What are the documentation on Guidance and Actual?
Investors are for all time inquisitive to know what the future plans of a company are. Most management take the full benefit of this interest and have a track record of print a good picture each time they converse to influence touching characteristic of viewers.
This is deceptive and swindling. However, there are businesses which are viciously truthful and pose obviously about their fault, occasion lost, not bright future prediction of business. In fact, as a good business preparation, businesses should only talk about possibility and confrontation to a certain extent than talking about future nos.
Regrettably, no one keeps track of what an organization said and what it contributed. Excellent research analysts would always go to the track record of pledge and the deliverance. A track record of company’s genuine presentation vis-à-vis its direction at the commencement of a quarter/ year can give analyst a good idea of how much of the company’s talk should be taken at face value and how much should be low-cost.
What is the foundation of Information for Analysis?
There is numerous foundation of information on a company. A few of them are clear below. In count, there are a range of paid and free databases, which can be used by analysts to analyze the companies:
Annual/Quarterly reports - most easily obtainable, consistent basis of sequence
Conference Call transcripts
Investor Relation (or Company) Presentations
Management interviews on internet
Ministry of Corporate Affairs website Research Report from Credit Rating Companies Research Analysis Report from several 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
What is the history of Business vs. Future of Business?
The chronological performance of a company is the early parameter used to choose companies for research and analysis in industries viewed as positive for investment. Estimation of each company in the industry may not be realistic. Consequently, best way is to look at their history and then choose few businesses to be carried out.
The history of a company is best demonstrated by its financial presentation. Characteristically a re-examine of the earlier five years will give a picture of the business and the reliability in performance.
If financial service companies (Enrich) are fine, they would give a sagacity of quality of business being good and if they are terrible, for sure, we need to drop the business. On the other hand, good financials do not basically mean that business is great as quality of those financials can always be doubtful.
As soon as companies have been chosen on the basis of their historical routine, the next step is to see how the business environment in the future is probable to affect their performance.
For instance, consumer electronics companies such as Mirc Electronics (Onida) and Videocon did well in a situation where there was not competition and not much of product innovation requisite.
As the market opened out to international companies such as Sony, Samsung, LG and others, who brought the most modern technologies into India, these companies started trailing market share since they were not capable to struggle on the technological frontage.
A sturdy past performance need not essentially point out sustained strength. This will be based upon the company’s ability to adapt and react to changing situation in the industry.
There are some division like Parma and FMCG, recognized as self-protective division that continue to grow at more or less a stable pace. Talcum powders would sell more in summers and body lotions in winters.
New products or innovations from one company are rapidly and with no trouble simulated by others in the industry. Therefore, in such cases using history to future may be comparatively easier; on the other hand, the same must be done with considerable prudence.
However, past financial performance may not be good pointer for companies in the recurring industries. For instance, sectors such as banking and capital goods, among others, are responsive to the interest rate levels in the economy.
In times of high interest rates, their financial performance is doubtful to be inspiring. However, to disregard these companies based on their performance in high interest rate period would mean misplacing a good chance when interest rates start declining. Likewise, companies in sunrise industries will display wonderful development rates in the initial years.
Using these expansion rates as the base for outcrop for future may prove to be deceptive as terminal growth rates would taper off as more companies enter this room and revenues and profitability reasonable. Software industry in the mid-90s is a typical instance of this occurrence.
Therefore, as it is helpful to look at history, in approximately all instances, there will be a diverse view point required and no simplification is done.