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Top Down and Bottom Up Approach to Review the Performance of Energy Industry

   

Added on  2020-04-07

20 Pages3342 Words208 Views
Principle of Financial Markets1

Executive SummaryTop down and bottom up approach is the systematic approach to review the performanceof particular industry in terms of their economic conditions, financial conditions and any otherimportant issues associated to the particular industry. To illustrate this approach, energy industryhas been selected for the top down analysis and to make micro review (Bottom Up) twocompanies in this industry has been chosen. They are AGL Energy and Origin Energy. Boththese companies are renowned company of this industry. Performance of this industry was stablein the last two years as many companies have faced downfall in the overall revenue whilecompanies has achieved a small rise in their net revenue. Detail information can be overviewedin the below report.2

ContentsExecutive Summary.........................................................................................................................2Introduction......................................................................................................................................4Top-Down Analysis.........................................................................................................................4Australia Macro-Economic Environment Analysis.....................................................................5Bottom Up of analysis of the selected industry through evaluating the financial performance oftwo companies in same industry....................................................................................................10Ratios analysis of the AGL Energy and Origin Energy................................................................15Profitability Analysis:....................................................................................................................16Capital Structure Analysis.............................................................................................................17Liquidity/Solvency Analysis.........................................................................................................18Market Performance Analysis.......................................................................................................19Conclusion and Recommendation.................................................................................................19References......................................................................................................................................203

IntroductionThis report has been developed for demonstrating the importance of conductingfundamental analysis for developing knowledge relating to the stocks performances forinvestment purposes. The fundamental analysis aims to predict the capital gains that can berealized from investing in a particular stock through evaluating the economic, financial,qualitative and quantitative factors. The fundamental analysis is carried out through the adoptionof two approaches that are, bottom-up and top-down analysis. The report presents a top-downand bottom-up analysis of the energy industry in Australia for identifying the economic factorsthat impacts its performance. The companies selected for the purpose are two ASX listed energycompanies in Australia that are, AGL Energy Ltd and Origin Energy. The fundamental analysisexamines the underlying economic forces that impact the stock valuation of companies within aselected industry. The top-down analysis examines the macro-economic forces impacting theperformance of the selected industry whereas micro-economic factors are examined under thebottom-up analysis1.Top-Down AnalysisThe top-down analysis begins with primarily analyzing the global economic environmentconditions before selecting the particular securities for investing. As such, the analysis starts withanalyzing the broader economic environment and then narrowing down its approach toexamining the industry and the individual companies’ performance. The macro-economicpolicies impacting the economic growth and development of a particular selected country is1Krantz, M. 2016. Fundamental Analysis For Dummies. John Wiley & Sons.4

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