How to do a Company Analysis (An Investments & Securities Management Topic)

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A company analysis includes basic information about the company such as the mission and vision as well as the values and goals. During a company analysis, an investor also looks at the history of the company, focusing on events that have shaped the company.
A company analysis looks into what goods or services the company sells. If the company is a manufacturing company, an analysis studies what products the company makes, and analyzes the quality and the demand of these products. If it's a service business, the investors studies the services order. Financial information is analyzed by reviewing financial statements and calculating financial ratios. Information from this company is compared to other companies in the same industry. The meaning of company analysis is an evaluation of the company. This evaluation includes deep research that helps to determine the cost of stocks in the company, as well as other things. The analysis of an individual company; includes the analysis of the company's financial position, products and/or services, and competitive strategy (its plans for responding to the threats and opportunities presented by the external environment). Company analysis refers to the process of evaluating a company’s profitability, profile and products or services. It is also known as “fundamental analysis,” and it is generally used by investors. It incorporates basic company information, such as the mission statement, goals and values.
Company analysis is a process carried out by investors to evaluate securities, collecting info related to the company’s profile, products and services as well as profitability. It is also referred as ‘fundamental analysis.’ A company analysis incorporates basic info about the company, like the mission statement and apparition and the goals and values. During the process of company analysis, an investor also considers the company’s history, focusing on events which have contributed in shaping the company. Also, a company analysis looks into the goods and services proffered by the company. If the company is involved in manufacturing activities, the analysis studies the products produced by the company and also analyzes the demand and quality of these products. Conversely, if it is a service business, the investor studies the services put forward.
How to do a company analysis
It is essential for a company analysis to be comprehensive to obtain strategic insight. Being a thorough evaluation of an organization, the company analysis provides insight to rationalize processes and make revenue potentials better.
The process of conducting a company analysis involves the following steps:
  • The primary step is to determine the type of analysis which would work best for your company.
  • Research well about the methods for analysis. In order to perform a company analysis, it is important to understand the expected outcome for doing so. The analysis should provide answer about what is done right and wrong on the basis of a thorough evaluation. It is, therefore, important to make the right choice for the analysis methods.
  • The next step involves implementing the selected method for conducting the financial analysis. It is important for the analysis to include internal and external factors affecting the business.
  • As a next step, all the major findings should be supported by use of statistics.
  • The final step involves reviewing the results. The weaknesses are then attempted to be corrected. The company analysis is used in concluding issues and determining the possible solutions. The company analysis is conducted to provide a picture of the company at a specific time, thus providing the best way of enhancing a company, internally as well as externally.
Here are some of the most important things to determine when analyzing a company:
  • Company’s Competitive Position: How Wide is the Moat? A good company should have a sustainable competitive position against its competitors. In other words, it should be difficult and take a long time for a competitor to erode a good company’s market share and/or profitability. This can be achieved in many ways. Brand equity is one of the more common ways. For instance, Coca-Cola’s position in the soda market would take quite a lot of resources to attack. This is one reason why Warren Buffett made a big investment in Coca-Cola shares when he thought the share price was attractive. To some extent, E-Bay’s position as the key auction house on the internet would be difficult to attack as the more users that use E-Bay’s selling system, the more useful the system becomes. As E-Bay gets larger, it’s position becomes more and more secure. While the future in the technology industry is more difficult to project, it could be said that at the present time, Microsoft has a key position in the personal computer operating system market. Technology is more difficult than some other consumer products because, in the future, the products produced may become obsolete and not needed. For instance, if everyone moves to use web-based applications in the future, the primacy and usefulness of the personal computer operating system will be greatly eroded. In contrast, chewing gum or soda pop is unlikely to become obsolete in the very near future.
  • Company’s Competitive Position: Improving or Getting Worse. After trying to gauge the sustainability of a company’s competitive position, it is also useful to gauge whether the company’s competitive position is likely to improve or to get worse. If it is likely to improve, and this is not widely acknowledged as evidenced by an undervalued share price, then perhaps a good investment opportunity is in sight. A company may have invested in proprietary methods to lower its costs which are not available to competitors. It may have introduced new products that are allowing it to gain market share. It may have introduced a successful marketing campaign that is improving its brand equity permanently.
  • Management Analysis. Probably the most important trait to look for when analyzing a company’s management is integrity. You should be put off a company by any signs that the management is dishonest or unethical. Avoiding scandals at companies can save you from a lot of losses. An ethical management should be a non-negotiable item with regards to the types of companies you invest in. Peter Lynch, the famed Fidelity Investments fund manager, is famous for saying “Go for a business that any idiot can run - because sooner or later, any idiot probably is going to run it.” This brings us to the next point – after integrity, having an effective management system and process in place is of primary importance. A charismatic manager may dazzle the press and provide short-term motivation to employees. However, if a company becomes too dependent on one charismatic manager, it leaves itself vulnerable if the manager leaves. Therefore, sometimes the sign that a company will be managed well is actually in the well-developed and effective processes and culture of a company, rather than in any specific manager. An additional positive of a strong management process is that companies with reputations for developing strong management processes in-house also tend to have deep benches. Toyota and GE are companies which have successfully developed effective management systems and processes. Since industry conditions are constantly changing, you want to find a management who’s judgment you would trust to make the right decisions, while not knowing exactly what sorts of decisions might need to be made in the future since the future is not entirely predictable. Companies with deep benches and good processes are more likely to be able to roll with the punches. Finally, here is a quote from Warren Buffett: “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.” This highlights the fact that some factors are out of management control. If an industry is in decline, a good management may not be able to overcome poor industry conditions, and, in this case, it may be better to find another industry to invest in. Taking into account the overall industry which a company finds itself in, and the company’s competitive position and characteristics, you can take company analysis a step further and attempt to develop some quantitative estimates of future company performance. Two important parameters are:
  • Company Revenue Growth Rate. A good starting point for the company’s overall revenue growth rate is the industry growth rate, which we had described above. Using this as a base, you can judge whether the specific company you are analyzing should be growing faster, slower or in-line with its industry. If the company has introduced a successful new product, for instance, and is gaining market share, it would probably grow faster than the industry as a whole. In contrast, if the company’s products have not kept up with the competition, perhaps the company may find it necessary to discount its products to sell them. In this case, revenue growth may be lower than the industry due to weaker pricing power, even if the company is able to maintain its market share.
  • Company Profitability. A good starting point for company profitability is the previous year’s profitability. From there, you should look for reasons why profitability in the future should be higher or lower than it has been in the past. It is especially important to adjust the company’s historical profitability for any one-time special items that are unlikely to recur in the future. If the company has introduced new higher margin products and these are growing at a faster rate than the company average, the company’s profitability may rise. Or, if the company is a manufacturing company and the cost of inputs is rising, perhaps company margins may begin to fall. A good cross-check would be to take a look at industry profitability, on average, or if this is unavailable, make some comparisons to similar companies. If there is a big difference in profitability between similar companies and the company being analyzed, it would be useful to understand why those differences occur and whether or not they are justified. If they are not justified, it is possible that the company’s profitability may start to converge to the industry’s average level.
Conclusion
A company analysis incorporates basic info about the company, like the mission statement and apparition and the goals and values. Whenever you're thinking of investing in a company it is vital that you understand what it does, its market and the industry in which it operates. You should never blindly invest in a company. One of the most important areas for any investor to look at when researching a company is the financial statements. It is essential to understand the purpose of each part of these statements and how to interpret them.
Location: Lahore, Pakistan

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