Lessons Learned in Behavioural Finance
In the past few articles, we have studied about how behavioral finance impacts financial markets more than one might believe. When the subject of behavioral finance was first created, it was thought of as being an unimportant subject. It was perceived as being a cross between financial theory and psychology. However, over the years, behavioral […]
Free Cash Flow to Operating Cash Flow Ratio – Meaning, Formula and Interpretation
The free cash flow to operating cash flow ratio is different from other ratios. It is different in the sense that it is comparing two measures of cash flow. Usually cash flow ratios compare a cash flow item to an item on the income statement or on the balance sheet. Here are the details of […]
Infrastructure Finance: An Introduction
Traditional economists are of the opinion that infrastructure is the heart of the economy. Empirical data clearly shows that given a choice, investors prefer to invest their money in countries whose infrastructure is more developed. Hence, it can be said that rapid infrastructure development is one of the most basic ways in which a country […]
The Wells Fargo Auto Insurance Scandal
Wells Fargo is one of the largest banks in the United States. However, of late, it has also become one of the most infamous banks. A couple of years back Wells Fargo was in the news since its sales executives opened up fake accounts without the knowledge of the customers simply to meet the sales […]
IPO: An Exit Route for Start-Ups
The typical successful start-up obtains funding from various private investors at the earlier stages of the business. Now, these investors do not want to stay with the company forever. They just provide capital to help the company become a full-fledged business. Once the operations of the company are in order, the private investors generally want […]
Assets with some financial value are called securities.
The analysis of various tradable financial instruments is called security analysis. Security analysis helps a financial expert or a security analyst to determine the value of assets in a portfolio.
Security analysis is a method which helps to calculate the value of various assets and also find out the effect of various market fluctuations on the value of tradable financial instruments (also called securities).
Security Analysis is broadly classified into three categories:
Fundamental Analysis refers to the evaluation of securities with the help of certain fundamental business factors such as financial statements, current interest rates as well as competitor’s products and financial market.
Financial statements are nothing but proofs or written records of various financial transactions of an investor or company.
Financial statements are used by financial experts to study and analyze the profits, liabilities, assets of an organization or an individual.
Technical analysis refers to the analysis of securities and helps the finance professionals to forecast the price trends through past price trends and market data.
Quantitative analysis refers to the analysis of securities using quantitative data.
Fundamental analysis is done with the help of financial statements, competitor’s market, market data and other relevant facts and figures whereas technical analysis is more to do with the price trends of securities.
The stream which deals with managing various securities and creating an investment objective for individuals is called portfolio management. Portfoilo management refers to the art of selecting the best investment plans for an individual concerned which guarantees maximum returns with minimum risks involved.
Portfolio management is generally done with the help of portfolio managers who after understanding the client’s requirements and his ability to undertake risks design a portfolio with a mix of financial instruments with maximum returns for a secure future.
Portfolio theory was proposed by Harry M. Markowitz of University of Chicago. According to Markowitz’s portfolio theory, portfolio managers should carefully select and combine financial products on behalf of their clients for guaranteed maximum returns with minimum risks.
Portfolio theory helps portfolio managers to calculate the amount of return as well as risk for any investment portfolio.
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