Company analysis

Intrinsic Value DefinitionThe intrinsic value is the actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value. Additionally, intrinsic value is primarily used in options pricing to indicate the amount an option is in the money.

Company AnalysisCompany analysis is the final stage of fundamental analysis. The economy analysis provides the investor a broad outline of the prospects of growth in the economy. The industry analysis helps the investor to select the industry in which investment would be rewarding. Now he has to decide the company in which he should invest his money . Company analysis provides the answer to this answer.

Company AnalysisCompany Analysis deals with the estimation of return and risk of individual shares.This calls for information. Many pieces of information influence investment decisions. Information regarding companies can be broadly classifies into two broad groups : internal and external. Internal information consists of data and events made public by companies concerning their operations. The internal information sources include annual reports to shareholders, public and private statements of offices of the company, the company’s financial statement etc., External sources of information are those generated independently outside the company. These are prepared by investment services and the financial press.

Financial Statements

The prosperity of the company would depend upon its profitability and financial

health. The financial statements published by a company periodically help us to

assess the profitability and financial health of the company. The two basic financial

statements provided by a company are the balance sheet and the profit and loss

account. the first gives us a picture of the company’s assets and liabilities while the

second gives us a picture of its earnings.

1.Liquidity Ratio2.Leverage Ratio3.Profitability Ratio

1.Profitability related to sales2.Profitability related to investment3.Profitability related to equity shares4.Overall profitability (or earning Power)

4.Activity or Efficiency Ratios

1.Liquidity RatioThese measure the company’s ability to fulfil its short-term obligations and reflect its

short-term financial strength or liquidity. The commonly used liquidity ratios are :

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A higher current ratio would enable a company to meet its short- term obligations even if the value of current assets declines. The quick ratio represents the ratio between quick assets and current liabilities. It is a more rigorous measure of liquidity . However, both thses ratios are to be used together to analyse the liquidity of a company.

1.Liquidity RatioThe current ratio is a liquidity ratio that measures whether or not a firm has enough resources to meet its

short-term and long-term obligations.

The current ratio is an indication of a firm's market liquidity and ability to meet creditor's demands.

Acceptable current ratios vary from industry to industry and are generally between 1.5 and 2 for healthy

businesses. If a company's current ratio is in this range, then it generally indicates good short-term

financial strength. If current liabilities exceed current assets (the current ratio is below 1), then the

company may have problems meeting its short-term obligations. If the current ratio is too high, then the

company may not be efficiently using its current assets or its short-term financing facilities. This may also

indicate problems in working capital management.