Corporate Analysis
Corporate analysis is the process of reviewing key aspects of a company to determine its strengths and weaknesses. Investors and industry analysts review corporations to determine if they provide solid growth opportunities to outside investors. Publicly held corporations are generally easier to analyze because they must regularly provide a variety of information to the Securities and Exchange Commission (SEC) that is then available for review by investors.
The performance of executive management and the board of directors is a key component of corporate analysis. Because these individuals decide the direction of the company, it is important to assess their ability to guide the company. Companies must disclose each executive position and the specific experience directors bring to their position. Most directors must have relevant business or industry experience to be effective in advising a particular corporation. This information helps investors determine how well each manager or director can provide reliable advice and leadership relative to company operations.
Corporate analysis begins with a review of the company’s operations and products. How a company operates its production facilities, develops the products or services it provides, and how it meets the needs of consumers is an important aspect of corporate analysis. Companies with strong business operations generally have a competitive edge over their competitors and the ability to produce more goods at a cheaper cost.
Corporations detail their current market share and the steps they are currently taking to improve that market share in documents filed with the SEC. Corporate analysis also reveals if they are expanding, improving existing product lines or buying competitors. This information is crucial for investors when determining the strength of company operations and its long-term market prospects. Growth opportunities are measured by the amount of potential product sales estimated by the company and the amount of risk involved with these growth strategies.
The financial statements of a company are important indicators of a company’s market position. This information can be compared to major competitors and the overall industry to see how financially stable the company is. Cash flow, debt and capital expenditures are major portions of financial statements that should be analyzed. Financial statements can also be compared on a quarterly or yearly basis, helping to determine the performance trends of the company.
Most companies will issue forward-looking statements regarding their business vis-a-vis their market and the broader economy. This helps investors understand how company leadership is evaluating company operations and where they expect the company to be going in the near future. While these statements usually carry disclaimers, they can be helpful in determining the level of insight executive management has put into understanding current business operations and market conditions.