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COMPANY ANALYSIS

Sumi C.D S3 MBA

Understanding a company Understanding a company


Business

How elastic is the demand for the companys products/services? Is the demand seasonal? What is the raw material situation?
What are the key products for the company and what is their contribution? How is the company competitively placed in that product segment?
Which geographies are key revenue contributors to the company revenues? How competitively poised is the company in that geography? How risk free is the geography?

Product Segments

Geographic Segment

Key Profit Contributors

Which product contributes maximum to the companys profits Which geographies contribute the maximum to the companys profits
Does the company have a unique selling proposition (USP)? How strong/sustainable is the companys USP? Does the company enjoy an important position in the market (like largest player etc)?

USP

Components of Company Analysis


Financial analysis Non-Financial analysis

Understanding Analysis Fundamental a company


Last step in Top- Down approach is company analysis
Goal: Estimate Shares Intrinsic Value o Constant growth version of dividend discount model o Value justified by fundamentals

D1 Intrinsic value P0 k-g

Earning Analysis
Income concepts Adjusting for economic finance Sales- revenue recognition principle Inventory Depreciation

Forecasting Earning
Identification of variables Operations and earning
ROI
EBIT Investment EBIT Sales Sales Investment

Financing and earning Determining the extent of change method Earlier methods Modern techniques

Earlier methods and modern techniques


1.Earnings model
2.Market share/profit margin approach 3.Projected financial statement 4.Regression and correlation analysis 5.Trend analysis 6.Decision trees 7. Simulation

Dividend discount model of valuation


Capitalization rate Growth rate Payout ratio

Growth Stock
Investors are interested in not only current dividends but also in future earnings through dividends and capital gain.

Characteristics
Substantial and steady growth in EPS High return on book value Emphasis on R & D Diversification plans for strategic competitive advantage

Ratio Analysis
SL .No A Indicator Technical solvency Ratios Current ratio Liquidity ratio Net income to debt service ratio Debt-equity ratio Return on investment Profit margin Fixed asset to total asset Gross profit margin Net profit margin Return on investment Earnings per share Dividend yield ratio P/E ratio Operating ratio Expense ratio Current asset turnover Inventory turnover Credit collection period

Actual solvency

Profitability

Efficiency

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