Suppose, there are two companies belonging to same industry, whose profit margins are same. They have identical topline and bottom line. What parameters are to be looked at while judging a company from
1) From investors` perspective
2) From Rating Analyst`s perspective

From India , Mumbai
Dear Sam

Lets take some companies like these say TCS and Infosys or Shipping corporation and Varun Shipping or Bharti Airtel and Reliance Communications. In case of these companies barring a few aberrations, most of the ratio would be common. Hence to compare these companies, the following factors should be considered while evaluation the company.

1. EPS and P/E. These would indicate the premium market places on the company.

2. Management strength, the top management .

3. Strategic plans and visions and competitive edge of the company.

4. Market Share.

5. Capital productivity and revenue growth, you should particularly refer to bharti airtel's 3 line graph which is an innovation brought in by bharti.

6. Dependence on special markets or no of customers , this would hold true for IT companies which have special market dependence and any change in the end market impacts their growth plans.

7. In terms of financials you should look through the cash profits, capital investments.

8. Also go thorugh their printed annual reports and read between line while reading their MDA and Director report and Chairman statement.

While this is an art to be developed, the above will surely help you

CA Sanjoy Banka

From India , New Delhi
I think the analyst has to go through the following factors for analysing the company. I have recently written the following article for

Equity Research: A Fundamental Analyst Framework

- Prof.Gangineni Dhananjhay


Assistant Professor (Finance)

Vivekananda School of PG Studies (VSPGS), Hyderabad – 73


Information is the plank on which financial markets operate. Traders with better information and forecasting ability will have an edge in the market place. Thus the need for equity research and sophisticated financial modeling in today’s’ buoyant financial markets. This article attempts to give a framework for the analyst on fundamental factors for analyzing companies.

1. Historical Performance:

• Detailed financial analysis of last three years’ and latest available quarterly numbers with a view to get a complete understanding of the P&L structure; capital structure; financial ratios; foreign exchange exposure; key products & RM and their price trends; capacity utilization levels; input-output ratios; effective tax rates and likely changes; segment analysis. The key is to get a grip on the business model and list down all parameters that are relevant for financial forecasting and judging the quality of business and management.

2. Industry Outlook

• Growth drivers

• Expected growth rates

• Scalability

• Sustainability

• Government regulation – understand the issues that will affect valuations

• Risk factors

3.Competitive Position

• Company’s position in the industry

• Why makes it better than others – technology, brand, size, efficiency, management, location, etc.

• Financial comparison

• Growth plans of competitors.

4.Financial Forecasting:

• Key assumptions.

• Capital espenditure required.

• How will Capital expenditure be funded – internal accruals, debt, equity, etc?

5. Valuation:

• Suitable to the industry, DCF valuation where possible.

• Relative valuations

6. Sensitivity analysis:

• Vulnerability to fluctuations in sales realization and raw material price spurts should be captured to take a call on the risks.

7. Future Triggers that can impact valuations:

• Large orders

• M&A

• Fund raising

• Commencement of production

• Value unlocking through de-merger, etc.

• Expectation of Bonus, Stock split, etc.

• Strong earnings

• New product launches

• Due dates of conversion of warrants/FCCBs/other convertible instruments

8. Capital History and Shareholding pattern:

• Promoter holding

• Outstanding warrants/convertible instruments

• Institutional investors

• Changes in shareholding & capital structure, both past and likely

9. Investment Argument:

• Why should the value of the stock go up?

10.What can go wrong?

• List all factors that adversely affect the investment outlook


The analyst has to take all factors into consideration and arrive at a probabilistic estimate of the company’s stock price. Analyst will continuously upgrade or down grade his estimates depending on evolving conditions of Economy, Industry and Company plans.

From India , Hyderabad

This can further be viewed from two perspectives ie. small investors and core investors as their interest would vary.

(a) Small Investors perspective

* P E Ratio

* Dividend partern or policy

* Investment capital appreciation potentials or trend

(b) Core investors perspective

* Analysis of assets structure in qualitative terms

* Shareholders funds to profit

* Current market share/ structure and spread to future potentials

* Product contribution index

* Company's ranking in the industry

* Management structure evaluation

* Compare investments into research to assess company' future


* Eleminate all accounting policies implication on the profitability

and recompare the bottom line

* Compare the reviewed profitability to shareholders funds.


* In addition to all the factors considered under core investors


* Evaluate open credit arting of the companies for risk judgement

* Evaluate relative leverage of the companies

* Evaluate relative overhead structure of the companies

From Nigeria ,

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