BM410-13 Macroeconomic Analysis 10Oct05 - Marriott School


28 Οκτ 2013 (πριν από 4 χρόνια και 8 μήνες)

104 εμφανίσεις

BM410: Investments



Or understanding the critical economic
factors that affect your company



A. Do you understand the global analysis
framework and the importance of
understanding global issues?

B. Do you understand the critical areas of that
global analysis framework, particularly
economic analysis?

C. Do you understand where to find key
international economic data?

D. Do you understand how to include economic
data in your company report?


Understand the

Global Analysis Framework

I want you to change your thinking

You are not preparing to be a US analyst

You are preparing to be a global analyst with
expertise in the US

Why must you understand global issues?

Your competitors are likely to be global

They understand global issues

In order to compete, you must understand them
as well

For in the future, international business will be just

Prepare now and you won’t be surprised later


What is our approach to company analysis?

Fundamental Analysis

Approach to Fundamental Analysis

Domestic and global economic analysis

Domestic and global industry analysis

Company analysis

Why use the top
down approach?

The return on a stock is a function of the

The return on a market is a function of the

The return on an economy is a function of
the world economy

Global Analysis Framework


Global Analysis Framework

Global Economic and Political Analysis

(what is the world doing?)

Country Economic and Political Analysis

(what’s happening in my main markets?)

Global Industry Analysis

(what is the global industry doing?)

Country Industry Analysis

(what’s happening in my main industry?)

Company Analysis

(what’s happening with my company?)



Any questions on the global analysis
framework and why it is important?


Understand Critical Areas of the
Global Analysis Framework

Global Economic and Political Analysis

(what is the world doing?)

Country Economic and Political Analysis

(what’s happening in my main markets?)

Global Industry Analysis

(what is the global industry doing?)

Country Industry Analysis

(what’s happening in my main industry?)

Company Analysis

(what’s happening with my company?)


Global Economic

and Political Analysis

Key Considerations

Performance in countries and regions is highly variable

Monitor it well

Political risk can change everything

Keep your hand on the country’s political pulse

Exchange rate risk is always there

Keep abreast and cover yourself if economically
feasible, i.e. sales, profits, stock returns


Country Economic

and Political Analysis

Key considerations?

1. Government Policy

Fiscal and Monetary Policy

2. Factors that impact the economy

Supply and demand shocks

3. Business cycles

Troughs and peaks

4. Forecasting

Tools to help

5. Key variables to watch


1. Government Policy

Fiscal Policy

government spending/taxing
actions as part of “demand
side” management

Direct policy to implement, but hard to decide on

Therefore difficult to use to fine
tune the

Look at the governments surplus or deficit

This will show the governments spending

Monetary Policy

manipulation of the money supply to
influence economic activity, also a “demand

Easy to formulate, but takes a longer time to work
through the economy


Government Policy


Tools of monetary policy

market operations

Adds/subtracts liquidity to the system

Discount rate

The ate banks can borrow short
term from the
Fed and indirectly the rate consumers pay for

Reserve requirements

The amount that banks must keep in cash or on
reserve at the Fed


2. Factors that Impact the Economy

Demand shocks

Affects the demand for goods and services

Tax cuts or rebates

Increases in government spending

Dramatic weather changes or political shocks

Supply shock

Affects the supply of good and services

Commodity price changes

Educational level of economic participants

Technology advances that improve production
or capacity


3. Business Cycles

How does the economy perform, and how
does the industry perform under various
economic conditions?

Business Cycle



Industry relationship to business cycles




4. Forecasting Economic

and Industry Performance

Leading Indicators

Tend to rise and fall in advance of the economy

Examples: Avg. weekly hours of production
workers, stock prices, money supply (M2)

Coincident Indicators

Tend to change directly with the economy

Examples: industrial production, manufacturing and
trade sales, personal income less transfer payments,

Lagging Indicators

Tend to follow or lag economic performance

Examples: ratio of trade inventories to sales, ratio of
consumer installment, credit outstanding to personal
income, change in index of labor costs


5. Economic Variables

to Watch

Key variables

Gross domestic product

Unemployment rates

Interest rates & inflation

International Trade and Investment

Consumer sentiment

Other variables

Elections, Katrina and Rita, etc.



Why do you think the index of consumer
expectations is a useful leading indicator
of the macro



The index of consumer expectations is a
useful leading economic indicator
because if consumers are optimistic
about the future they will be more
willing to spend money, especially on
consumer durables, which will increase
aggregate demand and stimulate the



Do you understand the critical areas
of this global analysis framework?


C. Key sources of international
Economic Data?

I. World Bank

Global Economic Prospects, published bi

World Economic Indicators, published annually

II. Economist Publications

Economist magazine, published monthly

Economist Intelligent Unit, ongoing publication, but
available for a (very high) fee

III. Wall Street Journal

Economic and other forecasts are sporadic, but
available if you watch the table of contents closely


I. World Bank:

Global Economic Prospects


II. Economist Publications


Economist Intelligence Unit:

Purchased Information


III. Wall Street Journal

Daily publication

No specific ongoing economic analysis

It does have sporadic forecasts as part of
specific articles and sections

They do have a quarterly economic forecasts
section where various economic forecasts
are compared to actual results



Any questions on the key sources of
international economic information?


D. Including Economic Forecasts

in Financial Analysis

Key issues?

What are your forecasts?

Where did they come from?

How do they come into your forecasts?

How do you document them?


Forecasts Used in this Class

This is not an economic forecasting class

As such, I will give you a recommended forecast

This forecast is on the Apple.xls spreadsheet

You can copy this directly to your spreadsheet

Note that my forecasts are from the World Bank

You can, however, change the forecasts consistent
with your own views

All I ask is that you document your changes in
views in the ratios section


Where Economic Data is Used

Sales Growth

Compare how sales have grown historically within
the economic setting

Has sales growth increased even in difficult

They may likely continue in the future

Has sales growth declined in difficult times?

This may also continue in the future


Where Economic Data is Used

Forecasting Interest Expense and Interest

Generally, most interest rates are (loosely) tied to
LIBOR, the London Inter Bank Offered Rate

Keep your rate on interest income and interest
expense a consistent multiple over or under this
rate, i.e. interest income is + 30 bps over LIBOR
and interest expense is + 500 bps over LIBOR



Any questions on how to include your
economic data into your forecasts?


Review of Objectives

A. Do you understand the global analysis
framework and the importance of understanding
global issues?

B. Do you understand the critical areas of that
global framework, particularly economic

C. Can you find sources of data for your
international economic prospects?

D. Do you know how to write up the industry


D. Understand How to Write Up the
Industry Report

Mandatory Framework:

Key Information

Description and Summary

International Competitive Structure

SWOT Analysis/Positives and Negatives

Key Valuation Ratios

Key Items to Watch


Key Information

Key Information

Industry Sub

Major Industry


Industry Type

Use the six types as discussed by Peter Lynch on
page 400: Slow Growers, Stalwarts, Fast
Growers, Cyclicals, Turnarounds, and Asset

Key Indices

Include which items are included in the index,
i.e. price, price earnings, dividends, etc.


Description and Summary

This should include:

A brief description of the industry and what makes
is different. This could include how long it has
been around, the key areas of interest, key business
models, and any other information that you deem
relevant to the discussion.


International Competitive Structure

This section includes:

The structure of industry suppliers and
competition, i.e., fragmented, oligopolistic;
expansion opportunities; the importance of
capital, barriers to entry globally, impacts of
global regulation and trade, etc.



You can determine the type of analysis

Positive Factors and Negative Factors

Put these in the order of importance, most
important first

Strengths, Weaknesses, Opportunities, Threats

Clearly delineate which of these are most

Regardless of your type of analysis, make sure you
cover the industry clearly


Key Things to Watch

Key Valuation Ratios to Watch

List the key ratios that are followed by analysts in
this industry.

A good start is to look at analysts reports from
Investex Plus in the library (see FR

Finding Key Sources of Financial Information).

Key Items to Watch

These are the key economic and other statistics that
are key to performance for this industry. As you
read through your 10
k reports, you will get a
strong sense of the key variables to watch.


Return Performance

This is the relative total return performance versus the
market and industry indices (see IR
2A Getting
Industry Total Returns)

Include your market index and industry index (note:
your industry index does not need to have PE data
to be included here. All it needs is total return data)

Excess is the difference between the industry return
and the market return

GDP Return is the GDP real growth rate for the year
from FR
2A Company Financials

AAPL Section 19)

By seeing how the industry and economy has
performed together, it will give you an indication of
what might happen in the future