02 November 2016

How to analyse a company before investing–systematic approach


Industry Analysis:

An industry includes the companies that are producing similar products / services. For example, MRF, Apollo tyres, Ceat, JK tyres belongs to Tyre sector/Industry of India.You have to look at the performance of the industry to which the company belongs. some key factors such as effect of future demand of its products, Government policy, etc. need to be carefully noted. A change in business environment may cause a drastic change towards the industry too. For instance, Approval to import Chinese tyres may cause a huge loss for this tyre industry. Analysing these things are termed as Industry analysis.

Corporate Analysis:

Analysing every single company is termed as Corporate analysis / Company analysis. This is done by looking at company's performance over the past few years and to seek information on its current operations, managerial capabilities, growth plans, and etc.,.

Company analysis

Financial Analysis:

Lets say the performance of an industry as well as of the company seems good, what's next? now check if at the current price, the share is a good buy. This can be understood by looking at the financial performance of the company and by noticing certain key financial parameters such as current size of equity, earnings per share (EPS), profit-earning (P/E) ratio, and  etc. This process is termed as Financial Analysis. These values can be derived from the financial statements of a company that is the Balance sheet and Profit and Loss account that is shown in the annual report of a company.

Download an example of Annual report by JK tyre

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