Company Analysis

1. What is Company Analysis?

Company Analysis assists individual investors, managers & companies in evaluating opportunities, trends, market innovations as well as in selecting appropriate information solutions in order to make effective investment decisions.
The study covers information on the business structure, areas of operation, products & services offered by the company. It comprises SWOT analysis, key ratios & financials that aid the investors in gaining an insight into the company’s performance.

2. Why is Company Analysis done?

Company Analysis is done for the following reasons –
1. To know how the industry to which the company belongs is faring.
2. To know how the company has been faring over the past few years.
3. To analyze the correct price of the scrip & decide on whether it is a good buy or not by considering the financial performance of the company & certain key financial parameters like Earnings Per Share (EPS), Book Value (BV), current size of the equity, P/E Ratio, etc. for arriving at the estimated future price.

3. How does Analysis help?

The purpose of an analysis is to predict the performance of the company & thereby its future share price. At times, the company may not perform as per expectation or the general depressed sentiment of the stock market may push the price down. For that matter any investment in shares involves risk, as it cannot exclude future uncertainties. But the impact of such events can be reduced if stock is well analyzed & a good company has been selected.
Analysis therefore reduces the probability of making a wrong judgement
& thereby minimizes risk. The chances of buying a good scrip are much higher if investment is based on proper analysis rather than just buy & sell on speculation.

4.. What is the yardstick for analyzing a company?

They are-
1. Background
2. Promoters & Management
3. Capital History
4. Shareholding Pattern
5. Growth
6. Market Share
7. Technology
8. Marketing Capabilities
9. Export
10. Production & Capacity Utilization
11. Resource Availability
12. Human Resource Management
13. Profitability
14. Capital Structure
15. Liquidity
16. Activity Ratios
17. Expansion Plan
18. Diversification Plan
19. Strategic Plan
20. Products & Services


5. Sources Of Data for Company Analysis

The Analyst is expected to examine two major categories of information for assessing the intrinsic worth of the company’s stock. First is the factual position as revealed by the financial statements of the company, viz., internal information. Second are the external sources of information given by the researchers or security firms and financial journals, published from time to time in Dailies & Magazines or in handouts issued by the security firms.
The various sources of information are as follows –
1. Investment Magazines
2. Business Newspapers
3. Business Magazines
4. Investment Bulletins
5. Stock Exchange Directory
6. Annual Report of Companies
7. Computer Software
8. Websites - the Company’s official website.

Therefore, Company Analysis focuses on selecting companies with a sensible business plan, solid management & sound financials.