Economy, Industry and Company Analysis for Valuation of Equity Shares

Cash Flow and Risk Analysis for Equity Share Valuation

Frank Reilly and Keith Brown strongly emphasized the importance of economy and industry analysis for providing inputs regarding earnings and  cash flow estimation and estimation of their variability or risk for valuing equity either by discounted cash flow methods or by relative valuation methods. Future expected cash flows of companies are impacted by economic policies of the country. Both fiscal policy and monetary policy and the resultant employment, inflation and exchange rates affect cash flows of companies. Conditions within the industry, the life cycle stage of the industry, competitive structure of the industry and technological progress of the industry also have a significant impact. So, analysts have to examine the economy and industry for relevant information that has impact on company earnings and cash flows.

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