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DERICK MWANSA

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AMITY MBA PROJECT SYNOPSISFORMAT SAMPLEadmin | January 20, 2014 | AMITY | No Comments

According to amity mba proect guide!ines you "a#e to submit t"e synopsis a$ter

getting it signed by t"e guide o$ t"e same re!e#ant %e!d &T"e synopsis s"ou!d "a#e

t"e $o!!o'ing topics

1 Tit!e o$ t"e proect

2& statement o$ t"e prob!em&

(&)"y is t"e topic c"osen&

4&*+pected Contribution $rom t"e study&

&-becti#e o$ t"e study&

.&/esearc" met"odo!ogy&

&C"apter c"eme&

"rd &>eJ "0

The Manager

Finance Bank 

Kabwe Branch

Dear Sir,

Re: Re$&est or Cleara>ce #etter

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My names are Derick Mwansa, holder of savings account number 0"*B@000", as

indicated in the above subject, write to your office re!uesting for a clearance letter which

should be addressed to the "ersonnel de"artment #ambia $risons Service%

&ours faithfully,

Derick Mwansa% 

"

rd

 &>eJ "0

The $ersonnel De"artment

#ambia $risons Service

Kabwe%

Dear Sir,

Re: Re$&est -or Cha>5e o Fay Foi>t -rom -i>a>ce 1a>8 o 1arclays 1a>8 Acco&>t>&m6er 00@"",B

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'ith reference to the above mentioned subject, write to your office re!uesting for a change

in the "ay "oint% My "referred "ay "oint is Barclays Bank account number (()*+-./-%

0ttached is a clearance letter from the Bank Manager, Finance Bank Kabwe%

&ours faithfully,

Derick Mwansa%

Farts o a comp&ter

'indows 1 

I> this pa5e

• System unit

• Storage

• Mouse

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• Keyboard

• Monitor 

• $rinter 

• S"eakers

• Modem

f you use a deskto" com"uter, you might already know that there isn2t any single "art calledthe 3com"uter%3 0 com"uter is really a system of many "arts working together% The "hysical

 "arts, which you can see and touch, are collectively called hardware% 4Software, on the otherhand, refers to the instructions, or "rograms, that tell the hardware what to do%5

The following illustration shows the most common hardware in a deskto" com"uter system%&our system might look a little different, but it "robably has most of these "arts% 0 la"to"com"uter has similar "arts but combines them into a single, notebook*si6ed "ackage%

Deskto" com"uter system

7et2s take a look at each of these "arts%

System &>it

The system unit is the core of a com"uter system% 8sually it2s a rectangular bo9 "laced on orunderneath your desk% nside this bo9 are many electronic com"onents that "rocessinformation% The most im"ortant of these com"onents is the central "rocessing unit 4:$85, or micro"rocessor, which acts as the 3brain3 of your com"uter% 0nother com"onent is random

access memory 4;0M5, which tem"orarily stores information that the :$8 uses while thecom"uter is on% The information stored in ;0M is erased when the com"uter is turned off%

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0lmost every other "art of your com"uter connects to the system unit using cables% Thecables "lug into s"ecific "orts 4o"enings5, ty"ically on the back of the system unit%

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 >early all com"uters today come e!ui""ed with a :D or D?D drive, usually located on thefront of the system unit% :D drives use lasers to read 4retrieve5 data from a :D@ many :Ddrives can also write 4record5 data onto :Ds% f you have a recordable disk drive, you canstore co"ies of your files on blank :Ds% &ou can also use a :D drive to "lay music :Ds onyour com"uter%

:D

D?D drives can do everything that :D drives can, "lus read D?Ds% f you have a D?Ddrive, you can watch movies on your com"uter% Many D?D drives can record data onto blank D?Ds%

ip

• f you have a recordable :D or D?D drive, "eriodically back u" 4co"y5 your

im"ortant files to :Ds or D?Ds% That way, if your hard disk ever fails, you won2t lose

your data%

-loppy dis8 drive

Flo""y disk drives store information on flo""y disks, also called flo""ies or diskettes%:om"ared to :Ds and D?Ds, flo""y disks can store only a small amount of data% They alsoretrieve information more slowly and are more "rone to damage% For these reasons, flo""ydisk drives are less "o"ular than they used to be, although some com"uters still include them%

Flo""y disk

'hy are these disks called 3flo""y3 disksA The outside is made of hard "lastic, but that2s justthe sleeve% The disk inside is made of a thin, fle9ible vinyl material%

To" of "age

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Mo&se

0 mouse is a small device used to "oint to and select items on your com"uter screen%0lthough mice come in many sha"es, the ty"ical mouse does look a bit like an actual mouse%t2s small, oblong, and connected to the system unit by a long wire that resembles a tail% Somenewer mice are wireless%

Mouse

0 mouse usually has two buttons 0 "rimary button 4usually the left button5 and a secondary button% Many mice also have a wheel between the two buttons, which allows you to scrollsmoothly through screens of information%

Mouse "ointers

'hen you move the mouse with your hand, a "ointer on your screen moves in the samedirection% 4The "ointer2s a""earance might change de"ending on where it2s "ositioned on your screen%5 'hen you want to select an item, you "oint to the item and then click 4"ress andrelease5 the "rimary button% $ointing and clicking with your mouse is the main way to

interact with your com"uter% For more information, see 8sing your mouse%

To" of "age

Key6oard

0 keyboard is used mainly for ty"ing te9t into your com"uter% 7ike the keyboard on aty"ewriter, it has keys for letters and numbers, but it also has s"ecial keys

• The function keys, found on the to" row, "erform different functions de"ending on

where they are used%

• The numeric key"ad, located on the right side of most keyboards, allows you to enter

numbers !uickly%

• The navigation keys, such as the arrow keys, allow you to move your "osition within

a document or web"age%

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Keyboard

&ou can also use your keyboard to "erform many of the same tasks you can "erform with amouse% For more information, see 8sing your keyboard%

To" of "age

Mo>itor

0 monitor dis"lays information in visual form, using te9t and gra"hics% The "ortion of themonitor that dis"lays the information is called the screen% 7ike a television screen, acom"uter screen can show still or moving "ictures%

There are two basic ty"es of monitors :;T 4cathode ray tube5 monitors and the newer 7:D4li!uid crystal dis"lay5 monitors% Both ty"es "roduce shar" images, but 7:D monitors havethe advantage of being much thinner and lighter%

7:D monitor 4left5@ :;T

monitor 4right5To" of "age

Fri>ter

0 "rinter transfers data from a com"uter onto "a"er% &ou don2t need a "rinter to use yourcom"uter, but having one allows you to "rint e*mail, cards, invitations, announcements, andother material% Many "eo"le also like being able to "rint their own "hotos at home%

The two main ty"es of "rinters are inkjet "rinters and laser "rinters% nkjet "rinters are the

most "o"ular "rinters for the home% They can "rint in black and white or in full color and can

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 "roduce high*!uality "hotogra"hs when used with s"ecial "a"er% 7aser "rinters are faster andgenerally better able to handle heavy use%

nkjet "rinter 4left5@ laser "rinter 4right5To" of "age

Spea8ers

S"eakers are used to "lay sound% They can be built into the system unit or connected withcables% S"eakers allow you to listen to music and hear sound effects from your com"uter%

:om"uter s"eakersTo" of "age

Modem

To connect your com"uter to the nternet, you need a modem% 0 modem is a device that sends

and receives com"uter information over a tele"hone line or high*s"eed cable% Modems aresometimes built into the system unit, but higher*s"eed modems are usually se"aratecom"onents%

http://windows.microsoft.com/en-us/windows/computer-parts#TopOfPageTargethttp://windows.microsoft.com/en-us/windows/computer-parts#TopOfPageTargethttp://windows.microsoft.com/en-us/windows/computer-parts#TopOfPageTargethttp://windows.microsoft.com/en-us/windows/computer-parts#TopOfPageTarget

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:able modem

Thesis Methodology Part

What is a thesis methodology? Methodology comes from the root word method. Itdescribes the procedures that were executed by the researcher. This way, he canincrease his credibility towards presenting a reliable set of information coming fromhis research. When the readers know how the research was undertaken, they caneasily understand and give opinions about the results of the thesis paper  and probablylearn how to write a thesis paper  in a more general perspective.What are the contents of the thesis methodology chapter? The chapter usuallycontains explanations of processes in paragraph form. ut you can easily divide thechapter into two general parts. The first part should involve the explanation of thingsrelated to data gathering procedures. !ou should be able to provide detailedinformation about how you have gathered data. The second part involves thepresentation of information related to data analysis. It means you need to providedetails that will relate to how you used the data gathered and what implications theresults have made to the conclusion. " thesis methodology will always be a significant part of the thesis paper. It provides you the

opportunity to increase your results# reliability and at the same time gives clear delivery of details

about how you processed the research paper. If you need help in writing this part, you may take a

look at our thesis online samples in this website. $r, you can simply order for a complete research

paper of any thesis topics from us and let our writers do the %ob for you so you can have a more

relaxing weekend.

SynopsisIn order to clarify your thoughts about the purpose of your thesis and how you plan to reach your

research goals, you should prepare a synopsis. A synopsis is a short, systematic outline of your

proposed thesis, made in preparation for your first meeting with your supervisor. It serves to

ensure that your supervisor gets a clear picture of your proposed project and allows him or her to

spot whether there are gaps or things that you have not taken into account.

Your synopsis will work as a kind of protocol for the further steps you need to take to ensure that

your thesis reaches the required academic level – and that you finish on time.

Although there are no rigid rules for how a synopsis should look, it must contain:

http://thesisblog.com/http://thesisblog.com/thesis-writing/how-to-write-a-thesis-3http://thesisblog.com/help/thesis-online-servicehttp://thesisblog.com/thesis-writing/thesis-topics-factorshttp://thesisblog.com/thesis-writing/thesis-topics-factorshttp://thesisblog.com/http://thesisblog.com/thesis-writing/how-to-write-a-thesis-3http://thesisblog.com/help/thesis-online-servicehttp://thesisblog.com/thesis-writing/thesis-topics-factors

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•   Background: 

Set the stage by addressing the scientific background: How will your proposed research

contribute to the existing body of knowledge? Use your own words and be as specific as

possible.

o Rationale– should address the gaps/problems/issues observed as part of the

background section and thus present the argument/justification for completing the study

– as described in the lesson of the same name.

o Problem formulation– the problem you aim to address in your thesis,as

described in the lesson of the same name.

o Overall and specific objectives – the actions to be taken in order to address the

problem, as described in the lesson of the same name.

 

•   Method outline:

What type of study is best suited to support the actions stated in the specific objectives?

What kind of data (qualitative, quantitative) will your study require? What is your geographical

study area and who is your target group(s)? Are there ethical considerations you have to

make? Etc.

 

•   Time plan:

In the beginning, a rough timeline showing a plan on how your work will be divided over time.

When is your deadline for e.g. literature search, potential fieldwork (e.g. interviews and/or

questionnaire administration), data analysis, writing and layout? Once your problem

formulation and objectives are approved by your supervisor, all details should be added to

your time plan.

 

•   References:

Create a short list of the major references on which your rationale is based. Make sure that

your in-text citations and reference list are completed correctly, both in support of your

subsequent work, but also to demonstrate that you have a serious, scientific and methodical

approach to your work. See how to use references correctly in the lesson of the same name

in the module: Writing process.

 

At the beginning of your thesis period, your synopsis will be limited in scope and detail, but as

you work your way deeper into your topic and you get a clearer picture of your objectives,

methods and references, the more complete and detailed your synopsis will become.

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A rule of thumb is that the length of your synopsis can vary from two to five pages, but the

precise length and exact requirements of your synopsis can vary from institute to institute and

from supervisor to supervisor.

Most study programmes will require that you present a final synopsis before starting data

collection. However, the first version of your synopsis for discussion with your supervisor shouldnot be an informal draft. Carefully performed work creates respect and motivation and saves a lot

of you and your supervisor’s time.

A good approach from the very beginning is to establish a practice of how to write headings,

references, names of species, etc. And be consistent. This will help you save time and

importantly, lead to a better overall assessment of your final work.

- See more at:http://betterthesis.dk/getting-started/synopsis#sthash.sfLOEw8C.dpuf

&oncept of Working &apital 0  Vinod Kumar  August 8, 2011.

 &oncept of working capital includes meaning of working capital and its nature. Working capital is

the investment in current assets. Without this investment, we can not operate our fixed assets

properly. 'or getting good profits from fixed assets, we need to buy some current assets or pay

some expenses or invest our money in current assets. 'or example, we keep some of cash

which is the one of ma%or part of working capital. "t any time, our machines may need repair.

(epair is revenue expense but without cash, we can not repair our machines and without

machines, our production may delay. )ike this, we need inventory or to invest in debtors and

other short term securities.

$n the basis of &oncept, we can divide our working capital into two parts*

http://betterthesis.dk/getting-started/synopsis#sthash.sfLOEw8C.dpufhttp://www.svtuition.org/2011/08/concept-of-working-capital.html#commentshttps://plus.google.com/106764527220984720836http://www.svtuition.org/2011/08/concept-of-working-capital.htmlhttp://www.svtuition.org/2010/02/assets.htmlhttp://www.svtuition.org/2010/02/assets.htmlhttp://betterthesis.dk/getting-started/synopsis#sthash.sfLOEw8C.dpufhttp://www.svtuition.org/2011/08/concept-of-working-capital.html#commentshttps://plus.google.com/106764527220984720836http://www.svtuition.org/2011/08/concept-of-working-capital.htmlhttp://www.svtuition.org/2010/02/assets.html

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1. Gross Working Capital

In this concept of working capital, we study gross working capital. We do not deduct current

liabilities in this concept but we use current liabilities as source of fund. +uppose, if we buy goods

on credit, it means our save our cash and we can use this as working capital for paying other

expenses.

2. Net Working Capital

nder this concept we use net working capital. 'or this, we first deduct all our current liabilities

from our current assets. -xcess of current assets over current liabilities will be current assets.

We have to maintain minimum level of working capital in our business for operation of business

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activities. This concept is also used for preparation of balance sheet. In the vertical form of

balance sheet, we show excess of current assets over current liabilities.

Operating Cycle Concept of Working Capital

In this concept of working capital, we make the operating cycle. In this cycle,

we calculate inventory conversion period. To know this, we can estimate when we need cash for

buying our inventory. We also calculate debtor  or receivable conversion period. To know this, we

can estimate when we receive cash from our debtors.

 If inventory conversion period is less than debtor conversion period, we have to manage other

sources for buying our inventories. If we buy good on credit, we also take care creditors

conversion period.

Meaning And Concept Of Working Capital

Meaning Of Working Capital  

usiness organi/ation re0uire ade0uate capital to establish business and operate their activities.The total capital of a business can be classified as fixed capital and working capital. 'ixed capital

is re0uired for the purchase of fixed assets like building, land, machinery, furniture etc. 'ixed

capital is invested for long period, therefore it is known as long1term capital.+imilarly, the capital,

which is needed for investing in current assets, is called working capital.

The capital which is needed for the regular operation of business is called working capital.

Working capital is also called circulating capital or revolving capital or short1term capital. Working

capital is used for regular business activities like for the purchase of raw materials, for the

payment of wages, payment of rent and of other expenses. Working capital is kept in the form of 

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cash, debtors, raw materials inventory, stock of finished goods, bills receivable etc.

Concept Of Working Capital  

2enerally, there are two concepts of working capital i.e. gross concept and net concept.1.Gross Concept Of Working Capital  

 "ccording to gross concept, working capital refers to all the current assets and represents the

amount of funds invested in current assets. Thus, gross working capital is the capital invested

incurrent assets. &urrent assets are those assets which can be converted into cash within the

short1time period.

Gross Working Capital = Total current assets

In this way, gross working capital refers to the firms investment in current assets. 2ross working

capital represents total of current assets which includes cash in hand, cash at bank,

inventory,prepaid expenses, bills receivable etc.• 3uman resource managements

 

• usiness "ctivities 

• usiness $rgani/ations

2.Net Concept Of Working Capital  

 "ccording to the net concept, working capital is the excess of current assets over current

liabilities. In other words, the difference between current assets and current liabilities is called net

working capital. 

Net Working Capital = Current Assets - Current liabilities

In this way, net working capital is the difference of current assets and current liabilities.

Concept of working Capital

by +(-- ("M" ("$ on FEBRUARY ! "##$

There are two definitions of working capital 456 2rossworking capital 476 8et working capital

2ross working capital refers to working capital as the

total of current assets, whereas the net workingcapital refers to working capital as excess of current

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assets over current liabilities. In other words networking capital refers to current assets financed bylong term funds.

 "ccordingly,

2ross working capital 9 Total current assets8et working capital 9 &urrent assets : &urrentliabilitiesThe net working capital position of the firm is an

important consideration, as this will determine thefirm#s profitability and risk. 3ere the profitability refersto profits after expenses and risk refers to theprobability that a firm will become technicallyinsolvent where it will be unable to meet obligationswhen they become due for payment.

 " finance manager has to make an appropriatefinancing mix, which will limit the risk and increasethe profitability. 'inancing mix refers to the proportionof current assets financed by current liabilities andlong term funds.

There are two approaches which determine the

financing mix 456 "ggressive approach 476&onservative approach.

 "ccording to aggressive approach the long termfunds are used to finance only the core or fixedportion of current assets 4e.g., minimum level offinished goods inventory, raw material etc6 and the

other portion i.e. temporary and seasonal

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re0uirements are financed by short term funds. Thisis of high risk and high profit financing mix.

 "ccording to conservative approach the total currentassets are financed from long term sources and shortterm sources are used only in emergency situationi.e. when there is an unexpected cash outflow. This isof low1risk and low1profit financing mix.

 "s we observed two methods of financing mix, one

method is of high risk high profit and other is of risklow profit. " finance manager has to trade offbetween these two extremes.

$perating &ycle*

The ob%ective of financial management is to maximi/e

the shareholders wealth. +o it is needed to generatesufficient profits. The profits generated depend mainlyon sales volume. When the goods are being sold oncredit as is the normal practice of business firmstoday to cope with increased competition the sale ofgoods cannot be converted into cash instantlybecause of time lag between sales and reali/ation of

cash.

 "s there is a time lag between sales and reali/ationof receivables there is a need for sufficient workingcapital to deal with the problem which arises due tolack of immediate reali/ation of cash against goodssold. The operating cycle is the length of time

re0uired for conversion of non1cash assets into cash.

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This operating cycle refers to the time taken for theconversion of cash into raw material, raw materialsinto work1in1progress, work1in1progress into finished

goods, finished into receivables into cash and thiscycle repeats.

The operating cycle length differs from firm to firm. Ifa firm has lengthy production process or a firm hasliberal credit policy the length of operating cycle willbe more. $n the other hand, if a firm does not extent

credit or the firm is not a manufacturing concern i.e.where cash will be converted into inventory directlythen the length of operating cycle will be reduced to agreater extent.

The length of operating cycle can be calculated bycalculating periods of raw material storage, work in

process, finished gods storage and debtors collectionperiod.

5. (aw materials storage period

9 "verage stock of raw materials and stores; "veragedaily consumption of raw material and stores

7. Work in process period9 "verage work in process inventory ;"verage cost of production per day

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=. >ebtors collection period

9 "verage book debts ; "verage credit sales per day

)ength of operating cycle 9 57

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Image Source: pictures2015.mobi/wp-content/uploads/working-12.jpg

• Cash. :ash is one of the most li!uid and im"ortant com"onents of

working ca"ital%

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(& A second reader s"eet 'it" your name, I5, and department added, but t"e rest !e$t

b!an 65raper pro#ides t"e second reader7

4& Your t"esis abstract

& Your 5raper *+it 8uestionnairePlease also see our Thesis and Graduation FAQs

Guidelines

 To recei#e a master9s degree, t"e 5raper :rogram and ;A rece at 62127 ??@@00

or emai! draper&programatBnyu&edu& To do'n!oad a pd$ o$ t"e t"esis guide!ines, p!ease

c!ic "ere&

,hat is a +aster-s thesis.

 T"e master9s t"esis is a care$u!!y argued sc"o!ar!y paper o$ appro+imate!y 12,000 1(,000

'ords 6roug"!y 0 pages7& It s"ou!d present an origina! argument t"at is care$u!!y documented

$rom primary andDor secondary sources& T"e t"esis must "a#e a substantia! researc"

component and a $ocus t"at $a!!s 'it"in arts and science, and it must be 'ritten under t"e

guidance o$ an ad#isor& As t"e %na! e!ement in t"e master9s degree, t"e t"esis gi#es t"e

student an opportunity to demonstrate e+pertise in t"e c"osen researc" area&

,hen should I start thin/in# a!out the thesis.

 You s"ou!d be t"ining about your t"esis, i$ on!y abstract!y, $rom your %rst enro!!ment in t"e

5raper :rogram& At t"e !atest, you s"ou!d "a#e a c!ear idea o$ your topic and "a#e $ound an

ad#isor by t"e end o$ t"e semester be$ore t"e one in '"ic" you 'i!! comp!ete t"e t"esis 6see

t"e timetab!e and dead!ines c"art, be!o'7&

,ho )an !e +$ ad0isor.

Any regu!ar NYE $acu!ty member can be your t"esis ad#isor, a!t"oug" indi#idua! $acu!ty are

not re

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your anticipated graduation date and agree on a timetab!e $or meetings and submission o$

dra$ts& It is your responsibi!ity to eep your ad#isor apprised o$ your progress&

A$ter you "a#e re%ned your topic and your ad#isor "as appro#ed it, comp!ete t"e App!ication

$or Appro#a! o$ Master9s T"esis Topic, "a#e your ad#isor sign it, and submit it to t"e 5raper

o>ces& T"is $orm must be submitted by t"e t"esis due date $or t"e semester be$ore t"e one in

'"ic" you intend to graduate 6e&g&, 5ecember 1. $or May graduationF see t"e c"art, be!o'7&

)e 'i!! noti$y you #ia emai! '"en your topic "as been appro#ed by 5raper& 5o not start

'riting t"e t"esis unti! you "a#e an ad#isor '"o "as appro#ed your topic&

In most cases, students and ad#isors need to meet t"ree or $our times3 initia!!y, to %na!iGe a

topic, and to re#ie' t"e %rst or second dra$t& Heep in mind t"at your ad#isor must "a#e

enoug" time to read and e#a!uate your 'or be$ore returning it to you 'it" comments, and

t"at you must "a#e time to incorporate t"ose comments& 5on9t e+pect your ad#isor to return

your t"esis in a day or t'o, '"et"er it is an ear!y dra$t or t"e %na! copy& It is appropriate to

as your ad#isor '"en you can e+pect comments, but not to pressure "er or "im to respond

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•  T"e t"esis s"ou!d be printed or type'ritten on standard paper&

• )e pre$er unbound t"eses a simp!e binder c!ip is su>cient& I$ you decide to bind

your t"esis, p!ease mae sure t"at your origina!, signed co#er page is unbound&

,hat are the ad+inistrati0e re*uire+ents to #raduate.

 You must be enro!!ed in t"e semester in '"ic" you graduate, '"ic" means you must eit"er

tae a course or maintain matricu!ation& Matricu!ation is not reovember Meet with "ros"ective advisor%

 >ovember * December 0""ly for graduation 4set graduation date using 0lbert5%

By December +)th Submit 0""lication for 0""roval of Thesis To"ic, signed by advisor%

February * March ive first draft to advisor%G

0"ril + ive revised, final version to advisor%G

0"ril +)th Submit to Dra"er $rogram

  Final, clean co"y of thesis, with title "age signed by advisor

Two HThesis ;eader SheetsI

+st should be signed by advisor nd, unsigned, for second reader 

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  5raper :rogram *+it 8uestionnaire

  Thesis abstract

P c"edu!e $or submission o$ dra$ts and appro#a! o$ t"e %na! #ersion is at t"e ad#isor9sdiscretion&

Thesis and Graduation Deadlines

Graduation 4ate A''l$ 3or To'i) A''ro0al A''l$ 3or Graduation Su!+it Final A'ro0ed Thesis

January 0ugust +)G ee /egistrar9s )eb site& December +)G

May December +)G ee /egistrar9s )eb site& 0"ril +)G

Se"tember 0"ril +)G ee /egistrar9s )eb site&  0ugust +)G

P-r t"e ne+t day on '"ic" t"e 5raper o>ce is open, s"ou!d t"ese dates $a!! on a 'eeend or "o!iday&

Contact Es | :"oto Credits | Q Ne' Yor Eni#

B Key compo>e>ts o a> i>ve>tory

ma>a5eme>t system

 >ov /, (+/

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nventory management system is a "ackage of hardware and software tools that hel"s in better management of the inventory% t essentially deals in efficiently tracking the item flow in out of the inventory, tracking the location of items in the inventory and automating the

 bookkee"ing res"onsibilities of warehouses% Though, different inventory managementsystems can vary a lot, de"ending on the functionalities they offer to the users, almost allsuch systems must have the following four key constituents

+% 1arcode pri>ter: Barcodes greatly sim"lify the item automating "rocess% Different

items in the inventory are assigned different items% These barcodes are "rinted on theitem cover on their arrival in the inventory with the hel" of barcode "rinters% These

http://www.nyu.edu/registrar/graduation/apply.htmlhttp://www.nyu.edu/registrar/graduation/apply.htmlhttp://www.nyu.edu/registrar/graduation/apply.htmlhttp://draper.as.nyu.edu/page/contactushttp://draper.as.nyu.edu/object/photocreditshttp://draper.as.nyu.edu/object/link.nyuhttps://www.linkedin.com/pulse/20141124093808-115970510-4-key-components-of-an-inventory-management-system#comments-7598053970645141102https://www.linkedin.com/shareArticle?url=https%3A%2F%2Fwww.linkedin.com%2Fpulse%2F20141124093808-115970510-4-key-components-of-an-inventory-management-systemhttps://www.facebook.com/sharer/sharer.php?u=https%3A%2F%2Fwww.linkedin.com%2Fpulse%2F20141124093808-115970510-4-key-components-of-an-inventory-management-system&t=4%20Key%20components%20of%20an%20inventory%20management%20systemhttps://twitter.com/intent/tweet?&url=https%3A%2F%2Fwww.linkedin.com%2Fpulse%2F20141124093808-115970510-4-key-components-of-an-inventory-management-system&text=%224%20Key%20components%20of%20an%20inventory%20management%20system%22%20on%20@LinkedInhttp://www.nyu.edu/registrar/graduation/apply.htmlhttp://www.nyu.edu/registrar/graduation/apply.htmlhttp://www.nyu.edu/registrar/graduation/apply.htmlhttp://draper.as.nyu.edu/page/contactushttp://draper.as.nyu.edu/object/photocreditshttp://draper.as.nyu.edu/object/link.nyuhttps://www.linkedin.com/pulse/20141124093808-115970510-4-key-components-of-an-inventory-management-system#comments-7598053970645141102https://www.linkedin.com/shareArticle?url=https%3A%2F%2Fwww.linkedin.com%2Fpulse%2F20141124093808-115970510-4-key-components-of-an-inventory-management-systemhttps://www.facebook.com/sharer/sharer.php?u=https%3A%2F%2Fwww.linkedin.com%2Fpulse%2F20141124093808-115970510-4-key-components-of-an-inventory-management-system&t=4%20Key%20components%20of%20an%20inventory%20management%20systemhttps://twitter.com/intent/tweet?&url=https%3A%2F%2Fwww.linkedin.com%2Fpulse%2F20141124093808-115970510-4-key-components-of-an-inventory-management-system&text=%224%20Key%20components%20of%20an%20inventory%20management%20system%22%20on%20@LinkedIn

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 "rinters are available in different si6es to adhere to varying "rinting needs of different*si6e organi6ations% For e9am"le, a small com"any will have lower barcode "rintingneeds due to less volume of "roducts, whereas a larger organi6ation will have more

 "rinting needs due to a higher volume of items%

% 1arcode sca>>er: To scan the barcodes "rinted on items it is im"erative to have barcode scanners% nde"endent of the a""lication ty"e the business environment,scanners are used for reading the barcode "rinted on the items% The read value isentered directly to the com"uter system for further "rocessing%

-% I>ve>tory ma>a5eme>t sot+are sol&tio>: This is the heart of any automatedinventory management system% The software maintains a database of all the itemsavailable in the stock, u"dating it, real*time with every new stock entry and dis"atch%t is very im"ortant that the business owner is sure about the management softwareheLshe chooses as there are many such solutions available, all of which might notintegrate with an organi6ation that well% t is advisable that one selects an inventory

management software tool from a reliable vendor only% ES*$ro, nventoria,Fishbowl are a few re"uted inventory management software solutions%

/% Mo6ile comp&ters: :om"uters are re!uired to host the management solutions, anddis"lay the inventory data to the managers%

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5. "im to maximi/e economic utilities 4"sset 0uantities are given and fixed6.

7. "re rational and risk1averse.

eal with securities that are all highly divisible into small parcels 4"ll assets are perfectly

divisible and li0uid6.

A. 3ave homogeneous expectations.

B. "ssume all information is available at the same time to all investors.

Ca'ital Asset Pri)in# Model5CAPM67 4e8nition9 For+ula9Ad0anta#es : E&a+'leChapter  L 7esson + ra>script

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What Is Foreign Direct Investment? - Definition, Advantages & Disadvantages

How to Calculate the Rate of Return: Definition, Formula & Example

Lesson Transcript

Instructor:Jay Wagner

Learn about the Capital Asset Pricing Model (CAPM), one of the foundational models in finance.

We'll look at the underlying assumptions, how the model is calculated, and what it can do for you.

 T"e Capita! Asset :ricing Mode!In finance, one of the most important things to remember is that return is a function of risk. This

means that the more risk you take, the higher your potential return should be to offset yourincreased chance for loss.

One tool that finance professionals use to calculate the return that an investment should bring is

theCapital Asset Pricing Model which we will refer to asCAPM for this lesson. CAPM

calculates a required return based on a risk measurement. To do this, the model relies on a risk

multiplier called the beta coefficient, which we will discuss later in this lesson.

Like all financial models, the CAPM depends on certain assumptions. Originally there were nine

assumptions, although more recent work in financial theory has relaxed these rules somewhat.

The original assumptions were:

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1.Investors are wealth maximizers who select investments based on expected return and

standard deviation.

2.Investors can borrow or lend unlimited amounts at a risk-free (or zero risk) rate.

3.There are no restrictions on short sales (selling securities that you don't yet own) of any

financial asset.

4.All investors have the same expectations related to the market.

5.All financial assets are fully divisible (you can buy and sell as much or as little as you like)

and can be sold at any time at the market price.

6.There are no transaction costs.

7.There are no taxes.

8.No investor's activities can influence market prices.

9.The quantities of all financial assets are given and fixed.

Obviously, some of these assumptions are not valid in the real world (most notably no transaction

costs or taxes), but CAPM still works well, and results can be adjusted to overcome some of

these assumptions.

 T"e eta Coe>cientBefore we can use the CAPM formula, we need to understand its risk measurement factor known

as thebeta coefficient. By definition, the securities market as a whole has a beta coefficient of

1.0. The beta coefficients of individual companies are calculated relative to the market's beta. A

betaabove 1.0 implies ahigher risk than the market average, and a betabelow 1.0

impliesless risk than the market average. Most companies' betas fall between 0.75 and 1.50, but

any number is possible, including negative numbers; a negative beta would be highly unlikely,

however, since it would imply less risk than a 'risk free' investment.

For actual use, the beta coefficients of most companies can be found on financial websites aswell as in electronic publications. You can do a quick search to find companies' beta coefficients.

ormu!a and *+amp!esThe CAPM formula is sometimes called the Security Market Line formula and consists of the

following equation:

r* =kRF +b(kM -kRF)

It is basically the equation of a line, where:

r* = required return

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kRF = the risk-free rate

kM = the average market return

b = the beta coefficient of the security

You will sometimes see thekM -kRF term replaced bykMRP.kMRP (the market risk premium)=kM-kRF, so this is just a shortcut when the market risk premium has already been calculated.

Remember again that the beta of the market is 1.0, sokMRP is just the additional return required

from the market as a whole.

We should also take a moment to talk about therisk-free rate,kRF. Investments are subject to

many risks that may come from the economy, the nature of the market, the industry in which a

company operates, or the company itself. Of these risk factors, the only one that is universal is

the risk that inflation will decrease an investor's purchasing power. In theory, the risk-free rate is

the return that an investment withno risks should earn, but in practice it includes the ever-present

risk of inflation.Let's calculate a couple of required returns using fictional companies X and Z to see how this

works. For our calculations, we will use the return on Company X as the risk-free rate and the 1-

year return on Company Z as the market return. Let's hypothetically use beta coefficients for

Company X and Company Z as 0.10% and 20.63%, respectively. Hypothetically, let's also

provide Company R, S, and T with these current beta coefficients:

Company R = 0.25

Company S = 1.82

Company T = 0.68

Based on these figures, Company R, with a beta of 0.25, should have a required return of 5.2325

or 5.23%.

Company S, on the other hand, would have a required return of 37.4646 or about 37.46%.

That's quite a gap, but it reflects the additional risk an investor accepts when investing in

Company S rather than Company R.

:a"ital 0sset $ricing Model and ts 0ssum"tions

?inish $arikh December +, ((N&apital asset pricing model 4&"JM6 is one which establishes the relationship

between the re0uired rate of return of a security and its systematic risk also known

as risk which is not diversification. It can be represented mathematically as :

'or example if we know the risk free rate of return is H percent and beta of security is

7 and excepted market return is5K percent then we can compute the excepted return

of stock will be 5H percent which can be calculated as H 745K1H6

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3ere are some of the assumptions of &"JM

5. Investors are risk averse as well as rational and use standard deviation and

expected rate of return for measuring the risk and return for their portfolios. 3encehigher the risk of a portfolio higher will be the return excepted by the investors.

7. Investors make their investment decision based on a single period hori/on rather

than multiple period hori/ons. "lso taxes do not affect the buying choice of the

investors.

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At the heart of the model are its underlying assumptions, which many criticize

as being unrealistic and might provide the basis for some of the major

drawbacks of the model.

Advantages

Despite the aforementioned drawbacks, there are numerous advantages to the

application of CAPM.

• Ease-of-use: CAPM is a simplistic calculation that can be easily stress-

tested to derive a range of possible outcomes to provide confidence

around the required rates of return.

• Diversified Portfolio: The assumption that investors hold a diversified

portfolio, similar to the market portfolio, eliminatesunsystematic

(specific) risk.

• Systematic Risk (beta): CAPM takes into account systematic risk, which

is left out of other return models, such as thedividend discount

model (DDM). Systematic or market risk is an important variable

because it is unforeseen and often cannot be completely mitigatedbecause it is often not fully expected.

• Business and Financial Risk Variability: When businesses investigate

opportunities, if the business mix and financing differ from the current

business, then other required return calculations, likeweighted average

cost of capital (WACC) cannot be used. However, CAPM can.

• Advantage and Disadvantages

• Finding cost of equity with CAPM model is widely used. the primary advantage of this modelis that it relates return to the risk which is a general behavior of all the rational investors. The

disadvantage is that it is difficult to estimate the market return and the beta.

•

CAPM ASSUMPTIONS

The CAPM is often criticised as being unrealistic because of the assumptions on which it is based, so it is

important to be aware of these assumptions and the reasons why they are criticised. The assumptions are as

follows (Watson D and Head A, 2007, Corporate Finance: Principles and Practice, 4th edition, FT Prentice Hall,

pp222–3):

Investors hold diversified portfolios

http://www.investopedia.com/terms/u/unsystematicrisk.asphttp://www.investopedia.com/terms/u/unsystematicrisk.asphttp://www.investopedia.com/terms/s/systematicrisk.asphttp://www.investopedia.com/terms/d/ddm.asphttp://www.investopedia.com/terms/d/ddm.asphttp://www.investopedia.com/terms/w/wacc.asphttp://www.investopedia.com/terms/w/wacc.asphttp://www.investopedia.com/terms/u/unsystematicrisk.asphttp://www.investopedia.com/terms/u/unsystematicrisk.asphttp://www.investopedia.com/terms/s/systematicrisk.asphttp://www.investopedia.com/terms/d/ddm.asphttp://www.investopedia.com/terms/d/ddm.asphttp://www.investopedia.com/terms/w/wacc.asphttp://www.investopedia.com/terms/w/wacc.asp

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This assumption means that investors will only require a return for the systematic risk of their portfolios, since

unsystematic risk has been removed and can be ignored.

Single-period transaction horizon

A standardised holding period is assumed by the CAPM in order to make comparable the returns on different

securities. A return over six months, for example, cannot be compared to a return over 12 months. A holdingperiod of one year is usually used.

Investors can borrow and lend at the risk-free rate of return

This is an assumption made by portfolio theory, from which the CAPM was developed, and provides a minimum

level of return required by investors. The risk-free rate of return corresponds to the intersection of the security

market line (SML) and the y-axis (see Figure 1). The SML is a graphical representation of the CAPM formula.

Perfect capital market

This assumption means that all securities are valued correctly and that their returns will plot on to the SML. A

perfect capital market requires the following: that there are no taxes or transaction costs; that perfect information

is freely available to all investors who, as a result, have the same expectations; that all investors are risk averse,

rational and desire to maximise their own utility; and that there are a large number of buyers and sellers in themarket.

While the assumptions made by the CAPM allow it to focus on the relationship between return and systematic

risk, the idealised world created by the assumptions is not the same as the real world in which investment

decisions are made by companies and individuals.

For example, real-world capital markets are clearly not perfect. Even though it can be argued that well-developed

stock markets do, in practice, exhibit a high degree of efficiency, there is scope for stock market securities to be

priced incorrectly and, as a result, for their returns not to plot on to the SML.

The assumption of a single-period transaction horizon appears reasonable from a real-world perspective,

because even though many investors hold securities for much longer than one year, returns on securities are

usually quoted on an annual basis.

The assumption that investors hold diversified portfolios means that all investors want to hold a portfolio that

reflects the stock market as a whole. Although it is not possible to own the market portfolio itself, it is quite easy

and inexpensive for investors to diversify away specific or unsystematic risk and to construct portfolios that ‘track’

the stock market. Assuming that investors are concerned only with receiving financial compensation for

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systematic risk seems therefore to be quite reasonable.

A more serious problem is that, in reality, it is not possible for investors to borrow at the risk-free rate (for which

the yield on short-dated Government debt is taken as a proxy). The reason for this is that the risk associated with

individual investors is much higher than that associated with the Government. This inability to borrow at the risk-

free rate means that the slope of the SML is shallower in practice than in theory.

Overall, it seems reasonable to conclude that while the assumptions of the CAPM represent an idealised rather

than real-world view, there is a strong possibility, in reality, of a linear relationship existing between required return

and systematic risk.

WACC AND CAPM

The weighted average cost of capital (WACC) can be used as the discount rate in investment appraisal provided

that a number of restrictive assumptions are met. These assumptions are that:

• the investment project is small compared to the investing organisation

• the business activities of the investment project are similar to the business activities currently

undertaken by the investing organisation

• the financing mix used to undertake the investment project is similar to the current financing mix (or

capital structure) of the investing company

• existing finance providers of the investing company do not change their required rates of return as a

result of the investment project being undertaken.

These assumptions essentially state that WACC can be used as the discount rate provided that the investment

project does not change either the business risk or the financial risk of the investing organisation.

If the business risk of the investment project is different to that of the investing organisation, the CAPM can be

used to calculate a project-specific discount rate. The procedure for this calculation was covered in the second

article in this series (Project-specific discount rates, Student Accountant, April 2008).

The benefit of using a CAPM-derived project - specific discount rate is illustrated in Figure 2. Using the CAPM will

lead to better investment decisions than using the WACC in the two shaded areas, which can be represented by

projects A and B.

Project A would be rejected if WACC was used as the discount rate, because the internal rate of return (IRR) of

the project is less than that of the WACC. This investment decision is incorrect, however, since project A would be

accepted if a CAPM - derived project-specific discount rate were used because the project IRR lies above the

SML. The project offers a return greater than that needed to compensate for its level of systematic risk, and

accepting it will increase the wealth of shareholders.

Project B would be accepted if WACC was used as the discount rate because its IRR is greater than the WACC.

This investment decision is also incorrect, however, since project B would be rejected if using a CAPM-derived

project-specific discount rate, because the project IRR offers insufficient compensation for its level of systematic

risk (Watson and Head, pp252–3).

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ADVANTAGES OF THE CAPM

The CAPM has several advantages over other methods of calculating required return, explaining why it has

remained popular for more than 40 years:

• It considers only systematic risk, reflecting a reality in which most investors have diversified portfolios

from which unsystematic risk has been essentially eliminated.

• It generates a theoretically-derived relationship between required return and systematic risk which has

been subject to frequent empirical research and testing.• It is generally seen as a much better method of calculating the cost of equity than the dividend growth

model (DGM) in that it explicitly takes into account a company’s level of systematic risk relative to the stock

market as a whole.

• It is clearly superior to the WACC in providing discount rates for use in investment appraisal.

DISADVANTAGES OF THE CAPM

The CAPM suffers from a number of disadvantages and limitations that should be noted in a balanced discussion

of this important theoretical model.

Assigning values to CAPM variables

In order to use the CAPM, values need to be assigned to the risk-free rate of return, the return on the market, or

the equity risk premium (ERP), and the equity beta.

The yield on short-term Government debt, which is used as a substitute for the risk-free rate of return, is not fixed

but changes on a daily basis according to economic circumstances. A short-term average value can be used in

order to smooth out this volatility.

Finding a value for the ERP is more difficult. The return on a stock market is the sum of the average capital gain

and the average dividend yield. In the short term, a stock market can provide a negative rather than a positive

return if the effect of falling share prices outweighs the dividend yield. It is therefore usual to use a long-term

average value for the ERP, taken from empirical research, but it has been found that the ERP is not stable over

time. In the UK, an ERP value of between 2% and 5% is currently seen as reasonable. However, uncertainty

about the exact ERP value introduces uncertainty into the calculated value for the required return.

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Beta values are now calculated and published regularly for all stock exchange-listed companies. The problem

here is that uncertainty arises in the value of the expected return because the value of beta is not constant, but

changes over time.

Using the CAPM in investment appraisal

Problems can arise when using the CAPM to calculate a project-specific discount rate. For example, one commondifficulty is finding suitable proxy betas, since proxy companies very rarely undertake only one business activity.

The proxy beta for a proposed investment project must be disentangled from the company’s equity beta. One way

to do this is to treat the equity beta as an average of the betas of several different areas of proxy company activity,

weighted by the relative share of the proxy company market value arising from each activity. However, information

about relative shares of proxy company market value may be quite difficult to obtain.

A similar difficulty is that the ungearing of proxy company betas uses capital structure information that may not be

readily available. Some companies have complex capital structures with many different sources of finance. Other

companies may have debt that is not traded, or use complex sources of finance such as convertible bonds. The

simplifying assumption that the beta of debt is zero will also lead to inaccuracy in the calculated value of the

project-specific discount rate.

One disadvantage in using the CAPM in investment appraisal is that the assumption of a single-period time

horizon is at odds with the multi-period nature of investment appraisal. While CAPM variables can be assumed

constant in successive future periods, experience indicates that this is not true in reality.

CONCLUSION

Research has shown the CAPM to stand up well to criticism, although attacks against it have been increasing in

recent years. Until something better presents itself, however, the CAPM remains a very useful item in the financial

management toolkit.

 T/*YN-/ R LA/:* M*A/E/*

As there are pricing models that help Portfolio managers in taking investment decisions,

there are various measures as well that helps in measuring the performance of the

managers and their Portfolio. These performance measures ofportfolio performance serve a

great help in the investment area. Two of the most commonly used performance measures of

portfolio performance are Treynor measure and Sharpe measure. Let’s discuss about the

same in this post.

Treynor MeasureTreynor measure is used to normalize the risk premium or the expected return over the risk-

free rate which is done by dividing the premium with the beta of the portfolio. This implies

that one has the premium that is independent of the portfolio risk which means one can

compare two portfolios’ performances even though they have different betas. This is

important because some portfolios may give higher excess return but at the same time might

have more risk and higher beta.

Sharpe MeasureLike Treynor measure, Sharpe measure too is used to normalize the risk premium or the

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expected return over the risk-free rate. This measure is done by dividing the premium with

the portfolio-standard deviation. This implies that one is left with the premium that is

independent of the portfolio risk. This suggests that one can compare two portfolios’

performances even though they have different standard deviation or risk. A portfolio that is

very risky or volatile might give better return.

Comparing Treynor Measure and Sharpe Measure

Treynor and Sharpe measures are pretty much similar performance measures with very few

differences. While one uses the relative market risk or beta to normalize the performance the

other uses the standard deviation or the absolute risk. While Sharpe ratio is applicable to all

portfolios, Treynor is applicable to well-diversified portfolios. While Sharpe is used to

measure historical performance, Treynor is a more forward-looking performance measure.

Thus, both these performance measures work in different ways towards better representation

of the performance. To know more about Treynor measure and Sharpe measure, you can

explore our training courses on Financial Risk Manager exam preparation. Simplilearn offers

both online and classroom training courses on FRM Part 1 Exam prep.

TheSharpe ratio and theTreynor ratio (both named for their creators, William

Sharpe and Jack Treynor), are two ratios utilized to measure the risk-adjusted

rate of return on either an investment portfolio or an individual stock. They

differ in their specific approaches to evaluating investment performance.

The Sharpe ratio aims to reveal how well an equity investment portfolio

performs as compared to a risk-free investment. The common benchmark

used to represent a risk-free investment is U.S. Treasury bills or bonds. The

Sharpe ratio calculates either the expected or the actual return on investment

for an investment portfolio (or even an individual equity investment), subtracts

the risk-free investment's return on investment, and then divides that number

by thestandard deviation for the investment portfolio. The primary purpose of

the Sharpe ratio is to determine whether you are making a significantly greater

return on your investment in exchange for accepting the additional risk

inherent in equity investing as compared to investing in risk-free instruments.

The Treynor ratio also seeks to evaluate the risk-adjusted return of an

investment portfolio, but it measures the portfolio's performance against a

different benchmark. Rather than measuring a portfolio's return only against

the rate of return for a risk-free investment, the Treynor ratio looks to examine

how well a portfolio outperforms the equity market as a whole. It does this by

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substituting beta for standard deviation in the Sharpe ratio equation, with beta

defined as the rate of return that is due to overall market performance. For

example, if a standard stock market index shows a 10% rate of return, that

constitutes beta; an investment portfolio showing a 13% rate of return is then,

by the Treynor ratio, only given credit for the extra 3% return that it generated

over and above the market's overall performance. The Treynor ratio can be

viewed as determining whether your investment portfolio is significantly

outperforming the market's average gains.

8E*TI-N

he 1est Way to I>vest:-&>dame>tal or ech>ical

A>alysis<

By Kim $etch$osted in Stocks

  Comme>ts  4

(alph +eger once said, L$ne way to end up with

5 million is to start with 7 million and use technical analysis.N I find this 0uote

amusing. " lot of people feel very strongly that technical analysis is about as useful

as voodoo for helping you figure out the best investments for your money. I happen

to disagree, but before I tell you why, let#s take a look at some of the differences

between fundamental and technical analysis of investments.

In a nutshell, you can think about fundamental analysis as the more logical,

pragmatic part of investing in which you are looking at the financial soundness of acompany and its business prospects. Technical analysis, on the other hand, can tell

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us a lot about the psychological aspects of the market by analy/ing past market

movements in the company#s stock to forecast future movement. !ou can buy a

position in a fundamentally sound company, but if its shares have already run up a

lot, you could still find yourself in a losing position on a pullback, something you

could have potentially avoided through the use of technical analysis.

"#ndamental Analysis

If you use fundamental analysis to decide where to invest your money, there are

many different metrics you can use. 3ere are a few of the basics*

$een#e

This is %ust the amount of sales a company has taken in over a set period of time,

usually reported on a 0uarterly and annual basis. The key here is to look at the

direction of revenues. $bviously, rising sales are a good thing. If sales have fallen,

it#s important to note why that might be. >oes it look like the drop is a one1time glitch,

or is it possible that sales could continue to fall due to the success of a competitor, or 

decreasing demand for the company#s products? >oes a rise in sales in the fourth

0uarter necessarily mean the company#s prospects are looking up, or is it simply a

seasonal uptick due to the holiday season.

%arnings Per &hare '%P&(

While revenue is important, earnings are really the bread and butter of corporate

success. If a company#s sales are increasing, but they are not able to retain those

revenues due to excessive expenses or poor management, that#s a red flag. !ou

want to invest in companies with rising margins, and therefore rising -J+. !ou can

find historical -J+ for most companies as well as -J+ estimates for future 0uarterson most investing websites.

P)% $atio

The "rice to earnings ratio of a com"any is sim"ly the current stock "rice divided by its

annual earnings "er share% So if com"any O is trading at P1 and it earned P+%( "er share

during the "ast + months, its $LC ratio would be +.% That means its trading at +. times its

annual earnings.

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When analysts refer to a company#s %aluation, they are often referring to its J;-

ratio. What#s a good J;- ratio? That can depend on who you ask, and it can also

vary by sector. 'or example, high growth stocks like those of technology companies

often trade at much higher J;- ratios whereas stable, lower growth companies trade

at lower valuations. This should make sense intuitively because if a company has

huge growth prospects, then one should be willing to pay a much higher price

relative to its current earnings. "nalysts often disagree on what constitutes a cheap

stock because there is so much debate about what a specific J;- ratio actually

means for a given company or industry. There is no Lone si/e fits allN when it comes

to J;- ratios.

&ector "#ndamentals

0 single com"anys "erformance can be heavily influenced by the sector in which it o"erates%

During economic slowdowns, for e9am"le, Hdefensive sectorsI like consumer sta"les and

utilities tend to do better, whereas technology, trans"ortation and financials do better when

the economy is on an u"swing%

The *ig Pict#re

It#s always a good idea to keep the macroeconomic climate in mind when choosing

your asset allocation as well as your specific investments. Where are we in the

economic cycle? "re we at the beginning, middle, or end of a recession or boom? I

like to think about the macro view like the weatherO it may not change what you need

to do, but it should affect how you do it.

Technical Analysis

While fundamental analysis is much more 0ualitative and involves more sub%ectivity,charts are the main tool of technicians. 3ere are a few chart1watching basics*

Price Trends

Is the price of the stock moving higher or lower? 3ow long has it been doing so?

Many chartists will only buy securities that are in uptrends. They may wait for a

short1term downtrend to enter, but won#t even consider the stock if the longer1term

trend is lower.

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+ol#me

I#ve often said that charts are like a (orschach 4ink blot6 test for the market, but

volume is its lie detector. Polume can tell us how strong the prevailing trend might

be. >ecreasing volume can be a sign that the trend might be on the verge of a

reversal.

Moing Aerages

0dding moving average lines to a chart can hel" determine the overall trend direction% 0

moving average line sim"ly "lots the average "rice of a security over a set "eriod of time% For 

e9am"le, the (*day moving average indicates the average "rice over the "ast ( days%  

Technicians like to buy when the moving average is trending u"ward and the "rice "ulls back

a touch to allow for a good Hentry "ointI into the stock%

,ndicators

!ou will often see a variety of technical indicators above or below a chart. These can

indicate whether a security is overbought or oversold as well as the strength of its

momentum% There are too many indicators out there to follow all of them. " few of the

most common are* stochastics, Moving "verage &onvergence1>ivergence 4M"&>6,

and (elative +trength Index 4(+I6.

Which ,s *etter-

'or decades, fundamental analysis was the only investment method that was given

any credibility. That has changed as the advent of high1speed computing has made

technical analysis easier and more widely available. Many large investment firms use

black box trading, or computer modeling, to determine their entry and exit points.

That means that many of the largest market players are making their trading

decisions based on computer algorithms. In fact, some estimate that computeri/ed

trading represents up to CKQ of the volume on exchanges today. )ike it or not, your

investments are moving based on technical factors as much as fundamental ones.

The markets have changed, and we need to change our strategies with them.

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The best approach to investing likely involves some combination of fundamental and

technical analysis. I like to choose stocks or sectors that have strong fundamentals

and then use technical analysis to help me decide when to buy or sell them.

Fundamental and Technical Analysis: What is the Difference? by !en"aulkenberry  | #nvestment Analysis

"undamental and Technical Analysis

The difference between fundamental and technical analysis is large. Most

investors, if they understand the differences, believe they are one or the

other.

In reality, most investors use a combination of the two types of analysis.

Personally, I consider myself an 90% fundamental value and 0%

technical investor. Investment decisions should be based primarily on

valuation.

!undamental Stoc Anal"sis

Fundamental stock analysis is the process of financial statement analysis,and an e!amination of company products, management, competitors,

mar"ets, and economic environment to determine the value of its# stoc".

$oth historical and present data can be used, with the goal being to

forecast how the stoc" will perform in the future.

The most common data used in fundamental research and analysis would

be revenues, e!penses, profits, earnings per share, assets, liabilities,

boo" value, dividends, cash flow, and proected earnings growth rates.

&ey ratios would include price'earnings ratio (P')*, dividend yield,

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dividend payout ratio, enterprise value ratios, return on e+uity, price to

sale, price to boo" value, and return on capital ratios.

n analyst would evaluate the data and ratios in comparison to the

universe of stoc"s available. The goal of the investor is to invest withan margin of safety. That means attempting to buy investments that sell

below their fundamental value.

-elated -eading / Investment oncepts 1undamental to 2alue Portfolio

Management

Technical Anal"sis

Technical analysis is the forecasting of the future price of a financial asset

using primarily historical price and volume data. Technical analysts believe

that all information is reflected in the price3 ma"ing fundamental analysis

unnecessary. Information from the analysis of price is used to predict

what the future price will be.

There are several different popular schools of technical analysis, including

)lliott 4ave Theory, 5ow Theory, and andlestic" harting. ll attempt to

use price patterns and price trends to ma"e forecasts of future prices. The

central idea is to estimate the li"elihood of price movements and ma"e

trades based on those with the best ris"'reward ratio.

4hen evaluating price, technicians fre+uently use overall trend, areas of

support and resistance on the charts, price momentum, volume to

determine buy'sell pressure, and relative strength compared to the

mar"et. They would also loo" for price patterns, study moving averages,

and e!amine indicators such as put'call ratios.

'undamental analysis is employed to find the intrinsic value of a stock by

looking at the macroeconomic factors, industry specific factors and finally the

company specific factors. Technical "nalysis on the other hand does not care

about the LvalueN of a stock or the financial instrument. Technical analysis

looks at the price movements and by using charts and other tools it helps to

make profit on the trends shown. oth stock analysis methods are used to

find top stocks for investments or trading and profit from the trade.

'undamental "nd Technical "nalysis* Ma%or >ifferences

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 " ma%or difference between both the stock analysis methods is the time frame

over which they are conducted. 'undamental analysis looks at a company#s

balance sheet, cash flow statement and income statement whereas technicalanalysts believe that all the available information is already priced in which

leaves further analysis about the financial information superfluous.

'undamental analysts read the 0uarterly statements which are released

0uarterly and hence have to look at a longer time frame of a couple months or

years to see how the company is performing. Technical analysts simply look at

the price and volume fluctuations which can be done on a weekly, daily or

even minute by minute basis. 3ence any investment through fundamental

analysis would be a longer term commitment whereas technical analysts are

known to close their trades within a week.

>ifferences In TerminologyThe difference in timeframe has also given different terms to how market

views their work. " fundamental analyst would generally recommend an

LinvestmentN for a given stock after thorough investigation and for a period of

at least couple of months to several years. " technical analyst after going

through the charts and other tools can give recommendation for a LtradeN in a

particular instrument. "lthough the end ob%ective of both the investment or

trade is to profit from the mispricing of the underlying instrument, both are

done in a completely different manner with a different time hori/on.

+o what are the ma%or differences between the two? )et#s do some comparisons*

•

'undamental analysis has a core purpose to produce a value that an investorcan then compare with the current stock price of a given company. That value

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then becomes a Lbuy, sell, holdN type rating. ut technical analysis? There are

no such things as buy, sell, and hold ratings.

• 'undamental analysis will focus on the economy, typically macroeconomics to

help determine intrinsic value. What that means in 5K5 terms is this, Lhey,

interest rates may be affected later this year, this will surely affect

xxxxxxxxxxxN. Technical analysis on the other hand does not care what the

economy is up to. 5KQ 2ap ups are more important than interest rate hikes

and war.

• 'undamental analysis focuses on financial ratios and numbers such as debt,

-J+, cash flow forecasts, etc. where as technical analysis focuses on

historical price movements to determine possible short term or long term

moves to come.

8E*TI-N 4

I would simply say that in order to make a wise investment, one needs to

know in what they are investing. When buying stock, it is important to know

the competitive position of a company and their products so that future

decisions can be made. 'or example, will there be future purchasing of

stock in larger volume or 0uantity? Is there an significant growth potential

to the company in terms of their products? These are but a few of the

0uestions that have to be assessed before purchasing stock. Jart of

knowing this comes from the fact that everyone involved in the game of

investment and venture capital analysis is there to make money for

themselves. This self1interest sometimes precludes full disclosure. 'orexample, stock brokers are thrilled to facilitate a sale of a large volume of

stock. They might assert that they would like to see you, as the investor,

make a pot of money. 3owever, in the end, they are not going to cover the

losses nor will they explain to ones spouse how Runiors college fund %ust

disappeared as a company declared bankruptcy. I seem to be in a movie

suggesting mood, but I would suggest that you watch the film, Soiler

(oomS for a great depiction of how painful this world can be. 3ad 3arry

(enard done some level of homework in understanding the competitive

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position of 'arrowTech, he might not have wound up in the pathetic position

he did having been manipulated by +eth.

 

The Most ,mportant "acts To /no0 Ao#t A Company

*efore o# ,nest

5ecember 6, 606

$y swamper

7treetuthority

21

Investing in a stock isnt throwing your money into a poker pot and betting youll magically

become rich overnight.

When you SbuyS a stock, youre not buying a piece of paper 11 you are becoming an owner of the

company that stock represents.

If you buy, for example, stock in Apple 'NA&3A4! APP5'link is e6ternal(( and profits grow for

the next few years, youll be treated to a rising share price and grow wealthier along with your

fellow owners. ut if you invest in "pple and the company does poorly over the next few years,

your shares will lose value 11 and youll lose money on your investment.

While this concept may sound simple, its surprising how many investors overlook key indicators

about a company be&ore they invest. "s a result, they become owners of lousy companies that

lose money year after year .

!ou want to be an owner of a successful company that gives you a return, so why wouldnt you

take some time to research it first?

>ont worry, its easier than you think. sing %ust eight key termsand spending 5H minutes to

analy/e a company can mean the difference between reaping healthy investment gains

and losing your shirt.

+traight from the Investing"nswers 'inancial >ictionary 11 the industrys most investor1friendly

resource used by hundreds of thousands of investors every month 11 here are eight key financial

terms that will make you a more successful stockinvestor.

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 "nd for a more detailed explanation of each term 11 including examples, formulas and more 11

 %ust click on it.

1. Chief %6ec#tie Officer 'C%O(

)ike a ship captain, a companys executive officer steers, rights and can sometimes sink the

ship, so its important to know a companys &-$ before you buy.

W'at to look &or( !ou dont need the &-$s biography, %ust a brief overview of their business

background 4Morningstar can help with this 11 heres "pple &-$ Tim &ooks overview4link is

external6, for example6. "sk yourself things like* >o you believe th