Portfolio management & security analysis is depicted with respect to the operations in different financial markets.

1. 7/16/2015 1
FINANCIAL RATIOS & PORTFOLIO MANAGEMENT
Asset Management
(Activity or Efficiency)
Liquidity
Leverage
Profitability (Margin)
PORTFOLIO SELECTION & MANAGEMENT
Attributes & Data
EVALUATION
• Company level
• Industry level
I – Market index return, Ri – Security return, Rp – Portfolio return
Attributes
•Tax favoring
•Marketability of securities
•Convenience
•Risk & Return
•Liquidity of portfolio
Data
Portfolio of securities
• Stocks
• Bonds
• Real estate, Previous stones, Art etc
• Convertibles, Warrants
Risk
&
Return
Portfolio Class
• Cyclical
• Defensive
• Growth
• Cyclical growth
Parameters & Conditions
P/E – Price - Earnings
D/E – Debt - Equity
P/S - Price – Sales
BV/MV - Book value / Market value
P/BV - Price /Book value
ROCE – Return on Capital Employed
ROE – Return of Equity
Dividend payout (Dividend Per Share]
Earnings Per Share (EPS)
Mathematical measures
• Average,
• Standard deviation,
• Variance
• Co-variance
• Regression coefficient
• Co-relation coefficient
RATIOS
•Measurement of earning
•Forecasting of earnings
Return
%Expected Return
Std deviation
Portfolio Std deviation
Coefficient of correlation
$Beta coefficient
Covariance
Total Portfolio return
MARKET VALUE RATIOS
Price - Sales & Price - Earnings Performance;
SELECTION
1 Dependent on
i
ii
iii
iv
1. Correctness
2. Completeness
3. Consistency
4. Comparability
Conditions
3. Refers to the agreement with
the “Accounting Principles Board (APB or FASB or Others)” i.e. In accordance with US GAAP or similar Accounting standards
NXXXX ....321
Portfolio
of Securities
Nxxxx ....321
Neeee xxxx ....321
N ....321
ji
ji
xx
ji
x
xxCov
r

),(
,



N
i
iiip IXR
1
)( 
I
Ri
i 
),( ji xxCov
$Measures the risk & its diversification
on the portfolio of securities
% Expected or the Average return

2. 7/16/2015 2
MARKET PARTCIPANTS
1. *Banks etc Ot
2. Speculator, Sp
3. Hedger, Hg
4. Arbitrageur, Ab
Risk
• High – Sp
• Medium – Ot, Hg
• Low – Ab,
Return
maximization
INVESTMENT
Objectives & Criteria
___________ ________
•Safety
•Tax advantage
•Yield & Capital Gains
• Term
• Maturity
Market Value, M
Intrinsic Value , I
Portfolio Management Continued …
BUY HOLD SELL
STRATEGY#
IMPLEMENTATION
REVIEW
PERFORMANCE ANALYSIS
I
I
M
M
Undiscounted
Discounted
NPV / IRR/ARR/ PI
(Present value)
Price(P) Quantity
( Volume, V )
PORTFOLIO
INDICATORS
2
3
4
5
6
FINANCIAL OR PORTFOLIO ADVISOR
( Security Analyst)
7
√
√
√
X
√
V
X
X X
√√X
Market Intrinsic IntrinsicMarket
Market Intrinsic Market Intrinsic
Hedging
Speculation
MARKETS
Without financial advise
Assessment Assessment
Assess
With financial advise
& TRADING CHARACTERISITICS
In Sp Hg Ab
√
X X
X
√ √
V √
X
X√
Portfolio &
Direct Investments
AND OR
√
Taker
Avoider
Inflation Interest Rate
P/E EPS
Market capitalization
Arbitragueing
Security
portfolio
Risk &
diversifica
tion
(No Profit /Loss)
(With Profit /Loss)
(Profit without Risk)

3. 7/16/2015 3
FUTURES
OPTIONS
SE
(Stock Exchange)
Commodity
Currency
Interest Rate
•Operates in stock exchange market
•Provides high liquidity for the assets
•Less risky or default is low
•Settlement can be done before Its maturity
FORWARDS
• Operates in OTC market
via Investment bank
• Provides less liquidity
upon the expiration of
assets
• High risky
• Settlement is done only
at the time of maturity
contract
OTC
(Over the Counter)
SWAPS
Debt for Equity
Equity linked Debt
Fixed income securities
Portfolio Management Continued …
&
Contracts
Contracts
Contracts
Hedging
Arbitraging
Speculating
Market Trading Characteristics

4. 7/16/2015 4
LEGEND
Portfolio Selection & Management
_____________________________________________________________
•Review – Considers the market & Intrinsic value conditions for marketable securities.
•Strategy Implementation – Buy & Hold, Sell, Long & Short Buy or Sell
•Market Participants - Investor, Hedger, Arbitrageur & Speculator
•Portfolio Indicators – Market price Volume, Net Present Value or Rate of Return
_____________________________________________________________
# - indicates the strategy implementation
is a complex combination of BUY, HOLD or SELL situations which
can be taken by the investor or client. The investment decisions are however
dependent upon both the financial or portfolio advisor and the client or
the investor for the prevailing market conditions. The combinations shown
in the slide are for indicative purposes ONLY. In reality there are much more possibilities
than that are shown in the block.
It does not bear any resemblance with actual market behavior as the real market is
dependent upon the several other factors & increasingly complex. The “x” & “V” marks
In the block represent the individual situation taken by the investor or client during the
process of portfolio management whilst trading the portfolio of securities.
‘ *Others include Commercial Banks, Central & Non bank dealers, Financial institutions
Treasuries, Foreign exchange brokers .Refers to the derivatives market or
other financial markets like Equity , Capital markets etc.
With increasing portfolio risk, the dilution of P/E or EPS occurs, therefore in most situations
Market participants resort to hedging , arbitragueing or speculating.
LEGEND
Financial Ratios & Valuations
They Indicates the relative valuation of the company
in terms of the security values trading the market
[ Regular financial statements
& Common size statements.]
The true earnings of the company in an
Industry are largely dependent upon the
extent or the rate of interest, tax prevailing.
Evaluation
Industry scenario
Historic & Current performance of industry segments
Company scenario
Earnings & forecasting Performance of company. The
Company performance is derived using key variables
As Sales volume, Dividend payout (DPS/EPS)
Ratios
Effect of foreign exposures related to the
accounting system, transaction & allied operations
on the ratios needs careful consideration. The overall
Financial performance depends however on the size
Of the company & nature of business