Introduction :

Equity analysis is a critical component of financial decision-making, aimed at evaluating the

intrinsic value and risk-return profile of publicly traded securities. This process leverages
quantitative and qualitative methodologies, including fundamental and technical analysis, to
assess market efficiency, price dynamics, and investment attractiveness.From a quantitative
perspective, equity analysis incorporates statistical and econometric models to determine
price movements, employing risk-adjusted return metrics such as the Sharpe ratio, beta
coefficient (β), alpha (α), and standard deviation. Additionally, correlation and regression
models help quantify the relationship between individual securities and market indices,
refining portfolio risk management strategies.Technical analysis focuses on price action,
volume trends, and momentum indicators such as moving averages (MA), relative strength
index (RSI), stochastic oscillators, and Bollinger Bands. These indicators provide insights
into market sentiment, liquidity, and potential price reversals, facilitating short-term trading
strategies.Conversely, fundamental analysis evaluates financial statements, corporate
governance, macroeconomic indicators, and industry trends to estimate intrinsic value.
Valuation models such as Discounted Cash Flow (DCF), Price-to-Earnings (P/E), and
Market-to-Book (M/B) ratios are widely employed to derive fair value estimates and identify
mispriced securities.In modern finance, integrating machine learning models, algorithmic
trading strategies, and high-frequency trading (HFT) techniques has further refined equity
analysis, enabling investors to capitalize on arbitrage opportunities and market
inefficiencies.This multifaceted approach to equity analysis enhances market participants’
ability to optimize portfolio allocations, hedge against systemic risks, and generate alpha in
both efficient and inefficient markets.

Review of literature

1.N.A. Gorbunova,(2016) analyse that one of the most convenient instruments for
aggregating results of risk and return analysis is rating of the investment attractiveness of
equity securities with regard to issuer’s corporate culture, risk and return of his securities.
Corporate behaviour rating allows the market participants identify if a joint stock company
observes the interests of all the holders; if the structure of management and equity capital is
efficient; if the company is informationally transparent for outside users. Market price rating
demonstrates risk and return of equity securities; assesses their investment potential, which
depends not only on the country’s economic state but on the market activity of joint stock
companies on the stock market.
Variables –

Fundamental analysis

The variables used in the research are:

1. Macroeconomic Factors:

• Gross Domestic Product (GDP)

• Inflation rate

• Unemployment rate

• Exchange rates

• Internal and external turnover

• State expenditures and debt

• Economic climate

2. Microeconomic Factors:

• Company’s financial situation

• Issuer’s market activity

• Absolute and relative return

• Investment risk level

3. Market Activity Indicators:

• Earnings per Share (EPS)

• Price/Earnings (P/E) Ratio

• Dividend Payout Ratio

• Market-to-Book Ratio

• Price-to-Sales Ratio

4. Sector-Specific Indicators:

• Industry type (Sustainable, Cyclical, or Growing industries)

• Business activity indicators (output growth, product profitability)

5. Absolute and Relative Indicators for Return:

• Absolute return (based on the stock’s value determined through financial statements and
market dynamics)

• Relative yield (using models like Gordon-William’s model)

Technical analysis variables used in the research are:

1. Stock Return Variables:

• Rj: Return of equity securities (j) during the reporting period.

• Ry: Return on the market index (y) during the same period.

2. Market Model Coefficients:

• άjy: Coefficient or shift factor in the market model.

• βjy: Beta coefficient, measuring stock return response to a market index’s return.

• Ejy: Random error in the market model.

3. Risk Evaluation Coefficients:

• β-coefficient: Measures the relationship between the return of a specific stock and the return
of the market index. It indicates the volatility of the stock relative to the market.

• ά-coefficient: Reflects the average level of price changes for the company’s shares.

• Standard Deviation (r): Measures the market risk or undiversified risk magnitude.

• Correlation Coefficient (R): Indicates the relationship between the return of a specific stock
and the return of the market index (ranges from -1 to +1).

• Coefficient of Determination (R²): Represents how well the market index explains the
variability in stock returns.

4. Statistical and Probability Indicators:

• Mean Square Deviation: A measure of the dispersion of the stock’s return.

• Coefficient of Variation: A statistical measure of the relative risk (variance divided by the
mean).

2. Jerald E. Pinto, Thomas R. Robinson, John D. Stove, (2015) , try to find out
professional practices in the selection of equity valuation approaches, including specific
model variations and key input preferences. The study captures in detail how professional
equity analysts practice valuation, globally and in the Americas, Asia Pacific, and EMEA
regions. One conclusion is that choices in valuation methods are more sophisticated and more
clearly justifiable economically than those reported in many earlier surveys. It aimed to
provide a neutral and comprehensive overview of current practices in equity valuation,
focusing on professionals' use of various valuation models and methods, including market
multiples, discounted cash flow (DCF) models, asset-based approaches, and real options
analysis..

Variables Used in Research:

1. Valuation Approaches:

• Market Multiples (e.g., P/E, EV/EBITDA)

• Present Discounted Value (e.g., Discounted Cash Flow, Residual Income)

• Asset-Based Approach (e.g., Book value, Asset Replacement Costs)

• Real Options Approach (using options models)

• Other Approaches (e.g., technical analysis, momentum, quant models)

2. Demographic and Professional Characteristics:

• Job Responsibilities: Equity analysis (EA only, EA + other responsibilities).

• Time Spent on Equity Analysis: Percentage of work week spent on equity valuation
(average of 62.2%).

• Professional Credentials: CFA charter holders (80% of respondents).

• Geographic Region: Distribution of respondents by region (Americas, Asia Pacific, Europe,

Middle East, Africa).

3. Analytical Techniques:

• Frequency of Approach Use: Conditional frequencies indicating how often each approach is
used by professionals.

• Additional Methods: Other valuation techniques mentioned, including technical analysis,

momentum, proprietary quant models, LBO analysis, M&A deal comps, and multifactor
models.
3. Guochang Zhang,(2013) study examines the relevance of fair value accounting for
income measurement from an equity investor’s perspective and its broader implications for
financial reporting. It finds that fair value accounting is useful for financial assets as it
reflects value generation over a reporting period, but it lacks clear relevance for operating
assets. This distinction arises because financial and operating assets serve different economic
functions, leading to different investor information needs.Two key implications emerge: (1)
accounting should align with the specific economic roles of assets and liabilities in business
operations, and (2) fair value accounting does not significantly aid valuation for firms
engaged in real operations, as operating asset values primarily represent input costs rather
than value creation.The study also provides a theoretical basis for accounting income
measures, evaluating their effectiveness in summarising economic activity for investors. It
highlights that accounting gains or losses do not always equate to economic gains or losses.

Variable :

1. Market Prices and Asset Prices: The market prices of financial and operating assets
fluctuate over time, affecting their valuation.

2. Operating and Financial Activities: The firm engages in both types of activities, with
financial assets representing market-based trading, and operating assets representing those
used in the firm’s production process.

3. Economic Depreciation: Operating assets experience economic depreciation, which

reduces their productive capacity over time. Firms must replenish these assets to maintain
their productive capacity, factoring in depreciation when measuring asset values and
investment.

4. Economic Earnings and Profitability: “Economic earnings” are the actual earnings
derived from the firm’s operating activities after accounting for depreciation. Profitability
reflects the firm’s efficiency in using its assets to generate value, and this can be influenced
by various factors including the firm’s management and growth potential.

5. Valuation Model: The model suggests that firm value is determined by the sum of its
financial activities’ value and operating activities’ value. The former is calculated based on
the market value of financial assets, while the latter considers the expected future cash flows
from operating activities.

6. Stock Returns: The return on the firm’s stock is driven by both the realized returns from
financial and operating activities as well as changes in profitability and asset prices.

4. Ibram Pinondang Dalimunthe*), Ajeng Desni Lestari,(2019) studied that Inflation

negatively impacts the net asset value (NAV) of Islamic fixed-income mutual funds. The
equity price index has a positive and significant effect on the NAV of fixed-income mutual
funds.Both inflation and the equity price index significantly influence the NAV of mutual
funds.

The variables used in this study are:

Independent Variables:

1. Inflation - Measured by the Consumer Price Index (CPI). The rate of inflation is
calculated as:

2. Stock Price Index (IHS) - This index reflects the performance and movement of stock
prices in the market and is calculated as:

Dependent Variable:

1. Net Asset Value (NAV) - This represents the value of the assets held by the sharia mutual
funds, which is influenced by both inflation and stock price index movements.

5.Filosofi Putri Aulia, Djoemarma Bede Poppy Sofia Koeswayo (2020) studied that
in the Indonesian stock market, particularly for LQ45 stocks, the book value of equity is no
longer a key factor for investors. Instead, they prioritise earnings and intangible asset values
when making investment decisions. While intangible assets are gaining attention in the
technology-driven era, they are not necessarily a decisive factor for Indonesian investors.
Unlike in the U.S., the shift away from book value in Indonesia is not primarily due to a
strong focus on intangible assets.

Variables

1. Dependent Variable
1. Stock Price: The market value of the issuer’s stock, reflecting investor perceptions and
the overall value of the company in the capital market. It serves as the dependent variable in
the analysis to understand how various accounting values influence stock prices.

2. Independent Variables:

• Book Value of Equity: Represents the total value of the issuer’s assets minus liabilities,
showing the net worth of the company. This value is an indicator of the financial stability and
health of the company, which can influence investor decisions and stock price movements.

• Earnings Value: The profit generated by the issuer, reflecting its operational performance.
Higher earnings typically signal good performance and are expected to have a positive impact
on stock prices.

• Intangible Assets: These are non-physical assets such as patents, trademarks, goodwill,
research and development, human capital, and intellectual property. As intangible assets
become more valuable in the digital era, their impact on stock prices becomes increasingly
significant. Investors are seen to value intangible assets as key drivers of future growth and
company success.

3. Moderating Variables:

• Moderating Effect of Intangible Assets: This variable examines the role intangible assets
play in influencing the relationship between the book value of equity and stock prices, as well
as the relationship between earnings and stock prices. In this study, the authors hypothesise
that intangible assets may weaken the relevance of book value and earnings to stock prices,
especially in the context of LQ45 companies listed on the Indonesia Stock Exchange (IDX).

6. Anh Thi Lan Nguyena, Duy Van Nguyen b,Nam Hoang Nguyen b(2022) study
systematizes the theoretical basis of financial decisions and equity risk in enterprises,
focusing on investment, working capital, and funding decisions. Using data from 100
industry-construction firms listed on the Vietnam Stock Exchange (2015–2019) and analysed
through the GLS model, the findings reveal that investment decisions do not impact equity
risk. However, working capital decisions positively influence equity risk, meaning reducing
working capital can lower risk. Conversely, funding decisions negatively affect equity risk,
suggesting increased funding decisions can help mitigate risk. These insights provide
practical implications for financial management in Vietnamese enterprises.
Variables

Dependent Variable:

• BETA: Represents equity risk in companies, measured based on stock volatility relative to
the market. A BETA > 1 indicates high risk.

Independent Variables:

1. INV (Investment Decision): Measured as the ratio of net investment in year t to fixed
assets in year t-1. A higher ratio indicates greater investment, leading to increased volatility
and equity risk.

2. CCC (Working Capital Decision): Measured as Accounts Receivable (AR) + Inventory

(INV) – Accounts Payable (AP). A higher CCC suggests higher working capital risk and
greater equity risk.

3. SL & LL (Funding Decisions - Short-term & Long-term Liabilities): Represent the level
of financial leverage used by a company. High debt usage can expand operations but also
increases interest risk and overall equity risk

Control Variables:

1. SIZE (Company Size): Represents the scale of the company. Larger companies are
expected to have more profit potential, but expansion can lead to inefficiencies and resource
changes, increasing equity risk.

2. GROWTH (Revenue Growth): Represents the company’s revenue growth. Positive

growth signals financial health and stability, which reduces equity risk by assuring investors
and shareholders of future profits.

7. Vinodkumar P Pathade,(2017) This study highlights the importance of fundamental

analysis for long-term investment decisions by evaluating the financial performance of two
major Indian two-wheeler manufacturers, TCS and Infosys. Key findings include:

1. TCS outperforms Infosys in earnings per share.

2. Infosys has a stronger and more consistent current ratio.
3. TCS excels in return on capital employed with greater consistency.
4. Infosys performs better in debtor’s turnover ratio and shows more stability.
5. Infosys also leads in gross profit ratio with higher consistency.

Variables

1. Earnings per Share

 2. Current Ratio

3. Return on Capital Employed

4. Inventory Turnover Ratio

5. Debtors Turnover Ratio

6. Gross Profit Ratio

8. Dr. M. Muthu Gopalakrishnan, Mr. Akarsh P K,(2017) studied that Equity analysis is
crucial for investors to balance risk and return when selecting stocks. The study finds that
Bosch Ltd has a low beta (0.5561), indicating low risk and volatility, but its alpha is negative
(-0.0534). Tata Motors Ltd offers high returns but has a high beta, making it riskier.
Mahindra & Mahindra Ltd emerges as the best investment choice, with a beta below one
(0.9082) and a positive alpha (0.0073), indicating a good risk-return balance.

Variables

1. Risk and Return of Equity Shares:

• The study analyses the risk and return characteristics of equity shares of selected
automobile companies in the Indian stock market.

• Risk is typically measured using standard deviation and variance, while return is calculated
using mean return.

.Beta: Measures the systematic risk of a company’s equity in relation to the overall market. A
beta of 1 means the company’s stock moves in line with the market, while a beta less than 1
indicates lower risk and a beta greater than 1 indicates higher risk than the market.

Alpha:Represents the excess return of a stock compared to the return predicted by its beta. A
positive alpha indicates that the company has outperformed the market, while a negative
alpha suggests underperformance.

9. Anna Sumaryati, Nila Tristiarini (2017) study reveals that the Cost of Equity influences
both Financial Distress and Firm Value, but it does not establish Financial Distress as a
mediator between Cost of Equity and Firm Value. This suggests that Cost of Equity can be a
useful tool for shareholders to assess managerial performance in maximizing shareholder
profits. The research provides new insights into how Cost of Equity strategies can enhance
Firm Value.
Variables Used in the Research:

1. Cost of Equity (COE):The cost incurred by a company to meet the expected returns by
investors, either in the form of dividends or capital gains. It represents the return that
investors expect for their investment in the company.

2. Firm Value (FV): Represents the value perceived by investors based on the company’s
stock market price. It reflects how the market values the company in terms of its stock price,
and is often associated with the Book Value.

3. Financial Distress (FD): A condition where a company’s cash flow is insufficient to meet
its current obligations. Financial distress is considered as a potential risk for investors.

10. Dr. J. Murthy , Dr. M. S. R. Anjaneyulu, Mrs. Himresha Bhatt , Mr. Dadi Srimanth
Kumar,(2022)found out analysis of eight selected equity funds shows that most funds
performed well during the study period, despite the market downturn in 2020. It concludes
that risk and return should be the primary factors in investment decisions, followed by safety
and liquidity. For less risky investments, the Treynor measure is recommended, while those
seeking higher returns should focus on the Sharpe ratio. Investors with moderate knowledge
should consider mutual fund investments. The study highlights the importance of considering
performance metrics like Sharpe ratio, Treynor ratio, beta, and standard deviation for a more
comprehensive evaluation of mutual funds, beyond just NAV and total return.

Variable

• Risk-Adjusted Returns: Sharpe and Treynor ratios provide a more accurate assessment of
risk-adjusted returns, helping investors understand how well a fund performs in relation to
risk.

• Sharpe Ratio: Measures the excess return per unit of total risk (standard deviation). It helps
identify funds that offer better returns for the total risk taken.

• Treynor Ratio: Measures the return per unit of systematic risk (beta). It’s more suited for
investors looking to assess performance relative to market risk.

• Beta: Helps assess how a fund’s performance moves in relation to the market, indicating
market sensitivity and potential volatility.

• Standard Deviation: Reflects the total volatility or risk of a fund, which is an important
factor for risk-averse investors.

• NAV and Total Return: While useful, they do not account for risk factors, making them
less comprehensive in evaluating mutual fund performance.
• Steady Performance: Using these ratios (Sharpe, Treynor, beta, and standard deviation)
ensures more reliable, steady performance evaluation of mutual funds, especially in a volatile
market like India.

• Recommendation for Investors: To make informed decisions, investors should analyze these
risk-adjusted performance metrics in addition to traditional measures like NAV and total
return.