Answer 3

(i) Resources are scarce, while human wants and needs tend to be unlimited.
Economic analysis is the study of supply and demand, and the choices
(decisions) and incentives (pricing, taxes, etc.), so that scarce resources are used
efficiently.
The process of economic analysis involves identifying appropriate economic
indicators, collecting economic data, preparing or selecting an economic
forecast, interpreting the economic data, monitoring intervening forces and using
the economic analysis for decision making.
Decision makers use the results of an economic analysis for decision making.
Astute decision makers recognize that economic forces are uncontrollable and
that current strategies may need to be adjusted to cope with or overcome the
economic changes. They approach with caution opportunities and threats
discovered as a result of economic scanning and analysis. They pursue a
proactive approach, however, knowing that an economic analysis enables them
to choose from alternative approaches , how to employ scarce or uncommon
resources and achieve objectives in the most efficient and cost effective manner.
The economic factors considered for this analysis are unemployment rates,
personal income and expenditures, interest rates, business inventories, gross
product by industry, and numerous other economic indicators or indices. Such
measures of economic performance may be found in secondary sources such as
business, trade, government, and general-interest publications.
(ii) Fundamental analysis is the examination of the underlying forces that affect
the well-being of the economy, industry groups, and companies. The term simply
refers to the analysis of the economic well-being of a financial entity as opposed
to only its price movements. As with most analysis, the goal is to derive a
forecast and profit from future price movements. It is performed on historical and
present data, but with the goal of making financial forecasts.
At the company level, fundamental analysis may involve examination of financial
data, management, business concept and competition. Also known as
quantitative analysis, this involves looking at revenue, expenses, assets,
liabilities and all the other financial aspects of a company. Fundamental analysts
look at this information to gain insight on a company's future performance. At
the industry level, there might be an examination of supply and demand forces
for the products offered. For the national economy, fundamental analysis might
focus on economic data to assess the present and future growth of the economy.
To forecast future stock prices, fundamental analysis combines economic,
industry, and company analysis to derive a stock's current fair value and forecast
future value. When talking about stocks, fundamental analysis is a technique
that attempts to determine a securitys value by focusing on underlying factors
that affect a company's actual business and its future prospects.

Technical analysis, on the other hand, looks at the price movement of a security
and uses this data to predict its future price movements. Fundamental analysis is
different from technical analysis as a technical analyst approaches a security
from the charts, while a fundamental analyst starts with the financial statements.
(iii) There are typically five stages in the industry lifecycle. They are defined as:
1. Early Stages Phase - alternative product design and positioning,
establishing the range and boundaries of the industry itself.
2. Innovation Phase Product innovation declines, process innovation begins
and a "dominant design" will arrive.
3. Cost or Shakeout Phase - Companies settle on the "dominant design";
economies of scale are achieved, forcing smaller players to be acquired or
exit altogether. Barriers to entry become very high, as large-scale
consolidation occurs.
4. Maturity - Growth is no longer the main focus, market share and cash flow
become the primary goals of the companies left in the space.
5. Decline - Revenues declining; the industry as a whole may be supplanted
by a new one.
Each stage shows the status of the industry and gives a clue for entry or exit for
investors.
Under the production and market introduction phases, revenues and earnings are
likely to be very low, which makes investments during these phases more
speculative in nature. Revenues and earnings are likely to below because there is
little demand for the product, or the product is not completed. Expenses are
likely to be very large during these phases as a Company or industry spends a lot
on marketing and research.
Through the growth phase, revenues and margins are likely to be on the rise due
to an increase in demand for a product and the pricing power the firm has due to
a small number of competitors. Stock prices are likely to rise during this phase.
During the maturity and stability phase, revenues and margins are likely to
decline due to lower sales demand and more competition. Stock prices are likely
to decline during these phases.