- When performing analyses for investment purposes in the stock market, examining the financial aspects and position of a company is of paramount importance. Whether contemplating an investment in a PLC or PVT LTD, knowing how to interpret the financial results of the business and their general forecasts is vital. This write-up is designed to take you through the steps of company analysis, concentrating on the most important matters regarding investment decisions.
- Before getting into the nitty-gritty of understanding the analysis, one must first differentiate between Public Listed Companies and Private Limited Companies.
- Public Listed Companies are those that sell shares to the public via stock markets. These companies have shareholders, which includes retail investors, who expect a return from the firm’s profit and therefore these companies must publish their financial statements periodically.
- Private Limited Companies, on the other hand, do not sell shares to the public and are therefore owned privately. This group of companies has a small pool of investors, and their financial reports are not always easy to come by.
- As far as investors are concerned, Public Listed Companies are by nature more open due to the legal frameworks imposed, which makes them more straightforward for investment analysis.
Significance of Quarterly Results
Having a look at the quarterly results is one of the most effective ways to check the financial well being of a company. The results show the company’s balance sheets, profit and loss statements, and cash flow statements which highlight the company’s profitability, its expenses and the company’s metrics performance overall.
Timely Disclosure: As a rule, Public Listed Companies are required to announce their quarterly results within 60 days of the quarter closing. These results can be too lengthy and when released too late may trigger flags. This could also indicate financial difficulties or lack of financial disclosure.
Critical Factors in Evaluating a Company’s Performance
In order to create an all-round performance appraisal of a company, an investor should analyze the following five elements:
Quarterly Results
As previously discussed, quarterly results aid investors in understanding how well a company is doing financially. Not only dos these results show how well performance of the company is, these results can reveal what else is necessary for future growth. Particularly note:
Balance Sheets
Profit and Loss Statements
Cash Flow Statements
Sales Trends
The company’s sale for the past five quarters should be monitored as they give very useful information. Rising or declining sales can mark the growth possibilities as well as the market needs for a firm’s products or services.
Operating Margins
Margins Operating, calculated via EBIT, reveals how a company uses its resources and how profitable it is. If a company is attaining higher operating margins, greater profits and reduced expenses simultaneously, then this indicates good financial performance.
Press Releases by Directors
Directors and the board tend to follow up the quarter results with reports which tend to serve important purposes in relation with:
Revenue guidance (expectation for updates)
Announcing dividends
Plans to expand
An analysis of these reports could be worthwhile as they can provide more comprehensive forethought of the company and its strategies.
Earnings Per Share (EPS)
EPS is a measure of profitability since it determines how much of a profit is being allocated to each outstanding share of a company’s stock. An analysis of trends in EPS over the last five quarters will enable investors to know how the company has been performing against the market expectations.
Action Plan For Analyzing Companies
To enable better decision-making, adhere to the following data-driven steps:
Use Reliable Platforms: Use websites such as moneycontrol.com to obtain crucial information regarding the company.
Examine Financial Indicators: Be on the lookout for specific financial metrics such as EPS, growth in revenue, and pattern of sales for better understanding.
Evaluate Regularly: Maintain a close watch on this company’s quarterly results just like other top companies such as Infosys, HDFC Bank, and Reliance Industries.
Key Takeaways for Investors
- When evaluating a company’s performance, it is vital to evaluate its quarterly results and other key financial indicators like EPS, sales growth, and operating margins.
- You may consider using dependable sources such as moneycontrol.com to monitor and evaluate a company’s performance.
- Companies that manage timely disclosure of their financial results are deemed healthy but if there is undue delay, it is not a good sign.
- By these measures and focusing on the primary financial details, investors are in a better position to make decisions regarding stock market investments. Increasing your understanding of a company’s financials will increase your chances of successfully investing in strong and reliable stocks.
