Company analysis

Presented By: B.SAI KIRAN (12NA1E0036)

Steps of Company AnalysisMeasuring Earnings

Forecasting Earnings

Applied Valuations

Measuring EarningsMeasurement of earnings is based on two

types of information:1) Internal Information consists of data and

events made public by firms concerning their operations.

2) External sources of information are those generated independently outside the company. They provide supplement to internal sources .

Backbone of Internal informationIncome StatementBalance sheetStatement of Cash flows

Backbone of External informationRating agencies reportsEconomic surveys

Depreciation AccountingIt recognizes that an asset will be exhausted

at some reasonable point of time. So we need to deduct their cost .

In the same firm all assets are not depreciated on the same basis ,and shifts in the rate of charge –off takes place over time.

Commonly used methods for writing of depreciation :

1. Straight Line method2. Written down value

Notes to the Financial Statements Footnotes to the balance sheet often show many of

the following items of importance to the analyst:-1) Contingent liabilities for taxes ,dividends, and

pending lawsuits.2) Particulars on options outstanding ,leases , loans

and other financing arrangements.3) Changes in accounting principles and

techniques,including bases of valuation, and the currency effect on income.

4) Facts of importance occurring between the balance-sheet data and date of submissions of statements that might have a material effect on the statements.

The Cash Flow Statement The statement of cash flow discloses clearly

and individually the significant operating , financing and investing activities of the company during an accounting period, giving the analyst an overall view of the financial management of company and its policies .

Forecasting Earning

Asset productivity and earningsFirm invests capital in assets.And these assets are used by management to

generate revenue or income.Firms strive in such a way so as to provide

shareholders best possible return per rupee invested.

EBIT= Earning before interest and taxes.EBT= Earning before taxesEAT= Earnings after taxEPS= Earnings per shareDPS= Dividend per shareReturn on assets

=ebit/assets•Greater return on assets higher the market value of firm….

Debt financing and earningProductivity of fund is called return on

assets.Cost of borrowed capital fund is called

effective rate of interest.Effective interest rate=interest expense/total

liabilities.Benefits of borrowed money=R-IR= Return on assetsI= effective interest rate

• Forecast not only the Expected Return but also the Expected Risk of an investment. • There are 3 modern techniques of Analysis:

• Regression Analysis • Trend Analysis • Decision Tree Analysis

• Approaches to Stock Valuation • P /E ratio models • Dividend Discount Model

Applied Valuations

Regression Analysis

• Trend Analysis of a Time Series utilizes regression analysis.

• Differentiation between Trend Analysis & Regression Analysis

TREND ANALYSIS

• Examine behavior of economic series over a period of time i.e. one real´ variable which is being regressed over a period of years

I CONCLUDE THAT COMPANY ANALYSIS IS MAINLY NECESSARY TO THE INVESTOR

WHO WANTS TO INVEST IN THAT PARTICULAR COMPANY.

CONCLUSION:

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