How to Do Company Analysis & Read Annual Reports and Management Analysis

Modified on July 2, 2018

The current article in this series provides responses related to:

Query

Hi Sir,

Very detailed as always! I have a few questions for you Sir.

  1. How much time to you usually spend to analyse a particular company?
  2. Should one set a time limit in the first place?
  3. How do you know where to begin?
  4. And how does one realize which would logically be the next step? What to do in case one does not find sufficient data (even though there is no dearth of sources of Secondary Data) for a particular step in the framework of the analysis?
  5. Most importantly in case data is not available how to use surrogate indices?
  6. Because over and above the framework you have laid out to analyze businesses I have seen in all your “Stock Analysis” articles a story which connects the dots for the readers. (For e.g. you began the analysis of this company by stating the health of the company during FY 08-10.) How do you build upon this?

Once again I would like to thank you for sharing with us (especially for those who have interest but not a relevant degree) such valuable information and I hope you continue doing so.

Regards,

Author’s Response:

Hi,

Thanks for writing to me! I am happy that you found the article useful.

1) How much time to you usually spend to analyse a particular company?

It does not take a lot of times to reject a company, if it does not meet the basic criteria. The stock analysis excel template (compatible with Screener) helps in this regard by presenting the relevant data with parameters that I prefer to analyse as a dashboard and therefore, saves a lot of my time.

However, if I need to analyse a company in depth for personal investment if it meets the basic parameters or when I analyse any company for response to any reader’s query, then it usually takes 2-3 days.

It took 2 days to analyse Indo Count Industries Limited.

Read: Analysis: Indo Count Industries Limited

2) Should one set a time limit in the first place?

One should put a check to the amount of material to be analysed and not a limit on the time spent. As an investor analyses more & more companies, then the time required for him to analyse each additional company would keep on falling with experience. Initially, the analysis would take more time and rightly so.

I prefer to analyse:

The material mentioned above would present an investor with the most of the relevant information available about the company in the public domain.

3) How do you know where to begin?

  • For filtering, begin with Screener and filter companies based on one’s preferred parameters.

Read: Shortlisting Companies For Detailed Analysis

  • and then and keep on rejecting the companies that do not meet basic criteria. The customisable excel template helps at this stage.

Download Dr Vijay Malik’s Screener.in Stock Analysis Excel Template

  • Later on, the investor should proceed with the study of the documents mentioned above.

 

4) And how does one realize which would logically be the next step?

While analysing the financial data and reading annual report etc., the investor will keep on facing questions about the company and its activities. Seeking answers to these questions will keep on guiding the investor ahead in the analysis journey.

5) What to do in case one does not find sufficient data (even though there is no dearth of sources of Secondary Data) for a particular step in the framework of the analysis? Most importantly in case data is not available how to use surrogate indices?

It is advisable to avoid the company where sufficient data as per investor’s preference is not available. Such companies may present negative surprises to the investor later on. Also, there is no dearth of companies in Indian markets. It is advised that the investor should move ahead to next company.

6) Because over and above the framework you have laid out to analyze businesses I have seen in all your “Stock Analysis” articles a story which connects the dots for the readers. (For e.g. you began the analysis of this company by stating the health of the company during FY 08-10.) How do you build upon this?

Thanks! I am happy that you could observe this. I appreciate the keen eye of observation that you possess.

As mentioned above in response to point no. (4), the attempt by the investor to keep finding the answers to the questions that come to her mind while analysing the financial numbers and other documents, keeps on leading the investor to other relevant aspects of the company and related information. This lead to the investor getting clarity about what all is happening with the company at a given point of time and what were the major decisions taken by the company in the past and preferably the motivation of the company management/promoters behind those decisions.

Hope it clarifies your queries!

All the best for your investing journey!

Regards

Dr. Vijay Malik

 

Query

Read: Analysis: Indo Count Industries Limited

Dr Vijay Sir

Great microscopic findings regarding the warrants and revaluation of assets. A layman would have looked only upon the phenomenal growth and turnaround of this company. I just want to ask whether one should look the above two issues as a deterrent for entry or they may be ignored.

It’s true that the promoters have pedaled the company through tough times and converted it into a cash generating machine but it seems the promoters want to have the largest slice of the fruit leaving little for the shareholders. Are they taking them for granted? The whole warrant episode and its timing explains it all. Asset revaluation and leaving large expenditures without explanation is also not acceptable. What should one do under such conditions? Please throw some light.

Kind regards.

Author’s Response:

Hi,

Thanks for writing to me! I am happy that you found the article useful.

The final investment decision has to be taken by an investor on her own by deciding whether the company meets her investment criteria or not. However, it is important to know all the facts about the company so that the investor is not faced with the negative surprises later on.

In case of Indo Count Industries Limited as well, an investor should keep in mind all the facts and then decide about the final investment decision.

Different investors interpret the same information differently and therefore take different positions in a transaction. Therefore, I would not be able to advise what conclusion an investor should derive from the information mentioned in the article apart from the fact that each investor should take her decision with open eyes keeping all the relevant facts in front of her.

Moreover, you may read my views about promoters using warrants for personal benefits in the following article:

Read: Steps to Assess Management Quality before Buying Stocks (B) (Moneylife Session Part-3)

All the best for your investing journey!

Regards

Dr. Vijay Malik

 

Query

Vijay,

  1. What tool/software do you use to highlight in red box in images?
  2. How do you normally read and store annual reports, credit reports? Download, underline with pen/pencil/ highlighter, store in box file OR everything is online because to read online causes strain to the eyes

Author’s Response:

Hi,

Thanks for writing to me!

1) What tool/software do you use to highlight in red box in images?

I use a software: Paint.net for doing the highlighting on the images.

2) How do you normally read and store annual reports, credit reports? Download, underline with pen/pencil/ highlighter, store in box file OR everything is online because to read online causes strain to the eyes

I read annual reports on the laptop/tablet and keep making notes in a separate word document simultaneously. I do not store these reports as they are readily available on public sources.

Read: Understanding The Annual Report Of A Company

All the best for your investing journey!

Regards

Dr. Vijay Malik

P.S.

 

DISCLAIMER

  • The above discussion is only for educational purpose to help the readers improve their stock analysis skills. It is not a buy/sell/hold recommendation for the discussed stocks.
  • I am registered with SEBI as an Investment Adviser under SEBI (Investment Advisers) Regulations, 2013.
  • Currently, I do not own stocks of the companies mentioned above in my portfolio.

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