Company Analysis Flashcards
What is a company research report?
Analysts present their company and industry analysis, as well as their valuation and investment recommendation, in a company research report.
Discussion of business model is usually the first part of a company research report.
After determining the business model, we turn to the analysis of historical financial results and position for the company. We start with identifying revenue drivers.
What is bottom-up versus top-down analysis of revenue drivers?
Bottom up is dividing the revenue into sales volume, price, product line etc.
Top-down looks at market share, market size, GDP growth etc.
What is cannibalization?
Losing members and sales to the new stores from the same company.
What is commoditization?
Highly competitive markets often do not start as highly competitive but become more competitive as new firms enter, the pace of innovation slows, and imitation becomes widespread.
What are economies of scope?
Declining costs per unit as there are more product lines etc.
What is the degree of financial leverage?
Delta Net Income / Delta Operating Income
What is a defensive industry?
Non-cyclic and stable earnings
Early third-party classification schemes such as SIC, NACE and ISIC were devised by government agencies, tended to be country-specific, anad grouped companies by their production characteristics into industries such as agriculture, manufacturing, distribution, retail and services. These legacy schemes were largely replaced with commercial schemes by MSCI and S&P etc.
What are limitations of third-part industry classification schemes?
- Groupings of companies with business model variations or that sell substitute products.
- The classification of multi-product companies.
- Geographical considerations.
- Changes in groupings over time that affect prior-period comparability of industry statistics.
What are four types of industry growth?
Defensive / Cyclical
Mature / Growth
What are two ways to obtain profitability measures for an industry?
Measure profitability public companies and assume private companies are similar.
Obtain data from a government or third-party agency.
What is the PESTLE analysis?
Political, economic, social, technological, legal and environmental influences on an industry. Framework for identifying themes or narratives that investors may take a perspective on and desire exposure to.
