Process of performing financial analysis of a public company
GENERAL COMPONENT---No more than one paragraph describing the history of the company.
ACCOUNTING COMPONENT
1. Obtain the most recent five years (or twenty quarters) of the firm's financial history.
a. Income Statement
b. Balance Sheet
c. Statement of Cash Flow
2. Derive common size statements for each of the first two financial statements listed in 1.
a. Looking at trends in the data
b. Looking at variations in the same data as well as variations in the trends
ECONOMIC COMPONENT
3. How does the above relate to the market that the business is in, i.e. need to perform competitive and economic analysis:
a. Macro economic analysis----is company's sales cyclical or counter cyclical for example?
b. Industry analysis---market share, is the company's sales growing, declining, or staying the same? How is the company performing relative to its competition?
SWOT
4. The majority of the STRENGTHS and WEAKNESSES should focus primarily but not exclusively on the internal characteristics as it relates to function and resources of the company, namelyACCOUNTING/FINANCE, HUMAN RESOURCES, MARKETING, MIS, PRODUCT DEVELOPMENT, and etc. to name a few of the functions.
5. The majority of the OPPORTUNITIES and THREATS should focus primarily but not exclusively areforces external to the company, namely other company's PRODUCTS and SERVICESprovided to the market and the opportunities to maintain and or expand the business. Other external forces that need to be considered areEXPECTED CHANGES in the GENERAL ECONOMIC ENVIRONMENT, such as periods of expected inflation, recession, accelerated growth periods, and etc.