9 Key considerations in analyzing companies and preparing company reports

The analysis is conducted based on A thorough understanding about the industry in which the company operates. Analyst will identify the key trends, competition, and market dynamics and analyse how these factors may impact the company’s performance and future prospect. Geopolitics, new technology, new regulations and ESG (Environment-Social-Governance) factors are among the most important elements to include in this analysis.

Analyst will then identify and assess the company’s growth opportunities, including expansion into new markets, product innovation, strategic partnership, and acquisition. Given such opportunities, the analyst evaluates the scalability of the business model and its potential to sustain growth. It is important for analyst to determine if the strategy adopted by the company matches the growth opportunities.

Given the industry’s big picture and growth opportunities, the analyst will then analyze the company’s competitive positioning within its industry. Analyst identifies and assesses the company’s ability to provide unique selling propositions, its competitive advantages over peers, sources of these advantages (the key drivers), and its potential vulnerabilities in maintaining or improving market share.

It is imperative for analyst to obtain thorough understanding on the company’s operational capabilities. The process involves reviewing all operational aspects of the company, such as production or operation process; management system, sales and marketing process, customer relationships, supply chain, human resources management, financial management, internal control system, ESG, etc., and then identify the drivers of advantages and disadvantages. This step aims to confirm the key drivers of the competitive position identified in previous step, i.e. the reasons why and how the company excels or will outperform its peers. This important step also determines how the PE investors add value to the target company or how the acquiring firm generates synergy value from the target company.

An important task of the analyst is to evaluate the quality and experience of the company’s management team in terms of execution capabilities (i.e. the ability to implement the company’s strategy). This task is achieved by scrutinising their track record, strategic vision, integrity, and alignment with shareholder interests. This task also identifies the key persons of the company, and evaluates key person risk and any cultural risk.

A comprehensive analysis of the company’s financial statements does not only provide a full picture of the financial status of the company. It also explains the reasons behind the revenue growth, profit margins, the evolution of the operational ratios, liquidity, and leverage ratios, given the industry dynamics and company’s capabilities. In addition, this analysis also serves as the basis for the financial projection, which is the foundation of the valuation task.

This section lists out and evaluates the key risks that may impact the company’s operations and financial performance. These risks include macro factor risks (E.g. inflation, currency, climate changes, social impacts), industry-specific risks, operational risks, regulatory risks, competitive threats, key person risk, etc. Analyst should also evaluate the mitigation plan of the company and their effectiveness in mitigating the key risks.

In this step, the findings of previous analyses (both quantitative and qualitative factors), are integrated in the financial model to ensure valuation outcomes reflect key insights on and risks of the company. Because each analyst has her/his own assessments and then incorporate them into the variables of the model differently, valuation task is considered a mixture of art and science.

The analyst should clearly articulate the reasons for the investment, highlighting the key drivers behind the investment opportunity and the rationales leading to the investment decision. This task aims to provide a concise summary of the company’s strengths, weaknesses, opportunities, and threats as foundation for the actionable recommendations to the decision makers.

By adhering to the above-mentioned considerations and conducting thorough analysis, analyst can ensure that the company reports provide valuable insights and support informed investment decisions. Further details on analysing companies and elaborating effective company reports are discussed in the courses Private Equity – Investment Banking for dealmakers offered by Vietnam Investment Nurturing Hub.