What Is Economic Industry Company (EIC)?
                     What Is Economic 
Industry Company 
(EIC) Analysis?
Introduction
 In the security selection process, a tradit ional  
approach of Economic Industry Company 
analysis is employed. 
 EIC analysis is the abbreviat ion of economic, 
industry and company.
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About EIC Analysis
 The person conducting EIC analysis examines 
the condit ions in the entire economy and then 
ascertains the most attract ive industries in 
the l ight of the economic condit ions. 
 At last,  the most attractive companies within 
the attractive industries are pointed out by 
the analyst.
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Components
Below are the further detai ls of the components 
of EIC analysis,  which analysts always consider 
before choosing or reaching any decision about 
any business.
 Economic Analysis
 Industry Analysis
 Company Analysis
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Economic Analysis
Every common stock is  susceptible to market 
r isk.  This feature of a lmost al l  types of a 
common stock indicates their combined 
movement with the fl uctuations in the economic 
condit ions towards the improvement or 
deterioration.
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Impact on Stock Price
Stock prices react favorably to the low infl ation, 
earnings growth, a better balance of trade, 
increasing gross national product and other 
posit ive macroeconomic news. Indicat ions that 
unemployment is r is ing, infl ation is picking up 
or earnings estimates are being revised 
downward wil l  negatively aff ect the stock 
prices.
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Industry Analysis
I t  is clear there is  a certain level  of market risk 
faced by every stock and the stock price decl ine 
during the recession in the economy. Another 
point to be remembered is that the defensive 
kind of stock is aff ected less by the recession as 
compared to the cycl ical  category of stock.
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Threats of new entrants
Threats of new entrants evaluate the expected 
reaction of current competitors to new 
competitors and obstacles to entry into the 
industry. In certain industr ies, i t  is  quite 
diffi cult  for new companies to compete 
successful ly.
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Company Analysis
In company analysis, diff erent companies are 
considered and evaluated from the selected 
industry so that the most attract ive company 
can be identifi ed. Company analysis is a lso 
referred to as a security analysis in which stock 
picking activity is  done.
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Approach to Company Analysis
Diff erent analysts have diff erent approaches to 
conducting company analysis l ike:
 Value Approach to Invest ing
 Growth Approach to Investing
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Financial Ratios 
In company analysis, the fi nancial  ratios of the 
companies are analyzed in order to ascertain 
the category of stock as value stock or growth 
stock. These ratios include price to book ratio 
and price-earnings ratio. Other ratios l ike return 
on equity etc. can also be analyzed to ascertain 
the potential  company for making an 
investment. 
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