MEANING Security analysis is the analysis of tradeable financial instruments. It involves examination and evaluation of various factors that can affect the prices of securities. The role of a security analyst is to gather market information and advice the investors to adopt a suitable market strategy.

INVESTMENT Sacrificing current consumption in he hope of getting future benefit Investment in financial assets and investment in physical assets

TYPES OF INVESTORS To realize both the capital appreciation and dividends Long term investors To realize only the quick capital gain arising from fluctuations in share prices. Speculators

FUNDAMENTAL ANLYSIS TECHNICAL ANALYSIS SECURITY ANALYSIS

RISK IN FUNDAMENTAL ANALYSIS

MEANING OF RISK It is the degree or probability of any loss. In risk the probable outcomes of all possible events are listed. Once the events are listed, the derived probabilities can be assigned to the entire possible events.

TYPES OF RISK AFFECTING THE SECURITY PRICE MARKET RISK INTEREST RATE RISK PURCHASING POWER RISK SYSTEMATIC RISK BUSINESS RISK FINANCIAL RISK UNSYSTEMATIC RISK

SYSTEMATIC RISK It affects the entire market. The economic conditions, political situations and the sociological changes affect the security market. These factors are beyond the control of the corporate and the investors.

1. Market Risk It is that proportion of total variability of return caused by the alternating forces of bull and bear market. The forces affecting stock market are tangible and intangible. The tangible events are real events. The intangible events relate to market psychology.

2. Interest Rate Risk It is the variability caused by the fluctuations in the market interest rate. The fluctuations are caused by the changes in the government monetary policy and the changes in the interest rate of the government bonds.

3. Purchasing Power Risk Variations in the returns are caused by the loss of purchasing power of currency due to inflation in the economy.

UNSYSTEMATIC RISK It is peculiar to a firm or an industry. It stems from managerial inefficiency, technological change, availability of raw materials, change in consumer preference, labour problems etc. This portion of the risk can be eliminated by an investor while forming an efficient portfolio.

1.Business Risk It is caused by the operating environment of the business. It arises due to inability of the firm to maintain its competitive edge and the growth or stability of the earnings. It might arise due to  Fluctuations in sales.  Faulty management policy.  High fixed cost.  Single product.

2. Financial Risk It is the variability in the return caused due to the changes in the capital structure of the company. The presence of the debt capital increases the interest obligation of the company.