Primary focus is on financial report
analysis, with less emphasis on market
information
Particular interest in liquidity & leverage
Evidence of financial health (as measured
by credit risk) rather than earnings
performance & forecasts

Accounting Analysis
Emphasis on liquidity & cash flow
information
Analysis of unrecorded obligations &
potential overstated assets
Forecasts of sales & operations plus future
cash flows

Comprehensive Analysis
Summary of key information (executive
summary recommended)
Importance of credit risk
Adequate information to make informed
recommendations/decisions

Loan Decisions

Yes/ No on loan
What interest rate (prime rate +)?
What collateral?
What Debt covenants?
Other considerations (e.g., compensating
balances)

Chapter 13
Equity Investment Analysis

Investment Portfolio

Importance of Portfolio Diversification

Based on Investor Goals
Short-term, liquidity focus
Mid-term, return but limited risk focus
Long-term, return focus

Mutual Funds
Investment portfolios managed by
professionals & regulated by the SEC
Advantages: diversification, professional
management, liquidity, small investment
Disadvantages: Fees, average returns less
than expected, lack of control over
investments, taxes

Mutual Fund Categories

Money Market Funds
Bond
Stock: growth, income, value, asset
allocation, international, sector, regional
Balanced
Real estate, usually REITs

Gotrocks Funds
Growth Fund: maximize long-term market appreciation
using large-cap stocks (focus on earnings & earnings
growth potential)
Income Fund: maximize intermediate- & long-term income
using bonds and large-cap stock that pay high dividends (+
total return as a secondary goal)
Value Fund: invest in large-cap stocks that out of favor
requires evidence of substantial stock price drop &
ongoing restructuring (usually low market-to-book)

Investment Strategies

Buy & hold

Index funds
Dollar-cost averaging
Risk measures, such as Beta analysis
Asset allocation decisions; e.g., % of cash,
bonds & stocks

Six-step Analysis

Investment purpose
Corporate overview
Quantitative financial & market analysis
Detailed accounting analysis
Comprehensive analysis
Recommendation or decision

Investment Purpose
Short-term (stressing liquidity & low risk)
Long-term (e.g., retirementstressing longterm return, willing to accept more risk)
Using market averages such as the Dow Jones
Industrial Average
Utilities may fit income funds because of high
dividend yields
High tech firms may fit growth funds

Decisions
Decisions: buy, sell, hold (& how much?)
Different important characteristics based on
investment goals:
Income Investment: importance of
dividend yield
Growth fund: importance of profit &
earnings growth forecast
Values funds: importance of bargain
price