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 23.02.2020

AAKASHAYA PATRA SEVEN STAR SMART EDUCATION SERIES PART  35

Factors to consider while analyzing any company for long term investment

Last week we had seen Porter's Five Forces Model for Industry Analysis and from this week we will try to understand various factors which one needs to consider while analyzing any company for long term investment. Company Analysis is the final stage of fundamental analysis wherein investor analyses both qualitative and quantitative aspects of various companies and select a few companies which are good from a medium to long term investment point of view.

Qualitative Aspects -
These are non-numerical characteristics of a business or a company and mainly revolve around company's competitive advantage and how the company is managed.Warren Buffett has always been concerned about two things - economic moat and the management of the company. According to him, the future of any company rests upon the quality, competence and vision of
its management There is no magic formula or thumb rule for evaluating promoters or management of a company, but there are number of factors to which you should pay attention, to analyze about the quality of management.

These factors include -
1. Economic Moat
2. Promoters or Management Background
3. Proven Competence
4. Independent Directors Background
5. Corporate Governance
6. Promoters Salaries
7. Related Party Transactions
8. Treatment of Minority Shareholders
9. Dividends
10. Promoters Faith in the Business
11. Promoter or Operator Activity in the Business
12. Extent of Pledging of Shares by Promoters
13. Promoter Family Issues

Quantative Aspects :-

 These are numerical characteristics of a business or a company and mainly revolve around the financial results of the company. Some of these financial numbers can be obtained directly from the financial statements like balance sheet, profit and loss account, cash flow statement, etc
while some are financial ratios which we need to calculate.

Quantitative Aspects include things like -

1. Revenue and its Growth
2. Profitability and its Growth
3. Margins and its Growth
4. Operating Efficiency
5. Pricing Power
6. Matters Related to Expenses and Taxes
7. Dividend Payouts
8. Cash Flow
9. Debt
10. Working Capital Management
11. Asset Growth
12. Investments
13. Financial Ratios

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