Understanding the Business

1. Macro Economic Developments

2. Product Market Developments

3. Firm level Developments

Return = a*MktRet + b*IndRet + u

-> Market exposure (MktRet), Industry Exposure (IndRet), firm-specific exposure (u)

1. Supply -> cost advantage (hard to sustain)

2. Demand -> access to market demand competitiors can’t enter

3. Economies of scale

1. direct expensing (conservative accounting)

2. Capitalizing & Amortizing (matched accounting)

3. Capitalizing & Impairment (aggresive accounting)