points that may be kept in mind while analysing company


In the company analysis the investor assimilates the several bits of information related to the company and evaluates the present and future values of the stock. The risk and return associated with the purchase of the stock is analyzed to take better investment decisions. The present and future values are affected by a number of factors.



Competitive edge of the company: Major industries in India are composed of hundreds of individual companies. Though the number of companies is large, only few companies control the major market share. The competitiveness of the company can be studied with the help of the following;

·           Market share: The market share of the annual sales helps to determine a company’s relative competitive position within the industry. If the market share is high, the company would be able to meet the competition successfully. The companies in the market should be compared with like product groups otherwise, the results will be misleading.

·           Growth of sales: The rapid growth in sales would keep the shareholder in a better position than one with stagnant growth rate. Investors generally prefer size and growth in sales because the larger size companies may be able to withstand the business cycle rather than the company of smaller size.

·           Stability of sales: If a firm has stable sales revenue, it will have more stable earnings. The fall in the market share indicates the declining trend of company, even if the sales are stable. Hence the stability of sales should be compared with its market share and the competitor’s market share.



Earnings of the company: Sales alone do not increase the earnings but the costs and expenses of the company also influence the earnings. Further, earnings do not always increase with increase in sales. The company’s sales might have increased but its earnings per share may decline due to rise in costs. Hence, the investor should not only depend on the sales, but should analyze the earnings of the company.



Financial analysis: The best source of financial information about a company is its own financial statements. This is a primary source of information for evaluating the investment prospects in the particular company’s stock. Financial statement analysis is the study of a company’s financial statement from various viewpoints. The statement gives the historical and current information about the company’s operations.



Ratio analysis: Ratio is a relationship between two figures expressed mathematically. Financial ratios provide numerical relationship between two relevant financial data. Financial ratios are calculated from the balance sheet and profit and loss account. The relationship can be either expressed as a percent or as a quotient. Ratios summarize the data for easy understanding, comparison and interpretations.














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