When people talk about how a company looks “on paper” they’re talking about how sound it is from a fundamental, financial perspective. A company analysis is a process through which investors or others learn how the company looks on paper. It answers important questions, such as what are its risks, strengths and assets? A company or organization analysis gives a comprehensive picture of where a company stands, and for that reason is often called a “fundamental analysis.”
Whether you're working from internal financial reports or paying for an external corporate auditor to take stock of where you are, a company analysis should give you the framework for understanding how to get where you want to go.
To get a good sense of where your company stands, it’s time to do some analyzing.
Defining Company Analysis
A company analysis is a thorough study done to ascertain a company’s health in any number of areas. When complete, the analysis should be available in a written report. There are a variety of ways to complete company analyses, depending on the areas in question, but the focus is typically on feasibility, productivity and an overall view of the corporate financial health.
Ultimately, a company analysis can be used as a snapshot of the company’s strengths, weaknesses and where it’s headed.
If you were looking to improve your life, what steps would you take? You might hire a coach or therapist, and their first step would be to analyze who you are and what your life is presently like. It’s like going on a road trip. To get to where you’re going, you’ve got to know where you are.
Enter the company analysis. To take a company into a better future down a different road, it’s all about knowing where the company’s starting from.
Who Uses a Company Analysis?
The report generated from a company analysis is useful in several ways. It could be akin to a “state of the union” for concerned stakeholders. It’s a great tool for investors or financial organizations looking to provide a company with needed cash flow.
But a company analysis is also a terrific way to take stock of where a company is, before beginning a new phase. Maybe the company wants to diversify its investments and create new portfolios. Knowing where it stands with the current portfolios and their projections would be helpful. Perhaps it wants to open a new franchise or buy a new property. Understanding the present financial commitments and getting a forecast for how they’ll mature over coming years might be advantageous before taking on more risk.
A company analysis also allows corporate bosses to determine where there are efficiencies or wastes. It can be a useful way of understanding where profits and losses are coming from within company operations and can help companies choose when to hire and when to lay off.
What Is Included in a Company Analysis?
What's included in a company analysis depends on the researcher’s objectives. Is the analysis' purpose to get a sense of sales potential and accomplishments? Is it an overall look into what the company is and where it’s going? Is it an operational or investment tool? Perhaps it’s a standard SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis.
Some company analysis reports will give perspective on the complete SWOT, which can be costly and time-consuming to complete, but the more complete it is, the better it will be understood by anyone reading the report. You can perform a simplified company analysis with financial reports on hand. Another option is employing an outside agency to take an objective, more thorough look into all departments for a comprehensive overview of all the company’s operations.
Common things investigated for a company analysis include:
Financial Status: By digging into things like balance sheets, cash flow statements, income statements and shareholders equity statements, you can get a good picture of money in, money out and money that stays put in the form of assets. Typically, these statements are compiled for a three-to-five-year period.
Workflow and Efficiencies: Everything from sick time to productivity, budget overages and departmental costs can gauge how a company is performing.
External Factors: What are the threats from outside the company? Maybe the economy is faltering. Perhaps a competitor is expanding, or industrial laws and regulations are getting complicated. Opportunities may be on the horizon, such as major events that could be a financial boon if the company does well on a bid. Are core demographics changing? Are suppliers changing, or are materials escalating in costs? Consider factors like market and economic trends; on a local and national level and short-and-long-term.
Internal Factors: This where things like financial funding and investment opportunities are considered, not just cash flow line items. Physical resources matter here, too. What’s the equipment picture like? Maybe tools or vehicles will need replacing. Maybe they’re new. Other internal factors include:
- What are plants, shops or office spaces like, and will they need refurbishing or investment?
- Will mortgage or rent costs, or property taxes, be changing? Is branding safe, or will trademarks and copyrights need securing or renewal in the future?
- Are marketing campaigns looming, and are budgets allocated yet?
- What’s going on with hierarchies within the company?
- Are there employee programs funded by the company, and are they successful or beneficial?
- What’s the software status within the company? Are programs keeping up with the times, or are there inefficiencies that need addressing?
Tips for Writing a Company Analysis
When writing a company analysis, whatever the format, keep several things in mind.
What’s the purpose? Your objectives or goals, or the problems you’re seeking to solve, matter in how you frame your information and what data you parse for the report. If you want to raise new funding, that will skew the perspective you take. If it’s about sorting out a financial crunch, then approach the analysis from a cost-cutting perspective.
Get the right information. If the reports are about staffing levels and efficiencies, then there’s a case to be made for gathering info on software and computing systems, but focusing on land holdings or warehouse requirements would be wasted time. Get the data you require for your objectives.
Create an outline. With an idea of the info available to you and the goal in mind, write an outline for the report, then set out on organizing information and ideas accordingly.
Be organized. Information piles up quickly, and it gets out of hand just as fast, if you’re not focused on keeping data organized as it streams in. Keep documentation handy, have notes explaining their relevance and place things in proper groups via timelines, categorizing and other tools, so they’re easier to sift through when you reach the compilation stage.
Be clear. Write the report in clear-cut, communicative language. Don’t assume people understand your perspective with minimal explanation. Keep a cap on jargon. Use well-described graphics where they might illustrate your points. When the draft is complete, have a colleague proofread it and highlight any discrepancies or insufficiencies. You can never edit too much – be vigilant as you craft the final copy.
Company Analysis Examples
Several kinds of organizational analyses offer a variety of perspectives on any company. What’s right for your company depends on your motivations.
Company Financial Analysis: Money talks in business, and having periodic glimpses of where a business stands financially can prevent nasty surprises coming down the pipes. From share prices to debt load to quarterly returns, this provides a complete look at money coming in, money going out and money on hand.
Company SWOT Analysis: A SWOT analysis focuses on strengths, weaknesses, opportunities and threats, and can be compared to the “state of the union” in the world of company analysis. A SWOT should give a good overview of finances, debts, potential new revenue sources, properties, staffing, competitors and more. Reading a SWOT should provide perspective on where a company ought to focus their efforts for new projects, cutbacks, investments and so on.
Company Performance Analysis: Performance indicators can vary, but generally this is a look at what departments are meeting targets, who’s got budget surpluses and where shortfalls are happening. It’s not necessarily an indictment on personnel if shortfalls are happening, but can indicate where operations need to be revamped with productivity and costs, and how profit can be better balanced.
Company Productivity Analysis: Productivity is the balance of personnel and costs versus output, and these reports should indicate if the company is getting the most out of its staff. A good example of productivity affecting a corporation came in 2017 when McDonald’s stock hit an all-time high on Wall Street in response to an announcement they would replace cashiers with interactive ordering kiosks. It's objective – to refocus staff on quality control and order processing.
Analysts reported this would lead to sky-high productivity for McDonald’s with enormous increases in profitability. McDonald’s would have reached this decision by analyzing where they were losing productivity that could easily be replaced by automation. Any company analyzing productivity should be looking at software and outsourcing solutions, automation and established work methods that can use updating.
Why You Need to Do a Company Analysis
Think of a company analysis like a road trip. To get where you’re going, you've got to know where you are. You need a map, a plan for getting there and a means of reaching the destination, whether it’s on a bike or a car or with a camper. Different methods have different pros and cons. A camper saves you money on lodgings but costs more for gas and takes longer to reach a destination, whereas a car is faster and more fun but means pitching a tent or renting lodgings. You’ll need money and need to know what could unfold along the way. If there are threats, such as high car theft in the area you're traveling, possible carjackings, potential storms, bad roads that may cause flat tires or even speed traps; well, you’ll want to know about those, too.
It’s the same as with a company analysis.
The analysis helps you figure out where the company can go, and what it’ll take to get there. It establishes where the company’s starting from and what it’s got to work with. It illustrates the shortcomings and the strong points while outlining threats and opportunities, both internal and external.
When taking stock of your company, performing a company analysis positions you to act more decisively and makes it less likely that there will be surprises or threats. To have a solid picture of your company’s present and future, it’s best if a basic SWOT analysis is performed every six-to-12 months. As beneficial as a SWOT analysis can be, taking an in-depth look at finances, productivity and performance on a regular basis gives you a thorough understanding of where you are as you head toward where you want to be.
- CNBC: McDonald's hits all-time high as Wall Street cheers replacement of cashiers with kiosks
- Industrious CFO: How to Perform a Company Financial Analysis in 12 Steps
- Business News Daily: SWOT Analysis: What It Is and When to Use It
- Examples: 8 Company Analysis Examples & Samples
- Ready Ratios: Company Analysis