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NISM Certifications · NISM-Series-XV: Research Analyst · Fundamentals of Research

In equity research, a 'top-down' approach to analysing a security begins with which of the following?

The top-down approach starts with the macroeconomic environment, then moves to the industry or sector, and finally to the individual company. This contrasts with the bottom-up approach, which begins with company-specific fundamentals and works upward to the wider economy.

  1. AEvaluating the company's management quality and product pipeline
  2. BAnalysing the macroeconomic environment, then the industry, then the companyCorrect
  3. CStudying the company's balance sheet ratios before looking at the economy
  4. DExamining price charts and volume patterns of the stock

Explanation

The top-down approach starts from the broad economy, narrows down to the industry or sector, and finally selects individual companies. The bottom-up approach is the reverse, starting with company-specific factors. Studying balance sheet ratios first is a bottom-up step.

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