Company analysis
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Transcript of Company analysis
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:
THANK YOU