Company analysis

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Company analysis

  1. 1. Presented By: B.SAI KIRAN (12NA1E0036)
  2. 2. Steps of Company Analysis Measuring Earnings Forecasting Earnings Applied Valuations
  3. 3. 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 .
  4. 4. Backbone of Internal information  Income Statement  Balance sheet  Statement of Cash flows
  5. 5. Backbone of External information  Rating agencies reports  Economic surveys
  6. 6. 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
  7. 7. 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.
  8. 8. 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 .
  9. 9. Forecasting Earning
  10. 10. 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.
  11. 11.  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….
  12. 12. 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
  13. 13. • 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
  14. 14. Regression Analysis
  15. 15. • 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

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