LEARNING OBJECTIVES:
After studying this chapter, you should know about:
Role of company analysis
Different kinds of Business Models
Pricing Power and Sustainability of pricing power
Critical success factors of a company (competitive advantages and differentiation)
SWOT Analysis
How to understand quality of management and governance model of a company
Why it is important to understand the risks to a business
importance of knowing history of credit rating of a company and changes over time
ESG framework for company analysis
7.1Role of company analysis in fundamental research
As mentioned in Chapter 4, investing in shares involve careful and through analysis of a
company’s business. However, a company is only a micro unit in its industry and in turn in the
economy. Their fortunes will be driven by external conditions including overall macro-economic
factors and industry specific factors.
Although, these external factors affect every company in the industry, how an individual
company performs also depend a lot on company specific factors.
Thus, once an analyst understands how an economy is performing and how a particular
industry is likely to prosper, they have to find answers to company specific questions, which
include the following:
(i) What is the company’s business? As mentioned in section 6.2, this question drives
our definition of the industry. Thus, analyst should understand this at the very
beginning.
(ii) What is the company’s business model?
(iii) Does the company enjoy any competitive advantage compared to its competitors?
(iv) Does the company have the necessary capability to exploit opportunities and to
withstand any threats?
(v) Is the company management competent enough to identify and execute the
appropriate strategy?
(vi) Does the management have a vision for the company’s future and are they able to
provide visibility into the expected short-term performance and long-term goals?
(vii) Does the company have the necessary governance structure that the board and
management will act in the best interest of the company and its shareholders?
(viii) Are such governance structures properly implemented and executed?
As an analyst tries to find answers to these questions, several follow-up questions may arise to
understand the company in greater detail. Analysts should ensure that they go to the depth to
find the relevant answers rather than accept superficial answers. Although many of the
questions listed above are qualitative in nature, analysts should try to obtain the necessary data
that substantiates their findings.
7.2 Understand Business and Business Models
Equity investing is all about part ownership in a business. Therefore, it is important to
understand the business or business model of the company before investing in it. Accordingly,
starting point of qualitative research on any business has to be questions such as:
What does company do and how does it do?
Who are the customers and why do customers buy those products and services?
How does the company serve these customers?
Almost all successful fund managers are never tired of repeating this thought that one must
invest only is such firms where one understands the business. In the checklist for research, this
is one of the most prominent questions – ‘Do I understand business?’ No analyst should move
to the next question if he/she can’t address what a company does in a line with preciseness and
clarity.
There are over 4000 companies listed and active on Indian exchanges. It is not possible to track
and understand all of them. Investors should consider buying shares of a few companies they
understand rather than invest in a number of companies they don’t understand. Quoting
Warren Buffet: Wide diversification is only required when investors do not understand what
they are doing.
Further, each sector has its own unique parameters for evaluation. For the retail sector, foot
falls and same store sales (SSS) are important parameters, whereas for banking it is Net Interest
Income (NII)/ Net Interest Margin (NIM). For telecom, it is Average Revenue Per User (ARPU)
and for hotels, it is average room tariffs etc. Analysts must possess an in-depth knowledge of
the sectors while researching companies.
Further, each company will have its unique way of doing business. The efficiency with which
products and services are produced and delivered to the customers may vary from one
business to another and will significantly impact its earnings. Therefore, it becomes imperative
for analysts to understand the entire business model of the companies. It is relevant to quote
management guru Dr. Garry Hamel: “Competition in the market place is not between products
and services but between the Business Models of the competing companies.”
7.3 Pricing Power and Sustainability of This Power
A key factor to look while studying the business of a company is its pricing power as that would
help a company maintain and grow its profit margin. Pricing power refers to a company’s ability
to independently determine and charge the price of its products. Companies with strong pricing
power would be able to pass on any escalation in input cost to its customers. They can also
increase their prices when demand is strong and thus grow their margins.
Most often pricing power is driven by industry factors that affect all companies in the industry.
These factors include the competition intensity in the industry, the price elasticity of the
product, and the level of commoditisation of the product.
However, there are certain company specific factors that position a company differently from
its peers. Company-specific factors include its natural leadership position in the industry, brand
affinity among customers and its cost base. For instance, for several petrochemical products,
smaller players in the industry price their product based on prices set by Reliance Industries
Limited (RIL) as it is seen as the natural industry leader. This allows RIL the ability to
independently price their product. Similarly, a company with strong brand perception / brand
loyalty is likely to be able to price their product independently. Low cost base helps a company
to keep their pricing low without having to worry about competitors following suit as reducing
price may not be financially viable for the latter, who have higher cost base.
Studying this is very critical to understand which industries are likely to do well and which
player in an industry is likely to outperform its peers.
7.4 Competitive Advantages/Points of differentiation over the Competitors
In every industry, some players do better than the others. Therefore, as an analyst tries to
understand how a particular company is likely to perform in future, they need to understand
how the company is likely to perform vis-à-vis its competitors in the industry.
The differentiating factors for a company compared to its competitors can be categorized into
three areas:
(i) Differentiation in product features
(ii) Competitive pricing driven by operational efficiency
(iii) Better execution
(i) Product differentiation:
One way in which a company can out do its competition is by incorporating better features in
products that would appeal to its target customer group. The differentiating feature can be in
terms of product quality or its functionality. This would help them create value proposition for
their customers and is likely to help the company attract more customers than its competitors.
In order to be able to execute this strategy, a company should have strong research and
development (R&D) team and a culture of innovation. In a highly competitive industry where
many players are constantly engaged in introducing new products, the leadership position may
keep shifting from one player to another. However, those with strong innovation will be able to
outperform those who lag in that department.
An analyst, therefore, need to compare the products of a company with that of its competitors
to see if they have offered better features. It is important for the analyst to look at the data
that can substantiate the advantage and not get carried away by superficial marketing claims.
(ii) Competitive pricing:
Another way a company can compete better with their competitors is by pricing their product
competitively. If customers perceive products of many companies to be similar in nature, they
are likely to prefer products that are priced at a lower end as compared to those that are priced
at a higher end. However, competing by keeping the prices low is sustainable only if the
company has a low-cost advantage. Otherwise, competitors would be able to mimic the
company’s strategy and reduce their price as well. However, if a company’s cost is lower than
other players, then it can sustain the low-price advantage as competitors would not be able to
sustain a price that is lower than its cost.
Price differentiations are easy to spot in an industry that produces highly commoditized
products. However, in other industries it becomes difficult. For instance, if an analyst were to
compare Toyota Camry with Honda Civic, the later might be less expensive but the former is
likely to have more product features. Therefore, the two may not be a like-for-like comparison.
In such cases, analysts can try and identify which products offer the end customer better value
for money. This can be achieved through primary research or by analysing performance of
similar models in the past.
(iii) Execution:
Another very critical factor that help a company do better than competition is the company’s
ability to execute better. Companies that manage to communicate better with their customers
or execute a better sales strategy through a focused approach can do better than their
competitors.
Execution capabilities can be studied by looking at the past track record of the company as well
as its management.
7.5 Strengths, Weaknesses, Opportunities and Threats (SWOT) Analysis
External environments constantly change. These changes provide new opportunities and the
same also create new challenges. When a new opportunity is presented, companies that are
well positioned to take advantage of that utilise such opportunities and prosper while others
miss out. Similarly, when a new challenge or threat emerges, companies with strong
fundamentals survive such challenges. On the other hand, companies that are vulnerable may
perish in the face of such a challenge.
Understanding these factors will help an analyst evaluate a company’s growth potential as well
as its risk tolerance.
For example, the Covid-19 pandemic created major disruption in business with several
businesses being locked down. This is a major threat. Companies with weak financial position
are extremely vulnerable to the lock down. However, companies with strong financial position
might be able to survive the lock down.
SWOT analysis is one of the popular frameworks that can help an analyst evaluate business
fundamentals. SWOT is an acronym for strength, weakness, opportunities, and threats.
Strengths and weakness are internal to the company while opportunities and threats emanate
from external conditions.
Analysts can approach SWOT from two sides: (i) Identify the strengths and weakness first and
then identify what opportunities they can exploit and what are the threats for which the
company is vulnerable. (ii) Alternatively, the analyst can identify the opportunities and threats
first and then identify what strengths of the company will help them exploit the opportunities
and what weakness make them vulnerable to the external threats.
The first approach is suitable for companies when they are deciding their strategy. However, for
an external observer like an equity analyst, the second is more suitable. Further, in a typical E-IC framework, as the analysts study the external conditions first and then study the company,
the second approach falls more in the logical order of things.
The four aspects are detailed below.
7.5.1 Opportunity
Opportunities are created through external environment. Opportunities come in myriad ways
and hence it is difficult to list all of them. However, the following can be an indicative list of
opportunities.
– Certain events can create opportunity for faster growth. Occasionally, some event
occurs that creates an inflection point in the growth curve of one or more industry. For
example, if a new battery technology becomes available, it can create faster growth
opportunity for the electric vehicle segment. Similarly, post Covid-19, some companies
across the globe have shown interest to move their production and procurement
outside of China. This gives opportunity to various manufacturing companies, across
industries, outside of China to grow their business fast.
– New business opportunities may arise on account of technological advancement,
change in regulation or any such factor. For instance, when Companies Act 2013 was
implemented, many consulting firms got an opportunity to offer service to implement
the provisions of the new law. Y2K problem created opportunities for various Indian IT
service providers to offer maintenance and upgradation services to their clients.
Companies may also get opportunities to expand geographical footprint. Some
geographical locations may be out of bound for some business either due to strong
capital control regulations or poor market opportunities. However, when these
conditions change, it presents an opportunity to expand into new territory.
– Adverse market conditions can throw opportunities for consolidation. For example,
when Jet Airways suspended its operation in April 2019, it created opportunities for
other airlines to increase their market share in the industry. Similarly, in recessionary
economic conditions, lower price of shares and low interest rates can provide
opportunity for stronger players to acquire other players in the industry.
7.5.2 Threats
Threats are essentially risk that comes from external environment. While an analyst assesses
the threat, it is very important to distinguish threats coming from external environment to risks
on account of internal situation. For example, high customer concentration is a risk for a
company. However, since it is internal to the company, it is a weakness and not a threat.
Threats also come in myriad ways. In fact, events that create opportunity for one industry may
create risk for another. Some of the possible sources of threat include the following:
– Economic recession can cause significant decline in the fortunes of many businesses.
– Regulatory headwinds can also create threat. For example, if government mulls banning
single use plastics, that can act as a threat for manufacturers of such products.
– Technological disruptions that favor one industry can be threat to others. For example,
while artificial intelligence creates many new opportunities, it is a threat for the BPO
industry that is involved in doing repetitive tasks.
– Deregulation of an industry can remove entry barriers and can create threat of
increased competition. For example, when Reserve Bank of India decided to offer on-tap
license to new banks, it created risk of increased competition for existing banks.
While identifying threats and weakness, it is important to focus on such opportunities and
threats that have reasonable probability of occurring. Although, there is always a risk of Black
Swan event such as Covid-19 crisis, it may not be prudent to include all possible threats, as the
list would be too long to be useful.
7.5.3 Strengths
Strengths refer to internal capabilities of the company that allows it to exploit external
opportunities and withstand threats. Strengths of a company include the following:
– Strong financial position
– Highly valuable intellectual properties
– Low customer concentration
– Low cost or high margins
Support from parent company or government and
– Strong execution capability and track record
7.5.4 Weakness
Weakness refers to internal issues that make the company vulnerable to external events or
prevents it from exploiting an available opportunity. Sources of weakness for a company
include the following:
– Weak financial position
– High fixed cost
– Low margins that can easily turn negative in case of a slow down
– Higher customer concentration
– Significant legal cases that can distract the company’s focus or that have potential to
cause losses
– Lack of experience in executing a particular strategy or in operating in a particular
environment
While identifying strengths and weakness, analyst should focus on those strengths or
weaknesses that are related to the opportunities and threats.
For example, lack of experience in self-driving car can be a weakness to an Indian automobile
company if there are catalysts in the industry that is likely to fuel the growth of such cars.
However, if no such opportunity is likely to exist in the foreseeable future, then it may still be a
weakness but not of immediate relevance. Similarly, a sequential decline in revenue or profit is
not a weakness unless it is likely to make the company lose out on a new business opportunity,
or makes it ineligible for a loan, or creates any other vulnerability.
Although, SWOT analysis is a very good framework, analyst should be wary that as an outsider
they may not be able to identify all strengths and weakness of a company. For instance, no
company would publicly disclose the clout they have in the government or the strength of their
lobby. Similarly, if a company has been intentionally hiding their financial woes through creative
accounting, it is not easy for outsiders to identify such a fraud.
7.6Quality of Management and Governance Structure
Companies are organisation where ownership is separated from the management. While
shareholders own the company, the day to day management of the company is handled by a
separate management team comprising of the CEO / Managing Director and others below
them. The management team reports to Board of Directors who are appointed by the
shareholders.
This separation in management and ownership creates an agency risk. In other words, the
shareholders rely on management to work in the interest of the company and the shareholders.
However, there is a risk that the management may pursue their personal interests at the cost of
shareholders or may not be capable enough to effectively run the organisation.
Therefore, one of the critical areas that an analyst needs to evaluate during a company analysis
is the competency and integrity of the management and board. However, this is an extremely
challenging task. While analysing the competency is challenging, analysing integrity is almost
impossible. Unless there is reasonable evidence, it is inappropriate to cast aspersions on
anyone’s integrity. Therefore, analysts should instead focus on the corporate governance
structure to see if it has the necessary controls in place to prevent inappropriate governance
actions.
7.6.1 Evaluating management competency
The top management of a company typically include the CEO, CFO, COO, and other C level
officers. Assessing their competency is a challenging task for an analyst. The top management
of the company typically have several years of experience and come from varied discipline. It is
least likely that an analyst would possess the necessary skills to assess the competency of all of
them.
However, analysts can try to find answers to the following questions to be able to evaluate the
top management.
a) Do the members of the top management team possess the necessary educational
qualification in the relevant discipline? Although education qualification is often looked
at, it does not necessarily provide definitive answer on management competency as
there are many other factors that affect competency.
b) How many years of experience do they have? Management with higher number of years
of experience is likely to have faced many business challenges in the past. Such
experience is likely to help them tackle future challenges relatively better than an
inexperienced management team.
c) If any of the top management team has been in such a role for several years in any of
the companies, how did those companies perform during the years in which they were
in senior role? One of the critical data points that can provide insight on management
competency can be obtained by looking at their past track record in senior position in
same or in another company. However, this also may not provide a definitive answer as
performance of a company depends on many factors including external conditions and
role of other managers.
d) How long has the top management team been associated with the company under
study and how has the company performed during their tenure? It is not necessary that
an executive who performed extremely well in one company deliver similar results in
another company. However, if the top management has been associated with the
current company for long time and have delivered results, then it is relatively more
likely that they may be able to continue similar level of performance.
e) Does the management have a vision on long term goals and strategic direction of the
company? Shareholder value is created over a long term. Thus, a competent
management team should be able to provide a vision for the long-term goals of the
company and what kind of strategic direction the company intends to follow. However,
it does not necessarily mean that management should inform about all their strategies
to the shareholders as they may not want competitors to know the complete details of
those strategies.
f) Do the members of the top management team have necessary experience in executing
the current strategy of the company? It is not just important for the management to be
competent, but they need to be competent in executing the current strategy. For
example, if a company is currently focusing on innovation as a strategy, it is preferable
to have someone with prior experience in successfully leading several research projects
in the top management.
g) Does the company give guidance on expected near term performance and whether they
typically achieve such guidance? If a management team consistently provide such
guidance and have a track record of consistently meeting or exceeding them, it is likely
that they have better control on the business.
h) Has the management ensured timely regulatory compliance on a regular basis? A
management that is in complete control of affairs should be able to comply with all
regulatory requirements well within time. When a management fails to comply with
them, it perhaps indicates that they are not in control. Further, failure to meet
regulatory compliance requirement is also a red flag on the integrity of the
management.
i) Is there sufficient delegation in the decision-making process? If the decision-making
process is well delegated and is fairly broad based, it can ensure continuity even when
there is churn in top management. On the other hand, if the decision making is highly
concentrated then it creates keyman risk as churn in top management can derail the
decision-making process.
j) Does the company have a succession plan for its top management? In line with the
previous point, a proper succession management plan ensures continuity even if there is
a churn in top management. Lack of succession planning can create trouble if the
current management has to be replaced for any reason whatsoever.
7.6.2 Evaluating corporate governance
Corporate governance refers to rules, processes, and procedures that are followed in the
management and operations of a firm. The objective of a good corporate governance standard
is to ensure that the company is run well to take care of all the stakeholders including
shareholders, lenders, employees, suppliers, and customers.
Regulatory standards on corporate governance focus on protection of investors with additional
focus on minority or non-promoter shareholders. In India, SEBI’s Clause 49 of listing agreement
sets the corporate governance standards.
It is important to understand that the regulatory standards are the minimum standards a
company must follow. Some companies may set higher standards for themselves. A company
following strong corporate government standards would be able to prevent agency risk or at
the very least detect and rectify them in time.
An analyst can look at the following to ascertain the corporate governance standards of the
company.
(i) Board composition: The directors of a company can include independent directors,
non-executive directors (who are not part of management but not independent,
either), and executive directors. For the sake of strong corporate governance
standards, majority of the board should comprise of independent directors.
Currently, SEBI regulation stipulates that independent directors should constitute at
least 50% of the board if the chairman is an executive director. In all other cases, it
requires 1/3rd of the board to be comprised of independent directors.
(ii) Separation of Board Chairman’s role and role of MD and CEO: The CEO is answerable
to the board of directors. For effective corporate governance, it is critical that the
chairman position should not be occupied by the CEO or the managing director of
the company. Currently, SEBI mandates this requirement for the top 1,000 listed
companies. For companies where it is applicable, it is also mandatory that the CEO
should not be from the promoter group.
(iii) Nomination committee for independent directors: The degree of independence of
independent directors is likely to be high, if the company executives do not have a
role in their appointment. Therefore, the nomination committee to appoint
independent directors should ideally consist exclusively of independent directors
alone.
(iv) Auditor fees: Audit independence is one of the very critical aspects of corporate
governance. For an auditor to be able to be truly and completely independent, it is
necessary that they should not be over dependent on the fees earned from a given
corporate entity or a business group. Accordingly, it is important to check if the
auditor remuneration for all the services they provide to the group/entity is less
than 10% of their overall income
Auditor rotation: It is necessary that auditors are rotated once in five years. This
would ensure that there is an opportunity to find any facts concealed by the
management in connivance with an auditor.
(vi) Audit committee composition: The audit committee is responsible for reviewing the
financial statements of the company and for nominating the auditors. Ideally, the
audit committee should comprise entirely of independent directors. SEBI regulation
requires at least 2/3rd of the members to be independent.
(vii) Related party transactions: It is important to prevent unscrupulous related party
transaction that can enrich promoter group or other majority shareholders at the
cost of minority shareholders. Ideally all material related party transactions should
be presented to the audit-committee for pre-approval. Currently, the SEBI regulation
does not mandate pre-approval but requires placement of all related party
transaction in front of the audit committee. If the transaction is not on an “armslength” basis, then the regulation also requires that the company should provide
justification for the same.
(viii) Remuneration committee composition: The remuneration committee decides the
remuneration of directors and senior management. Ideally, the committee should
comprise entirely of independent directors. SEBI regulation currently stipulates that
all members should be non-executive directors and the chairman of the committee
should be independent director.
(ix) Remuneration of independent directors: It is important that all the income that an
independent director earns from a company for all assignments are thoroughly
disclosed so that shareholders can evaluate the true degree of independence of such
directors.
The SEBI regulation has several other provisions related to the meeting of directors, various
committees, and several other aspects.
Good corporate governance practice should encompass all the above. However, it would be
preferable if the companies follow even stronger corporate governance practices than those
mandated by the regulator.
7.6.3 Promoter holdings
The concept of promoter is somewhat unique to India. The legal definition of promoter really
does not define their role. The law simply states that promoter is an investor who has been
named or is identified as a promoter. Practically, the promoter group of shareholders typically
comprise of those who were part of the initial founding of the company or are part of the group
of controlling shareholders.
As far as other investors are concerned, having a strong promoter shareholder has some
positives and some negatives.
A promoter group of shareholders are likely to have a higher level of control on the
management. This, in turn, increases the likelihood of management acting in the best interest
of shareholders. On the other hand, their influence over management also creates risk for
minority shareholders as promoter group may influence management to take certain actions
(such as related party transactions) that may benefit the promoter group at the cost of minority
shareholders.
Since promoters have significant role in a company, analysts should also focus on the
shareholding they have and the changes in their shareholding.
When promoters need funds, many a times, they may choose to pledge their shareholdings
rather than sell them. When promoters pledge their shares as collateral, lenders apply a haircut
on the market price towards margin and lend money. The haircut helps the lenders to ensure
the value of collateral is adequate even if the price of an asset decreases to certain degree.
Pledging of shares may be done by promoters as a way of raising funds in their normal course
and thus does not necessarily signal any concern related to corporate governance or business
fundamentals. However, analysts should look at whether amount of such pledged shares is high
or low. High amount of pledged shares can aggravate the market risk in the event of fall in
prices of such shares. This is because such a fall in price reduces or eliminates the margin for
the lenders who may then be forced to liquidate the shares. And sudden liquidation of sizeable
number of shares would likely create a further downward pressure on the underlying share
price.
7.7 Risks in the Business
Promoters love to talk of the grand future they dream and visualize. Very rarely would they talk
about the risks associated with the journey of converting their dream into a reality. For
example, borrowing from the international market at low rates looks attractive, however,
adding the angle of currency risk to the discussion turns the whole discussion on its head.
Entrepreneurs are by nature risk takers and have the psychological ability to bear shocks.
Rupert Mudroch failed thrice before he successfully created the Star Empire. Steve Jobs was
thrown out of ‘Apple’ his own company and later was called back. In the meantime, he started
another successful venture! While businessmen would be able to bear these risks, not all
investors would.
There are risks in every business, which may range from business aspects to operational aspects
to execution aspect and others. The risks may be apparent and known or they may be
unknown.
Analysts should focus a lot on the risk aspects in various dimensions of the businesses. They
should continuously ask question “What could go wrong in the business”. If promoters state
that nothing could go wrong in the business, clearly they fall in to the category of “people who
don’t know that they don’t know”. These types of promoters need to be avoided. A good
businessman would always have cognizance of the risks in the business and the steps that need
to be taken to protect the business from their effects.
7.8 History of credit rating
Credit rating refers to the rating of the ability of a borrower to service its debt related
obligations. These ratings, which are provided by a credit rating agency, are issued at issuer
level as well as at individual debt levels. Further, separate ratings are provided for short term
and for long term.
Although credit rating pertains to debt, it is also of relevance to equity investors as a company
can provide returns to equity investors only if the lenders are serviced first. Thus, credit rating
provides an investor with the level of financial risk involved and can thus drive the return
expectations of investors.
Further, going through the historical evolution of credit rating of the company can also provide
perspectives on how the management reacts to external feedback. Typically, credit rating
reports specify what are the factors that have led to the rating agency conclude on a particular
rating. It also specifies what the rating agency considers as key concerns. If a company has
worked on such concern areas, it indicates that the management of the company has been very
responsive to external feedbacks. Reading through historical credit rating and how the concerns
have changed (or otherwise) from one report to the next can provide the information for
obtaining such insights.
7.9 ESG framework for company analysis
Most investors focus on the profit generating ability of a business to make investment decision.
However, over the last few years, the societal discussions about companies and businesses
have also started focusing on sustainable development, and corporate social responsibility.
This has given traction to investment theme that is focused on Environment, Social and
Corporate governance (ESG). Initially this framework was used by handful of “Impact” investors.
But this framework has gradually gained traction as these frameworks also provide commercial
value.
Under this framework investors evaluate companies based on these criteria
(i) How does the company’s activities affect the environment? Companies with low
carbon emission and low contributors to pollution rank better than others.
(ii) What are the activities that the company perform in terms of social development?
This includes focus on human rights, gender equality and many such social factors.
Companies that contribute more to these factors rank better than others.
(iii) The last criteria focus on corporate governance standard followed by the company.
ESG investors use the ESG filter to short list their potential investment. Once short listed, the
stock does not become an automatic investment. Investors perform all the other regular
analysis to identify suitable investment.
Although ESG framework appear to be more focused on ethical criteria than financial criteria,
the proponents of the framework cite several financial advantages that can accrue to
companies following ESG framework:
(i) Companies focused on environment face minimum disruption on account of
regulatory intervention of environmental activism.
(ii) Companies working towards social cause generate positive recall value in the society
which can make it easy for them to recruit employees and attract customers.
(iii) Sustainable production process can lead to less cost on account of power
consumption or water usage.
(iv) Strong corporate governance practice reduces risk perception and in turn reduces
the cost of capital for that organization.
Equity analysts can include discussion on ESG parameters so that it can guide investors who
care for ESG factors.
7.10 Sources of Information for Analysis
There are multiple sources of information on a company. Some of them are defined below. In
addition, there are various paid and free databases, which can be used by analysts to analyze
the companies:
Annual/Quarterly reports – most easily available, reliable and consistent source of
information
Conference Call transcripts
Investor Relation (or Company) Presentations
Management interviews on internet
Company website
Ministry of Corporate Affairs website
Research Report from Credit Rating Companies
Research Report from various other sources – media reports
Parent Company’s annual report and website
Competitors’ website including international competitors
Print media reports on companies
Discussion with suppliers, vendors, consumers and competitors
Sample Questions
1. If financials are great, it is expected that the quality of business is also good. State
whether True or False.
a. True
b. False
2. Corporate Governance takes into account which aspect of the Management?
a. Integrity
b. Profitability
c. Efficiency
d. All of the above
3. Shareholding pattern and changes therein have to be informed by the companies to
exchanges periodically. State whether True or False.
a. True
b. False
4. A good analyst must keep a track of disclosures, commitments and deliveries of an
organization periodically to adjudge a company. State whether True or False.
a. True
b. False
