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How does bottom-up stock selection analyze stock selection? Give some examples from accounting ratios, capital structure,...

How does bottom-up stock selection analyze stock selection? Give some examples from accounting ratios, capital structure, liquidity, debt serving, profitability, share price and equity, risk.

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Answer #1

Bottom up selection generally involves selecting particular stock even if the industry or sector of the stock is not performing well. Here the company 's management, future prospects, leverage ratios, growth prospects, acid test ratios are analysed to give better overview. Here the stock is analysed seperately and not compared with industry average.

For example, telecom industry has struggled in Italy however stocks like Vodafone have faired well because if its innovation and organisation management. Here ratios like following are analysed :

  • Enterprises value to EBITDA ratio
  • Price to Earning ratio
  • Debt to Equity ratio
  • Return on capital employed
  • Return on equity ratio
  • Current asset ratio
  • Net promoter score
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