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Top Down and Bottom Up Analysis of the Energy Industry of Australia

   

Added on  2020-03-23

19 Pages3711 Words112 Views
Principles of Financial Markets1

Executive SummaryIndustry analysis is important point of concern for the new entry players or the investorswho are seeking to plan their investments in the particular industry. There is need to evaluate therisk and return that the industry is giving before making the right judgment. In this regards, topdown and bottom up analysis has been performed of the energy industry of Australia. Top downanalysis will provide the details of risk in the industry while bottom up analysis will provide thedetails on how the industry is performing by examining the individual stocks of that industry. 2

ContentsExecutive Summary.........................................................................................................................2Introduction......................................................................................................................................4Top-Down Analysis.........................................................................................................................4Australian Economic Environment..............................................................................................5Bottom Up analysis of the chosen industry (Energy Sector)...........................................................8Detail Analysis of the ratio analysis..............................................................................................11Profitability Analysis.................................................................................................................11Short term liquidity analysis......................................................................................................12Capital Structure Analysis.........................................................................................................12Market Performance...................................................................................................................13Conclusion and recommendation..................................................................................................13References......................................................................................................................................143

IntroductionThis report has been developed for demonstrating the importance of conductingfundamental analysis in selection of the most profitable security for an investor. For the purpose,the report conducts a fundamental analysis of an Australian industry and then analyses the twoASX listed firms within the industry. The company analysis helps in finding the best securitythat will provide long-term returns to the investors. The fundamental analysis is carried outthrough conducting top-down and bottom-up analysis in order to accurately predict the intrusivevalue of the stocks selected for investment propose. As such, fundamental analysis is a great toolin the hand of investors that helps them to secure their investment by placing it in the rightsecurity that provides profitable returns. The investors can minimize the risk of their investmentthrough the use of fundamental analysis technique. The top-down analysis consists of examiningthe macro-economic forces impacting the industrial performance. On the other hand, bottom-upanalysis examines the micro-economic factors that help in selecting the best performancecompany within the selected industry (Krantz, 2016). In this context, the reports conduct afundamental analysis of Australian energy industry through analyzing the performances of thetwo ASX listed energy companies that are, Caltex Australia Limited and Woodside PetroleumLtd operating within the energy industry.Top-Down AnalysisThe top-down approach under the fundamental analysis consists of primarily analyzingthe general economic conditions of the selected economy. It generally encompasses theevaluation of macro-economic factors such as interest rate, inflation rate, foreign exchangepolicies, trade policies and the GDP growth of a selected economy. The evaluation is followed4

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