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CA Final · Advanced Financial Management · Security Analysis

Fundamental analysis of a listed company is usually carried out in a top-down sequence. Which order correctly reflects this approach?

The top-down approach in fundamental analysis starts with the economy, moves to the industry, and ends with the specific company. Macro conditions shape industry prospects, which in turn shape company earnings, so analysis narrows progressively from broad factors to firm-specific ones.

  1. ACompany analysis, then industry analysis, then economy analysis
  2. BIndustry analysis, then economy analysis, then company analysis
  3. CEconomy analysis, then industry analysis, then company analysisCorrect
  4. DEconomy analysis, then company analysis, then industry analysis

Explanation

The top-down approach begins with the macro economy (GDP, inflation, interest rates), narrows to the industry's prospects and then values the individual company. Option A describes a bottom-up approach. Options B and D skip the logical narrowing from broad to specific.

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