SECURITY ANALYSIS AND

PORTFOLIO MANAGEMENT

COMPANY ANALYSIS
PRESENTED BY
GALAXY (G6) & INCREDIBLES (G7)
Group Leader -Farhana Nazrin Group Leader -Megha Madhu
Group members: Group members:
1. Shishira 1. Anandhu Krishnan
2. Vineetha V 2. Lakshmi Jinadevan
3. Anju V 3. Nithya Ray Varghese
4. Arlin jose 4. Megha Madhu
5. Aswin Das 5. Akshay R
6. Farhana Nazrin 6. Ashitha Krishnankutty
7. Arsha Shanavas
 INTRODUCTION
 Company analysis is a process carried out by investors
to evaluate securities, collecting info related to the
company’s profile, products and services as well as
profitability. It is also referred to as ‘fundamental
analysis.” A company analysis incorporates basic info
about the company, like the mission statement and
apparition and the goals and values.
 COMPANY ANALYSIS
During the process of company analysis, an investor also
considers the company’s history, focusing on events which
have contributed in shaping the company.
Analysis of financial statements
Financial performance
Financial ratios comparative analysis
 Assessment of risk Estimation of future returns
 Analysis of
financial
By: Vineetha .V. Pai
statements
 Financial statement analysis is used by
internal and external stakeholders to evaluate
business performance and value.

Financial accounting calls for all companies

Financial to create a balance sheet, income statements
statement analysis and cash flow statement, which form the basis
for financial statements analysis

Horizontal, vertical and ratio analysis are the

three techniques that analysts use when
analysing financial statements.
 Most often, analysts will use three main techniques
for analyzing a company’s financial statements.

First, horizontal analysis involves comparing

historical data. Usually, the purpose of horizontal
analysis is to detect growth trends across different
time period.
Types of financial
statement analysis
Second, vertical analysis compares items on a
financial statement in relation to each other.

Finally, ratio analysis, a central part of fundamental

equity analysis, compares line- time data. Price – to
– earnings (P/E) ratios, earnings per share or
dividend yield are examples of ratio analysis.
 Financial statement analysis
evaluates a company’s performance
or value through a company’s
balance sheet, income statement or
Advantages of statement of cash flows.
financial
statement analysis By using a number of techniques
like horizontal, vertical, or ratio
analysis, investors may develop a
more clear picture of a company’s
financial profile.
 FINANCIAL PERFORMANCE
Financial performance is a subjective measure of how
well a firm can use assets from its primary mode of
business and generate revenues. The term is also used
as a general measure of a firm's overall financial health
over a given period.
Analysts and investors use financial performance to
compare similar firms across the same industry or to
compare industries or sectors in aggregate.
 FINANCIAL RATIOS-
COMPARATIVE ANALYSIS
Comparative ratio analysis is a method companies use
to assess financial performance. Though the ratios use
accounting information, they can provide a deeper
meaning to the company’s profitability, asset use,
leverage, and other business activities.
 FINANCIAL RATIOS-
COMPARATIVE ANALYSIS
*So comparative analysis allows company
analysts to compare their company's financial
ratio information to that of a competing
company.
ASSESSMENT OF RISK ESTIMATION OF
FUTURE RETURNS

 Risk assessment is a general term used across many industries to

determine the likelihood of loss on an asset, loan, or investment.
Assessing risk is essential for determining how worthwhile a specific
investment is and the best process to mitigate risk. Risk assessment is
important in order to determine the rate of return an investor would
need to earn to deem an investment worth the potential risk.
 An expected return is calculated by multiplying potential outcomes
by the odds of them occurring and then totaling these results.
 Expected returns cannot be guaranteed. The expected return for a
portfolio containing multiple investments is the weighted average of
the expected return of each of the investments.
 STEPS OF COMPANY ANALYSIS

1. Identifying the basic information about the company along

with the industry outlook.
2. Dig deep into the products and services it offers along with
its demand and supply dynamics.
3. Identify the risks and concerns the company is exposed to
and measures it takes to deal with it.
4. Analyse the financial statements which will give the
quantitative picture of the company.
 1. IDENTIFY COMPANY AND INDUSTRY’S ECONOMIC
CHARACTERISTIC

 Start off by knowing about the company and

the industry it operates in.
 Use Stock edge app.
 We will get a brief idea of the past as well as
the present situation of the company.
 2. IDENTIFY AND KNOW ABOUT THE PRODUCTS AND
SERVICES

 After getting to know about the overview of the company, we need to

go through its products and services which it offers to its customers.
 Look at the nature of the product being offered by the firm,
uniqueness of the product, demand and supply dynamics, brand
awareness in the geographical area it is present in.
 3. UNDERSTANDING THE RISKS AND CONCERNS ABOUT
THE COMPANY

 As an investor, it is very important to get an idea as to the risks the

company is exposed to in case of any eventualities.
 So we need to check and analyze, to which extent will that particular
risk affect the business and can the company overcome it.
 The Company’s Annual Report also contains the risks and concerns that
the company is exposed to.
 We can get it under ‘Management Discussion and Analysis’, where it
will list the risks which the company might face in its operations along
with the steps it is taking to overcome those situations.
 4. ANALYZING THE FINANCIAL STATEMENTS

 This is one of the most important steps in the process to analyze a

company.
 The financial statement gives us the actual quantitative picture of any
company which is an important part.
 From the Balance Sheet, we get an idea as to how strong the company
financially is.
 Cash Flow Statements gives us a thorough picture of the Cash balance
which is generated from the company’s operating, investing, and
financing activities.
 It helps in understanding the firm’s liquidity position.
 STEPS OF COMPANY ANALYSIS

1. Measuring Earnings

2. Forecasting earnings

3. Valuation of Fixed income securities

 Measuring Earnings
A company’s earnings are its after-tax net income.
This is the company’s bottom line or its profits.
Earnings are perhaps the single most important and
most closely studied number in a companies financial
statements.
  Backbone of internal information
1. Income Statement
2. Balance Sheet
3. Statement of cash flows
 INCOME STATEMENT
An income statement is one of the financial statement of a
company and shows the company’s revenues and expenses
during a particular period. It provides investors and creditors
with information that helps them predict the amount, timing
and uncertainty of future cash flow.
 BALANCE SHEET
“A statement that summarizes a company’s assets,
liabilities and share holder’s equity at a specific point
in time. These three balance sheet segments give
investors an idea as to what the company owns(its
assets)  and owes (its liabilities), as well as the
amount invested by the shareholders.”
 STATEMENT OF CASH FLOWS
The cash flow statement is a log of cash inflows (cash
coming in to the business as income) and cash outflows
(cash going out of the business as cash expenses). 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.
EXTERNAL SOURCES OF INFORMATION

Those generated independently outside the company. They provide

supplement to internal sources.
 Backbone of External Information:
1. Rating Agencies Report
2. Economic Survey
 Rating Agencies Report
 Are organisations specialised in assessing the credit risk of both public
and private sector companies that use capital markets for financing.
 The ratings provide a measurement of these companies’ solvency and
of the likelihood that they will not be able to pay their financial
obligations. The rating also serves as a benchmark for investors to
make decisions as they allow them to see the risk associated with their
decisions and therefore, the amount of payment they can demand.
 Although the decision to seek a rating is normally made by the
company or the institution issuing the product, at least one or two
ratings from the main agencies are needed in order to obtain
financing( for example by issuing debt or receiving financing by
discounting assets in central banks).
 Economic Survey

 It is an annual report card of the economy, which is presented a day

before the budget and examines the performance of each and every
sector and then suggests future moves.
 It reviews the economic development in India over the past financial
year by analysing and providing detailed statistical data of all the
sectors-industrial, agricultural, industrial production, employment,
prices, exports, among others.
 FORECASTING EARNINGS

 The importance of forecasting earnings can not be overstated.

 These ratios are generally known as ‘Return on Investment Ratios’.
 These ratio help in evaluating whether the business is earning
adequate return on the capital invested or not.
 The earning forecasting ratios are:
1. Return on total assets
2. Return on Equity
3. Valuation ratios
 RETURN ON TOTAL ASSETS

 This ratio represents the overall efficiency of capital invested in

business.
 This ratio can also be called Gross capital employed ratio.

 Return on Assets=
 RETURN ON EQUITY

 This ratio is calculated to evaluate the profitability of the business

from the point of view of the equity shareholders.

 Return on Equity=
OR
 Return on Equity=
 VALUATION RATIOS
 Earning per share[EPS]
It is calculated as a company’s profit divided by the outstanding
shares of its common stock.
EPS=

 Dividends per share[DPS]

It is the total amount of the dividends attributed to each individual
share outstanding of a company
DPS=
 Dividend Payout Ratio
This ratio establishes the relationship between the
earnings available for ordinary shareholders and the dividend paid to
them.
D/P ratio=
 Dividends and Earning Yield
These ratios are used to evaluate the profitability from
the point of ordinary shareholders.
Dividend Yield=
Earnings Yield=
 ASSET PRODUCTIVITY

o Firm invests capital in assets.

o And these assets are used by management to generate revenue or
income.
o Firms strive in such a way so as to provide shareholders best possible
return per rupee invested.
 DEBT FINANCING AND
EARNINGS
o When a company borrows money to be paid back at a future date with
interest it is known as debt financing.
o It could be in the form of a secured as well as an unsecured loan.
o A firm takes up a loan to either finance a working capital or an
acquisition.
 How does Debt financing
works?

 When a company needs money, there are three ways to obtain

financing: sell equity, take on debt, or use some hybrid of the two.
 Equity represents an ownership stake in the company.
 It gives the shareholder a claim on future earnings but it does not need
to be paid back.
 If the company goes bankrupt, equity holders are the last in line to
receive money.
 VALUATION OF FIXED INCOME
SECURITIES

 A fixed-income security is an investment That provides a

return in the form of Fixed periodic interest Payments and
the eventual Return of principal at maturity.
 Unlike Variable income securities, where payments change
based on Some underlying measures such as – Short-term
interest rates– The payments of a fixed income security are
known in advance.
 EXAMPLES OF FIXED INCOME
SECURITIES

 Treasury Bills (T-Bills)

 Treasury Notes (T-Notes)
 Treasury Bonds ( T-Bonds)
 Corporate Bond
 Municipal Bond
 Certificates of deposit (CDs)
A fixed-income bond can be valued using a Market discount rate, a series of
spot rates, or a series of forward rates.
A bond yield-to-maturity can be separated into a benchmark and a spread.
 OBJECTIVES OF COMPANY ANALYSIS

 The main objective of the Company analysis for any

company is to provide the necessary information
required by the financial statement users for
informative decision making, assessing the current
and past performance of the company, predicting the
success or failure of the business, etc.
 CONCLUSION

 So I conclude that Company Analysis

is mainly necessary to the investor who
wants to invest in that particular
company.
Thank You!