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Introduction
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 fore-casting 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.?
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 Prof. Gangineni Dhananjhay holds B.Tech., MBA, NCFM (CFA) qualifications, and is currently Assistant Professor - Finance in the M.B.A. Department at Vivekananda School of P. G. Studies (VSPGS), Hyderabad.
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