Factors of Security Analysis in Business Investment

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Business Investment is an area of deep interest to the Finance managers of any organization. The risk and returns associated with any investment need thorough analysis for its pros and cons. In addition, three major factors require analysis to arrive at the investment decisions. These three factors are EIC factors i.e. Economy factors, Industry factors and Company factors.

Exchange Rate

Important Of Economy Factor in the Business Investment

This factor is the macroeconomic analysis of the business environment in which the organization is operating. The analysis of this factor helps in answering questions like whether it is the right time to invest in the equity market, or whether the generic outlook of the economy is pessimistic or optimistic. Econometricians evaluate the macroeconomic factors on a duration like short term (couple of quarters to 3 years), medium term (3 to 5 years) and long term (5 years and beyond). The inputs to the study of economy come from following data –

  • GDP measurements
  • Anticipatory surveys of the industry leaders and Senior Government officials
  • Various barometric index like sensex, federal interest rates etc
  • Economic models generated at aggregate and disaggregate levels

The anticipatory surveys involve the literature survey for instance analysis of Economy report, Budget document of the country where business investment is being planned, publications of the federal bank etc. Along with the secondary survey, the econometrician may also take up primary survey, whereby the researchers conduct the interview of industry leaders for their views on the future of the country’s economy. The level of participation of such survey must be high to get a clear and broader picture of future of economy.

Important Of Industry Factor in the Business Investment

The analysis of this factor involves the cluster analysis of a certain sector in which the clubbing of companies happens as per the common product and the services they are providing to their customers. These clubbing can also be due to the activities these organizations engaged into like IT, Steel, Oil and gas, Pharma, Auto, agro, Power, Telecom etc.

The analysts study the performance of any sector within few frameworks as given below –

  • Competitive Model
  • Structure and characteristic of the industry
  • Other – Create your own variable


Important Of Company Factor in the Business Investment

This factor is basis to any business investment decision. This factor works on the life cycle model for any company. As with any living being’s cycle of birth and death, the organizations also have a life cycle. The division of organization’s life cycle is in four stages. These stages are – Pioneer/Introduction stage, Expansion or growth stage, Maturity and stabilization stage and finally the decline stage.

The first stage is where the organization just comes up on the horizon and all the investors with risk appetite invest into such firms, as the returns in such a stage are very high. The important aspect to remember here is that many organizations fade away in the pioneer stage. Expansion stage is when the serious and careful investors and speculators invest in. Maturity or stabilization phase gives the returns, which are in tune with the market whereas decline phase is when the investments may actually give zero return.

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