1.

a. Briefly discuss fundamental analysis in your own words and the basic assumptions behind it. ( 4 marks)

b. Company A & Company X are in the same industry and the following table shows some key ratios.

	A	X	Industry Average
Current ratio	1.20	0.89	1.10
Debt/Equity	0.20	0.40	0.30
Total asset turnover	1.90	2.10	2.50
Net profit margin	4.20%	3.80%	4.00%
Return on equity	12.40%	14.80%	15.00%
Dividend payout ratio	25.00%	10.00%	20.00%

Discuss the relative natures of the two companies in terms of risk and return. Identify the growth-oriented company and justify your choice. You should support your discussions and conclusions with the given financial ratios. ( 6 marks)

1. a. Briefly discuss fundamental analysis in your own words and the basic assumptions behind it. (4 marks) Company A & Company X are in the same industry and the following table shows some key ratios. b. Current ratio Debt/Equity Total asset turnover Net profit margin Return on equity Dividend payout ratio 1.20 0.20 1.90 4.20% 12.40% 25.00% 0.89 0.40 2.100 3.80% 14.80% 10.00% Industry Average 1.10 0.30 2.50 4.00% 15.00% 20.00% o Discuss the relative natures of the two companies in terms of risk and return. Identify the growth-oriented company and justify your choice. You should support your discussions and conclusions with the given financial ratios. (6 marks)