This document discusses fundamental analysis in portfolio management, focusing on industry and company analysis as crucial for assessing investment opportunities. It outlines the product life cycle, which comprises four stages: introduction, growth, maturity, and decline, detailing the characteristics and implications of each stage. Additionally, it describes the industry life cycle concept, identifying stages from pioneering to decay, and highlights the importance of understanding cost structures in industry analysis.

1. Portfolio Management
LECTURE THREE
FUNDAMENTAL ANALYSIS
(INDUSTRIES AND COMPANIES)
Prepared By:
Noorulhadi Qureshi
Lecturer Govt College of Management
Sciences Peshawar

2. Industry & Company Analysis
• Company can be characterized as belonging
to an industry. The performance of
companies would, therefore, be influenced by
the fortune of the industry it belongs.
• An Analyst has to undertake an industry
analysis so as to study the fundamental
factors affecting the performance of different
industries.

3. Industry & Company Analysis
• An Industry is generally described as a
homogenous group of companies. Or group
of firms producing reasonably similar
products which serves the same needs of
common set of buyers.
• Industry analysis refers to an evaluation of
the relative strengths and weaknesses of
particular industries.

4. Industries are traditionally classified
on the basis of product
STEEL
PHARMACEUTICAL OIL AND GAS
INDUSTRIES
TEXTILE CEMENT

5. Product life-cycle (PLC) Like human beings, products also
have an arc. From birth to death, human beings pass
through various stages e.g. birth, growth, maturity,
decline and death. A similar life-cycle is seen in the case
of products. The product life cycle goes through multiple
phases, involves many professional disciplines, and
requires many skills, tools and processes. Product life
cycle (PLC) has to do with the life of a product in the
market with respect to business/commercial costs and
sales measures. To say that a product has a life cycle is
to assert three things:
The four main stages of a product's life cycle and the
accompanying characteristics are:
StageCharacteristics
1. Market introduction stage
2. Growth stage
3. Maturity stage
4. Saturation and decline stage

7. The four main stages of a product's life cycle
and the accompanying characteristics are:
Stage Characteristics
1. Market introduction stage
• costs are very high
• slow sales volumes to start
• little or no competition
• demand has to be created
• customers have to be prompted to try the
product
• makes no money at this stage

8. 2. Growth stage
• costs reduced due to economies of scale
• sales volume increases significantly
• profitability begins to rise
• public awareness increases
• competition begins to increase with a few
new players in establishing market
• increased competition leads to price
decreases

9. 3. Maturity stage
• costs are lowered as a result of production volumes
increasing and experience curve effects
• sales volume peaks and market saturation is reached
• increase in competitors entering the market
• prices tend to drop due to the proliferation of competing
products
• brand differentiation and feature diversification is
emphasized to maintain or increase market share
• Industrial profits go down

10. 4. Saturation and decline stage
• costs become counter-optimal
• sales volume decline
• prices, profitability diminish
• profit becomes more a challenge of
production/distribution efficiency than
increased sales

11. Definition of 'Industry Lifecycle'
A concept relating to the different stages an
industry will go through, from the first product
entry to its eventual decline.
• A form of fundamental analysis involving the
process of making investment decisions based
on the different stages an industry is at during a
given point in time. The type of position taken
will depend on firm specific characteristics, as
well as where the industry is at in its life cycle.

12. Industry Life Cycle
• According to Julius Grodinsky industry life
cycle theory-the life of an industry can be
segregated into the-
• Pioneering Stage
• Expansion Stage
• Stagnation Stage
• Decay Stage

13. Introduction stage/ Pioneering
Stage:
• This is the first stage in the industrial life cycle of
a new industry where the technology as well as
the product are relatively new and have not
reached a state of perfection. The pioneering
stage is characterized by rapid growth in
demand for the output of industry. As a result,
there is a great opportunity for profit & highly
risk. It’s also called sunrises industries. For
example, ‘a leasing industry’ Computer Software
& information technology etc.

14. Growth stage /Expansion Stage:
• This is second stage of expansion or
growth and survived the pioneering stage.
The stage of an industry are quite
attractive for investment purposes.
Investors cab get high returns at low risk
because demand exceeds supply in the
this stage. Companies will earn increasing
amounts of profits and pay attractive
dividends.

15. Maturity stage/Stagnation Stage:
• This is the third stage in the industry life
cycle. In this stage, the growth of the
industry stabilizes. The ability of the
industry to grow appears to have been
lost. sales may be increasing but at a
slower rate than that experienced by
competitive industries or by the overall
economy. For example, Desktop PC
Computers.

16. Decline stage/ Decay Stage:
• From the stagnation sage the industry passes to
the decay stage. This occurs when the products
of the industry are no longer in demand. New
products and new technologies have come to
the market. Customers have change their habits,
style and liking. As a result, the industry
becomes obsolete and gradually ceases to exist.
Thus, changes in social habits, changes in
technology and declining demand are the
causes of decay of an industry.

17. • The industry life cycle approach has
important implications for the investor. It
gives an insight into the apparent of
investment in given industry a t a given
time. In fact, each development stage is
unique and exhibits different characteristic

26. Cost Structure
Industry Analysis includes the cost structure of the industry i.e
Fixed Cost and Variable Cost
Variable Cost
Fixed Cost
The lower the proportion of
The higher the fixed cost
fixed cost relative to
Component. The higher is
variable cost, lower would
the sales volume necessary
be the break-even point.
To achieve break-even point.
Lower break even point provides higher margin of safety.
An analyst would consider lower break even point industry
For his investment.