INDUSTRY ANALYSIS

• What is the objectives of

performing Industry analysis?
 OBJECTIVE OF INDUSTRY ANALYSIS

• To find out whether to invest in the

“selected Industry” or not
DETAILED ECONOMIC PROFILE
Task One : Identify 5-6 companies in the assigned industry
• Listed
• Industry leader in terms of market share
• Reason why the companies are selected
• Turnover
• Market share
• Geographical presence
Task Two : The scope of the Industry: Products and / or services , inputs, by-products etc.
 DETAILED ECONOMIC PROFILE
• Task Three : The Stakeholders of the industry: suppliers, customers, regulatory body, Peers/
competitors etc
• Task Four : Market Structure: Size of Domestic market/ Foreign market- Global influences-
export- import of raw materials & finished products etc.
• Task Five : PESTEL Framework for the selected Industry
• Task Six : Summary of the Industry’s Profile- Team’s interpretation.
 REPORT – FOR ECONOMIC PROFILE
• Details to be collected and compiled in a logical order
• No Structured Format
• Page limit: Not more than 5 pages of A4 sheet.
FIRST STAGE
BASIC REQUIREMENTS
• Select 3-5 listed companies
• Download the financial statements of the
companies : Income statement, Balance sheet,
and cash flow statement for the past 5-7 years
• Create the commons size statements
• Create Comparative statement analysis (CAGR
for important parameters)
• Calculate all the important ratios & Du
Pont Analysis
• Calculate the industry aggregates
• Make tables / graphs to bring it inside the
reports
• Analyse and Interpret
 RATIO ANALYSIS
• Comparative statement analysis
• Common size statement analysis
• Compare it with peers as well with industry
aggregates
• For a period of 5-7 years
• Based on the cyclicality of sales
• Du-Pont Analysis
TO COME TO THAT CONCLUSION YOU NEED TO
COMMENT ON THE FOLLOWING:
• Profitability : Sales, Assets
• Asset Turnover
• Equity Multiplier
• Valuation
• Liquidity
 PROFITABILITY
• Whether the companies in the selected
industries have been profitable?
• How long they have been profitable?
• Will they be profitable in the future?
• Why they are profitable?
• What assumptions should hold correct if
they continue to be profitable?
 RATIOS
• Operating Profit margin
• Net Profit Margin
• Return on net worth
• ROI
• Return on Assets
 ASSET TURNOVER
• What is the asset turnover in this
industry?
• Fixed assets , current assets composition
in total assets.
• Changes in assets ( fixed or current) Vs
changes in sales
• How long it takes to generate the sales?
 EQUITY MULTIPLIER
• Debt – Equity ratio
• Equity to Total assets ratio
• Change in the ratio – what does it imply?
• What effect it has brought on the fixed
assets side of the balance sheet?
 VALUATION
• Book value per share
• Market price per share
• PE ratio
• Dividend per share
• Dividend yield
• EV per share
 LIQUIDITY
• Current ratios
• Liquidity ratios
• Cash ratio
 ANALYSIS
• Why there is a change? – Business
reasons
• Will the change continue?
• Is it only for a company or the same trend
observed in other companies as well?
• What is the impact it will have on our
final conclusion?
FINANCIAL ANALYSIS
• Industry Aggregates – for relevant ratios
• Du Pont Analysis
• Capital Structure
• Profit Margin
• Assets Turnover
• ESG Framework

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INDUSTRY AGGREGATES VS
INDUSTRY AVERAGES
• Industry Aggregates is better than Industry
Averages
Net Profit Sales Profit Margin
Company 1 15000 60000 25%
Company 2 1400 7000 20%
Industry average ( 25%+20%)/2 22.5%
Industry aggregate ((15000+1400) / 24.48%
(60000+7000)) 100

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SECOND STAGE
COST STRUCTURE ANALYSIS
• Major Cost element
• Operating Leverage- Presence of Fixed cost & its
effect
• Cost Unit
• Cost Audit – is it mandatory?
• Cost Leadership
• Drivers of Cost

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THIRD STAGE
FINANCIAL DIMENSIONS
• Composition of Capital Structure
• Proportion of Debt in the capital structure
• Proportion of Current Assets to Total Assets
• Proportion of Fixed Assets to Total Assets
• Profitability Aspects – Will the profits will be
continued to be earned by the companies?
• Sustainable Growth rate of the companies selected
• Working Capital Requirements – Operating Cycle &
Cash Cycle
 GOING BEYOND THE NUMBERS
• Are the company’s revenues tied to a few
customers or a few segments?
• To what extent are the company’s revenues
tied to a few key products?
• To what extent does the company rely on a
single supplier?
• What percentage of company’s business is
generated overseas?
 GUIDELINES FOR FINANCIAL STATEMENT
ANALYSIS
• Use ratios to get clues to ask the right questions
• Be selective in the choice of ratios
• Employ proper benchmarks
• Know the tricks used by accountants
• Read the notes to financial statements
• Remember that FSA is an art & science: it is a process
requiring care, thought , common sense and business
judgement