Your objective here is simply to learn as much about the industry and its companies as you can. Major Steps in the Analysis Economic Analysis Read enough economic forecasts and economic commentary that you can make an informed judgement as to where we are within the business cycle. Using the relationships covered in the course, determine the outlook for the rate of inflation and future movement of interest rates over the next year. Industry Analysis Read all that you can about the industry that you have been assigned. Analysis of the company's competitive position is very important - this competition can place tremendous pressure on the profit margins of firms in the industry.
Characteristics often vary wildly from industry to industry .
The company's accounting policies should be conservative, with an absence of gimmicks to push up earnings. Look at Michael Porter's competitive strategy analysis again to see the impact on each firm. Use the duPont model to break down ROE into the sources of profit for the firm. Stock Analysis and Valuation Determine the fair price of the stock through use of a dividend discount model. If so, then you have still found something valuable - which stocks to avoid.