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CMA Final · Strategic Financial Management

Fundamental Analysis and Technical Analysis for CMA Final SFM

Fundamental analysis estimates a security's intrinsic value from the economy, the industry and the company, then compares it with market price. Technical analysis studies past price and volume through charts and indicators to forecast price moves. To solve questions, identify the method, apply its rule step by step, and state a clear buy, sell or hold view.

What this chapter covers

This chapter in Paper 14, Strategic Financial Management, covers how an investor decides what to buy and when. It has two schools of thought. Fundamental analysis asks what a share is worth. It works top-down: economy, then industry, then company. Technical analysis asks what price and volume are saying. It uses Dow Theory, chart patterns, indicators and market breadth.

The chapter ends with the Efficient Market Hypothesis and the random walk idea. These test whether either school can consistently beat the market. This gives you the theory to judge both approaches, so it ties the chapter together.

The chapter links to other parts of the paper. Equity valuation uses ideas like dividend discount and earnings multiples, which you will meet again in valuation and portfolio topics. Market efficiency also shapes how you think about portfolio management and risk and return. Treat this chapter as the base for investment decisions in the rest of the paper.

Section A of every paper is 15 MCQs of 2 marks each, and this chapter suits that format well. Definitions, the three forms of efficiency, Dow Theory phases and indicator signals can all be asked as short, precise questions. Numerical parts, such as moving averages, RSI-type readings, and simple valuation using earnings and multiples, can also appear in the written section where you must give a clear recommendation. The theory is limited in size and the same ideas repeat, so steady effort here gives dependable marks.

Fundamental Analysis and Technical Analysis: topics in the order to study them

  1. 1Security Analysis and Investment ApproachesStart here to see the two schools, fundamental and technical, and how they differ in purpose.
  2. 2Economic AnalysisThe top-down method begins with the economy, so learn the macro factors first.
  3. 3Industry AnalysisNext narrow down to the sector, its life cycle and competitive forces.
  4. 4Company Analysis and Equity ValuationThen reach the firm, where qualitative review and valuation numbers carry most of the calculation marks.
  5. 5Technical Analysis: Dow Theory and ChartsMove to the second school once fundamentals are clear; Dow Theory and chart types form its base.
  6. 6Technical Indicators and Market BreadthIndicators and breadth build on charts and are the most calculation-friendly part of technical analysis.
  7. 7Efficient Market Hypothesis and Random WalkFinish with the theory that questions both schools, which is easier to grasp after you know them.

How to prepare Fundamental Analysis and Technical Analysis

Spend your time on understanding the logic of each tool, then practise the few calculations. Short notes work well on a phone.

  1. Read the investment approaches topic and write a two-column comparison of fundamental and technical analysis: input, goal, time horizon.
  2. Learn the top-down flow of economy, industry and company. For each level, list the factors and what a good or bad reading means for a share.
  3. Practise valuation questions on paper. Write the formula, substitute, compute, then compare value with market price and state buy, sell or hold.
  4. Learn Dow Theory, its trends and phases, and the main chart patterns. Practise explaining each in two lines.
  5. Work through indicator problems, such as moving averages and breadth readings, using small data sets. Write the signal in words after each.
  6. Learn the three forms of market efficiency and what each implies for analysis. Link each form to which analysis could still work.
  7. Attempt MCQs on the whole chapter, then recheck wrong answers against your notes.

Common mistakes in Fundamental Analysis and Technical Analysis

  • Mixing up the three forms of market efficiency

    Fix: Tie each form to its information: past prices, public information, all information. Then note which analysis it rules out.

  • Giving a valuation number without a recommendation

    Fix: Always compare intrinsic value with market price and write a clear buy, sell or hold line.

  • Treating technical signals as certain

    Fix: Describe a signal as an indication and state its condition, such as price crossing above a moving average.

  • Skipping the economic and industry topics as theory

    Fix: Revise them as lists of factors with their effect on shares. These are easy MCQ and short-answer points.

  • Confusing market breadth with individual share indicators

    Fix: Remember that breadth looks at the whole market through advancing and declining shares, not one security.

  • Writing long theory answers without application

    Fix: Use details from the case, such as company or industry facts, and link them to your conclusion.

Last-day revision: Fundamental Analysis and Technical Analysis

  • Fundamental analysis finds intrinsic value; technical analysis studies price and volume history.
  • Fundamental analysis is top-down: economy, then industry, then company.
  • Buy when intrinsic value is above market price; sell when it is below.
  • Industry analysis looks at life cycle stage and competitive forces.
  • Company analysis combines qualitative review with financial ratios and valuation.
  • Dow Theory: markets move in primary, secondary and minor trends.
  • Technical analysis assumes price discounts everything and trends tend to continue.
  • A moving average smooths prices; price crossing it is read as a signal.
  • Market breadth compares advancing and declining shares to judge market strength.
  • Weak form: past prices are already reflected, so technical analysis cannot beat the market.
  • Semi-strong form: all public information is reflected, so fundamental analysis cannot beat the market.
  • Strong form: all information, including private, is reflected.
  • Random walk: price changes are independent, so past moves do not predict future ones.

Fundamental Analysis and Technical Analysis practice questions

Fundamental Analysis and Technical Analysis in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Fundamental Analysis and Technical Analysis: frequently asked questions

Is this chapter more theory or numerical?

It is mostly theory with some calculations. Valuation and indicator workings can be asked as numericals, while the rest suits MCQs and short written answers.

What is the difference between fundamental and technical analysis?

Fundamental analysis estimates a security's intrinsic value from economic, industry and company data. Technical analysis uses past prices and volumes on charts to predict future price moves.

Why is the Efficient Market Hypothesis important?

It questions whether analysis can beat the market. Each form of efficiency tells you which type of analysis, if any, can still give an advantage.

How should I revise this chapter on the last day?

Go through the comparison of the two approaches, the efficiency forms, Dow Theory phases and indicator signals. Then solve a few MCQs to check recall.