Question12 Under the top-down approach to fundamental analysis, analysts begin their assessment by examining: I. Inflation ratesII. Dividend payout ratios of the companyIII. Industry averages of debt-to-equity (D/E) ratioIV. Gross domestic productV. Trading volumes of that stock in the share marketVI. Balance of paymentsVII. Past and future price-to-earnings (P/E) ratios of the company II, III, V and VII I, IV and VI I, II, IV and V II, V and VII I, II, IV and V ResetMaximum marks: 1 Flag question undefined

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Question12 Under the top-down approach to fundamental analysis, analysts begin their assessment by examining: I. Inflation ratesII. Dividend payout ratios of the companyIII. Industry averages of debt-to-equity (D/E) ratioIV. Gross domestic productV. Trading volumes of that stock in the share marketVI. Balance of paymentsVII. Past and future price-to-earnings (P/E) ratios of the company II, III, V and VII I, IV and VI I, II, IV and V  II, V and VII I, II, IV and V  ResetMaximum marks: 1 Flag question undefined

BlackTom AI · Accepted Answer

When approaching a top-down fundamental analysis, the analyst first looks at broad, macro-level factors before zooming into industry and company specifics. This guides the overall environment in which all firms operate.

Option II, III, V and VII: These items focus on company-specific metrics (dividend payout, and past/future P/E) or market microstructure (trading volumes) or industry averages (D/E). They belong to the later, bottom-up stages after macro context is established, so this combination starts too far down the analysis chain.

Option I, IV and VI: Here we have Inflation rates (macro), Gross domestic product (macro), and Balance of payments (macro). These are broad economic indicators that set the macroeconomic context for the market and investment environment, aligning exactly with the top-down approach's initial step of assessing the big-picture landscape.

Option I, II, IV and V: This mixes macro indicators (I and IV) with company-specific or market microstructure elements (II and V). While macro data remains essential, including II (dividend payout) and V (trading volumes) at this stage blends the later, more granular focus too early, making this option less consistent with a strictly top-down sequence.

Option II, V and VII: This combination centers on market activity and company-specific metrics (dividends and P/E expectations) but omits the macroeconomic foundations (I, IV, VI). Without the macro backdrop, the top-down approach lacks the essential context that shapes sector and stock prospects.

Option I, II, IV and V: This includes macro indicators (I and IV) plus some elements that are not strictly macro (II and V). It still mixes stages, giving precedence to micro aspects too soon, which is not characteristic of the classical top-down sequence.

In summary, the most consistent order for the top-down approach starts with broad macro indicators (I, IV, VI) to establish the economic environment before moving to industry and company-specific analyses. The other options mix in lower-level factors prematurely or omit key macro indicators.

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