Using this analysis framework while investing could multiply your wealth many times over!
EIC Framework is a top-down approach tool, and as the name implies, the researcher focusses on the economy, industry, and finally, the company.
Fundamental analysis is a comprehensive method of studying a business. When an investor intends to invest in a firm for a long period of time, say 3 to 5 years, it is critical to understand the business from multiple angles. There are companies that have provided an average compounded annual growth return (CAGR) of more than 20 per cent year-on-year for over ten years, allowing an investor to more than double his fortune. As a result, imagine the quantity and speed with which money can be built if one invests in fundamentally-sound companies.
Fundamental analysis is a way of determining the intrinsic value of an asset by examining several macroeconomic and microeconomic elements. To assist with investment decisions, the intrinsic value of the security can be compared to its current market price. Fundamental analysis can be performed in either a top-down or bottom-up manner. EIC Framework is a top-down approach tool, and as the name implies, the researcher focusses on the economy, industry, and finally, the company.
To invest in any company, one must first understand the country's economy to which the company belongs. GDP growth, unemployment rate, income levels, inflation, and interest rates are just a few examples of macroeconomic indicators to be aware of!
When analysing an industry, it is critical to include Porter's five forces namely, negotiating power of suppliers, bargaining power of consumers, the threat of substitute goods, the threat of new entrants, and competition among existing rivals. To acquire a comprehensive understanding of the sector, PESTLE (political, economic, social, technological, legal & environmental) analysis and SWOT (strengths, weaknesses, opportunities & threats) analysis are required.
Finally, company analysis can be done using both qualitative and quantitative data. The quantitative analysis comprises financial statements & analysis using various tools. On the other hand, qualitative analysis focusses on the company's structure, management, culture, vision, corporate governance, and competitive advantage.