Review the financial statements. Are there any unusual items, any notable statements by company executives? In this section, review financial measures of performance. Comparisons with another or other companies can be made in this section, but shouldn’t detract from your main analysis of the company under review. Concentrate on points of real difference and try to identify why companies might be performing differently. Alternatively, the comparisons with other company(s) could be made in a separate section.

• The Financial Statements
• Financial Analysis
  • Total Income and Profitability
• Consideration
• Conclusion

Review the financial statements. Are there any unusual items, any notable statements by company executives?

In this section, review financial measures of performance.

Comparisons with another or other companies can be made in this section, but shouldn’t detract from your main analysis of the company under review. Concentrate on points of real difference and try to identify why companies might be performing differently.

Alternatively, the comparisons with other company(s) could be made in a separate section.

• How total revenue has changed over the last few years. Check whether there are any underlying reasons such as acquisition or sale of subsidiary businesses or divisions, and check for varied sales performance by different operating divisions.
• How profitability has changed over the last few years.
• Net and Gross profit margins and EBITDA margin if your comparison company(s) is based in a different country.

5.2 Returns to Investment

• What has the company’s dividend policy been?
• How does the company perform in terms of key ratios such as ROCE and ROE?
• How does this compare with competitors?

5.3 Asset Management

• Does the company have high non-current assets? There will probably be some explanation in the Notes to the Accounts as to what these are.
• What investments is the company making in capital items (remember to check the cash flow statement in the company’s report to identify the extent of capital expenditure, and these may be more fully explained in the Notes to the Accounts
• What is the PPE turn (Non-current asset turn)? Has this changed over time?
• What is the level of working capital (working capital vs sales)? Has this changed over time?
• What is the working capital requirement?
• What are inventory days?
• What are trade payables days?
• What are creditor days?
• How do these compare with competitors?

5.4. Solvency

• How does the current ratio look?
• Acid test?
• Month’s cover?
• Comparisons with competitors?

5.5. Debt

• Have there been movements in levels of debt in the examined year and in recent years? Remember this will be summarised in the company’s cash flow statement and in the Notes to the Accounts. What is the debt being used for?
• What does gearing look like, using an appropriate gearing measure?
• How does it compare with competitors?
• Is interest cover sufficient?
• Look at the detailed note to the accounts which summarises the long term debts which the company has (if it has a lot of debt). Does it face a big cash outflow in a future year? Is debt secured against asseys?
• Does it have the capacity to take on more debt?
• The Cash Flow statement will confirm outflows from debt repayment and cash inflows from taking on debt.

5.6. Cash Flow

• What is the free cash flow to equity?
• What is the balance of cash flow for the year after dividend payment?
• Are there any notable items within the operating, investment and financing cash flows within the cash flow statement?

In this section, try to bring together your analysis and give a summary view of the

• how the company is performing overall,
• what it’s core strategies seem to be,
• how it is performing in comparison with it’s competitors,
• any key issues which should keep it’s directors ‘awake at night’,
• What are the key strengths and ‘core competences’ of the company?
• What are its areas of potential weakness that could impact on its capacity to grow in the future?

Make some final statements to leave the reader with a final understanding of the prospects for the company, and it’s place within its industry.