Company

Analysis

Quantitative Qualitative
 MANAGEMENT
Management plays very important roll in
deterring the company’s growth as management
makes the plans policies for company growth if
the management is good then it ensure good
growth of the company and if management is
poor then the resources of the company not
effectively used and it results company degrowth.
Family Management
These companies are managed by members of controlling family. The chairman or the CEO is usually
a member of the ruling family and Board of Directors are people who are closely connected to the
family. This is necessarily bad. The policies are decided by ruling family and some of the policies may
not necessarily always be in the shareholders‘ best interest.

Professional Management
Professionally managed companies are those that are managed by employees. In these companies CEO
often does not have any financial stake in the company. He is at the helm of affairs because of this
competence, ability and experience.
The professional manager is a career employee and he remains in power as long as he is fulfilling his
commitments and meeting the targets. So he is result oriented and his aim is often short term – the
meeting at annual budget. He is generally not driven by loyalty towards company.
 PROMOTERS HOLDING
Promoter’s holding is very important in an
company if promoter holds more than 40%
stake in a company it means he/she is
confidence enough about company and its
growth. Maruti, MRF, Eicher Motors are
some example where promoters holdings are
very huge and shares of such companies
reaching very high price in the market.
 BUSINESS MODEL
Every business or companies makes a plan for generating profit. They create a
model for identifying products and services to sell, the market they want to target
and also take into account anticipated expenses. This is known as business models.
Even if the business is already established or even if it is a new business, plan
needs to be made. Businesses need to regularly update their plans and strategy as
they need to take into accounts the challenges and trends for the future models.
In general, a business model explains four things:
• What product or service a company will sell.
• How it intends to market that product or service.
• What kind of expenses the company will face.
• How the company expects to turn a profit.
Types of Business Models
Business -To- Business Models (B2B): When the dealings or the transactions take place between two companies or
the business then this type of business model is known as business to business models.
The best example of this type of business model in India is IndiaMart which is a wholesale B2B marketplace.
Business -To-Consumer Models (B2C): Business-2-consumer business model is a model that refers to businesses
that sell their services or the products directly to the consumer who are the end users of the products or services.
Example of business to consumer model is Avenue Supermart which provides goods directly to its customers.
Subscription Based Models: Any application based businesses or software companies have subscription based
business models. They offer their product as a onetime purchase, in return company earns monthly or annual
revenues.
One of the leading examples is Info Edge for this type of business model.
On-Demand Business Model: It is the most recent form of model which is made out on the need by answering
immediately. Under this type of business model is prepared in such a way where all the questions will be answered by
just a click of a button in seconds.
One of the example is “make my trip” which allows the customers to plan the holidays and make the bookings in
advance.
 COMPETITIVE ADVANTAGE

• Competitive advantage refers to the ways that a company can produce goods
or deliver services better than its competitors. It allows a company to achieve
superior margins and generate value for the company and its shareholders.
• These advantages allow a company to achieve and maintain superior margins,
a better growth profile, or greater loyalty among current customers.
Building a Competitive Advantage
Michael Porter, the famous Harvard Business School professor, identified three strategies for
establishing a competitive advantage: Cost Leadership, Differentiation, and Focus (which includes
both Cost Focus and Differentiation Focus).
Cost Leadership
• The goal of a cost leadership strategy is to become the lowest cost manufacturer or provider of a
good or service. This is achieved by producing goods that are of standard quality for consumers, at a
price that is lower and more competitive than other comparable product(s).
• Firms employing this strategy will combine low profit margins per unit with large sales volumes to
maximize profit. Companies will seek the best alternatives in manufacturing a good or offering a
service and advertise this value proposition to make it impossible for competitors to replicate.
Differentiation
• A differentiation strategy is one that involves developing unique goods or services that are
significantly different from competitors. Companies that employ this strategy must consistently
invest in R&D to maintain or improve the key product or service features.
Technology
• Technology used by the companies to produce a good to manage customer relation or to improve internal
relationship can be considered a competitive advantage.

Brand Awareness
• Brand awareness is another type of competitive advantage that can give you an edge. “ There are certain
product that are called by the name of a brand.
• Like:- Colgate is often referred to as an Colgate instead of toothpaste.
CORPORATE POLICIES AND ETHICS
• The way a company interacts with its employees, the public, other companies, government,
and regulatory agencies can offer investor insight into the company’s values and ethical
merits. These factors can also influence how a business is perceived by national and
international communities. Is this company communicative and transparent with the public
and its shareholders?
• Corporate policies offer a variety of benefits, the primary goal they accomplish is to put in
writing what the company expects from employees in terms of the behavior, actions, and
processes they take in specific scenarios.
MICRO ENVIRONMENTAL FACTORS

• Micro factors like supply and demand within a particular industry or market can
affect a business’s success. For instance, if the raw materials a company uses to
manufacture their product are in short supply, the prices of their products may
increase, which could affect their profits. What’s going on with consumers,
markets, and the industry that could affect this company’s operation?
• Some micro factors are as follows:
 The Impact of Customers
 Availability of Employee
 Distribution Channels and Suppliers
 Level of Competition
 Availability of Investors
 Media and the General Public
 MACRO ENVIRONMENTAL FACTORS

• Macro environment refers to the external forces within an economy. Macro environment factors like inflation, fiscal policy,
monetary policy, consumer spending, GDP, and employment rates considerably affect business operations. Governments and
institutions strategize policies based on these factors.
• Macro environment factors impact decision-making, strategies, and growth of a business. But, at the same time, the
management cannot control these economic and non-economic factors. For long-term sustainability, businesses try to
predict macro-environmental factors. Based on macro analyses, businesses prepare for future threats and opportunities.
• Some macro factors are as follows:
 Economic Growth
 Inflation and Deflation
 Saving and Investments
 Spending Habits
 Employment
 CASH FLOW
• Cash flow refers to the net amount that has been coming in and out of the
company from various source.
• Cash received represents inflows, while money spent represents outflows.
• A positive cash flow is must for a company to remain in the business. As it
allows the company to make investment, spend on Research and
Development, launch new product, expend the business and many more thing
that a company needs.
• Negative cash flow is the reason of company failure, companies having
negative cash flow may not carry their businesses successfully in long run.
• “Investor should avoid investment in such companies which have negative cash flow.”
• There are various sources from where a company can generate cash. They are as follows:
• Revenue, Sale of assets, Sale of Investment, Rent Received, Interest Payment Received, Dividend
Received, Sourcing Funds from Issue of Equity Share or Debt instrument.
• Cash outflows originate with the sources noted below:
• High positive cash flow is preferred as it allows you to make investments, hire employees and
expand your business.
 WORKING CAPITAL
Working Capital is a key financial measure that shows company’s ability to handle its
short term debt and day to day operation.

Why working capital is important

• It ensures a company can pay its bills and keep running smoothly.
• Good Working capital management helps maintain liquidity and avoid financial
problem.
• Positive working capital means you can cover your short term debt with your
short term assts.
• Negative working capital means you might struggle to pay your short term debts,
which can cause financial trouble.
 WORKING CAPITAL CALCULATION:
Working Capital = Current Assets - Current Liabilities

Current Assets Current Liabilites

• Cash and Cash equivalent • Accounts Payable

• Inventory • Short Term Loans
• Account Receivable • Accrued Expenses
• Marketable Securities • Other Short Term Debt
 EARNING PER SHARE
• Earning per share is a common metric to value a company. It can be explained as How much
a company is earning on its per share.
• EPS indicates the company’s profitability by showing how much money a business makes for
each share of its stock. The EPS figure is determined by dividing the company’s net profit
by its outstanding shares of common stock.
• It is considered to be a significant financial parameter as it helps to gauge a company’s
financial health. To elaborate, higher EPS reflects greater profitability from the company
and its overall ventures.
Importance of Earnings Per Share
When it comes to measuring the company's financial standing and profitability, the following
points indicate the importance of Earnings Per Share.
• It helps compare the performance of promising companies to help pick the most suitable
investment option.
• EPS can also be used to compare the financial standing of a company over the years.
Companies that have a steady EPS increase can be a reliable investment option.
• Conversely, companies' irregular EPS are usually not preferred by seasoned investors.
A higher EPS means more profitability, which suggests that the company may increase
dividend payout over time.
 PRICE TO EARNING RATIO
• PE is one of the most widely used for investor and analyst to determine stock valuation.
• Computing the company’s PE Ratio is one of the quickest way to learn whether the company is
undervalued or overvalued.
• If a company's stock is undervalued, then it may be a good investment based on the current price. If it
is overvalued, then you need to evaluate whether the company's growth prospects justify the stock
price.
• The P/E shows what the market is willing to pay today for a stock based on its past or future earnings.
PE signifies how much price the investors are willing to pay for each rupee the company is earning.
• This price or PE depends on the various factor and these factors can impact the PE.
• These factors are as follows:
o Expectation of future growth in companies earning.
o Company’s future projects and plans also impact the PE as the expectations of investors gets increased from
the company and the expect higher earning from the company that’s why the PE keeps on changing.
o Growth potential of the company.
o Growth rate of company’s earning.
Low P/E High P/E
• Stock is undervalued • Stock is overvalued
• Low growth or neg. growth • High growth
• Future prospect not good • Good future prospects
Low P/E
• Stock is Undervalued High P/E
• High growth or positive • Stock Overvalued
growth/ EPS High • Low Growth/ Low EPS
• Future prospects are very • Future Prospects are not
good good
 PEG RATIO
• PEG RATIO = P/E RATIO / Growth rate of future earnings (EPS
Growth rate)
= 15 / 20
• IF PEG RATIO is less than 1 , stock is underpriced. We can buy that
stock.
• If PEG is 0.5 , strong buy on the stock.
• If PEG is greater than 1 , stock is overpriced, its time to sell the stock.
• If PEG is greater than 1.5 , its strong sell on stock.
• Otherwise we can check the P/B Ratio.
 BOOK VALUE
• Book value is the net asset value of a company. It is very good
parameters to assess value of the company.
• Book value can also refer to the amount that investors would
theoretically receive if an entity liquidated, which could be
approximately the shareholders' equity portion of the balance
sheet if the entity liquidated all of its assets and liabilities at
the values stated on the balance sheet. This liquidation value
can be lower than the book value, especially, when the firm is
sold off on short notice, when there are fewer bidders.
 BOOK VALUE
Total
Assets

Total
Liabilities
 Book Total Shareholders Fund
Value Per =
Share Total Outstanding Shares
 IMPORTANCE OF BOOK VALUE
• The book value gives you a fair idea of what the company is worth, in financial terms.
It shows the amount that you stand to get, in case of a company’s liquidation.
• If the book value of a company is higher than its market value, it means that its stock
price is undervalued. This is a basic tenet of value investing.
• Book value is primarily important for investors using a value investing
strategy because it can enable them to find bargain deals on stocks, especially if they
suspect that a company is undervalued and/or is poised to grow, and the stock is
going to rise in price.
 PRICE TO BOOK VALUE
• Price to Book Value represent the relationship between the market price of company’s share
value and book value of its equity.
• Investor use the P/B ratio to scale whether a stock is valued properly.
• P/B RATIO = MKT Price per share/ BOOK VALUE per share
• Lower P/B Ratio for asset heavy industries. Eg. Oil, manufacturing cos. Bcoz book value is
high in these industries.
• Higher P/B Ratio for asset light industries. Ex. Technology companies. Bcoz book value is
low in tech company.
• Historical P/B, Competitor P/B Can be compared to estimate right value of stock.
 Return on
Return on Capital
Equity Employed

Returns

Return on
Assets
 RETURN ON EQUITY
• ROE is a measure to get an idea about the company’s efficiency of
utilizing the owners capital.
• ROE helps investor in accessing who much profit the company is
generating on its shareholder’s fund.
• ROE helps investors choose investments and can be used to
compare one company to another to suggest which might be a
better investment.
• Not only it helps the investors, it also helps the management to
scale their performance over the period.
 Net Profit
ROE= X 100
Total Shareholders Fund
 RETURN ON CAPITAL EMPLOYED

• ROCE is a financial metric that can be used to analyse the profitability and
capital efficiency of the company in terms of all of its capital.
• ROCE measures how efficiently a firm is utilizing the total capital of the
firm. This capital includes shareholders fund as well as the capital that has
been raised from the company’s lenders.
• This ratio can help to understand how well a company is generating
profits from its capital as it is put to use.
• Capital Employed= Total Assets – Current Liabilities

• EBIT= Profit Before Tax + Interest

 EBIT
ROCE= X 100
Total Capital Employed