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Company analysis

Presented By:
B.SAI KIRAN (12NA1E0036)

Steps of Company
Analysis
Measuring Earnings
Forecasting Earnings
Applied Valuations

Measuring
Earnings
Measurement 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 information


Income Statement
Balance sheet
Statement of Cash flows

Backbone of External information


Rating agencies reports
Economic surveys

Depreciation Accounting
It 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 method
2. 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 balancesheet 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


earnings
Firm 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 taxes
EAT= Earnings after tax
EPS= Earnings per share
DPS= Dividend per share
Return on assets
=ebit/assets
Greater

return on assets higher the market value of firm.

Debt financing and


earning
Productivity 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-I
R= Return on assets
I= effective interest rate

Applied Valuations
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

Regression Analysis

TREND ANALYSIS
Trend Analysis of a Time Series utilizes regression
analysis.
Differentiation between Trend Analysis & Regression
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

CONCLUSION:

CLUDE THAT COMPANY ANALYSIS IS MAINLY NECESSAR


TO THE INVESTOR
HO WANTS TO INVEST IN THAT PARTICULAR COMPANY.

THANK YOU