Company Analysis - Quantitative Dimensions

       In Quantitative Dimensions we discuss/analyze about Basic of balance sheet and profit and loss statement .

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This is very basic and usually consume less time therefore we must check out about this before investing in one . 

       So let's start with the 

            ·Basic Of Profit And Loss Statement -

1) Net Sales / Sales -

        Sales or net sales is the total sales before paying any expense.

2) Direct Cost / Expenses -

        Direct cost or expenses includes expenses like cost of row material , Semi-variables, Employees costs or fixed machinery and plant(building) or anything etc.

3) EBITDA (Earning Before Interest, tax, depreciation, amortization) -

         This concept is very easy to understand as it clarifies from its name , it is the earning which is left from the sales just after paying business expenses .

Let's understand Depreciation and Amortization -

                Amortization - Amortization is the process of spreading the repayment of the loan, or the cost of an intangible asset, over a specific timeframe. This is usually a set number of months or years ,depending on the conditions set by the banks or copyright agencies .

This is usually applies on intangible asset , company has to buy to run a business that is some software, windows etc. we should check amortization in companies which in technologies like IT sector .

               Depreciation - Depreciation is the phenomenon that when tangible asset of a company has dropping its value every year .

Amortization and Depreciation plays an important role in Tax for a business as by this company can get deduction in tax .

    - There are certain rates as per Income tax act on depreciation that implies that how much cost can a business/company can deduct in one year on the certain asset 

Here are the rates of deduction as per income tax act for most commonly used asset -

  Depreciation Rate :-                                                                                                             Rates

1)Building                                  Residential Building                                                               5%

2)Building                     Boarding houses (that includes a room and board)and                      10%

                                                                           hotels    

                                                                            

3)Building                         Wooden Structure (that is temporary)                                             40%

4)Furniture                              Fittings (electrical etc.)                                                            10%

5)Plant and Machinery                    Motor cars                                                                       15%

6)Plant and Machinery          Software and Computers                                                           40%

7)Intangible assets       Franchise , Trademark , patents , license ,                                           25%

                                            copyrights and other commercial  rights

* These are basic on  which business can take deduction .

4)EBITDA Margin -

It the percentage that how much is the EBITDA to its sales(companies sales) by this you can evaluate the company .

      ·  EBITDA Margin = EBITDA /Net Sales *100 

5)EBIT (earning before interest and tax)- 

In this we deduct amortization and depreciation and the net we got is the EBIT.

6)EBI (earning before interest )-

When company has paid its tax which is 30% on the business income then the net left with the company is known as EBI.

7)PAT (profit after tax)-

When all the things are paid by the company then this us known as profit after tax(PAT) .

There is also one thing that is known as profit margin which shows us that how much  the profit of the company is to its sales .

           Formula for expressing this is -

     ·  PAT Margin = PAT/Net Sales *100

     · Basics of Balance Sheet :-

Before discussing about balance sheet we should need to know about assets and liability so in simple words-

          Assets - Assets are those which company has , I repeat what companies and and that things completely owned by the company is known as asset.

          Liability - Liabilities are those which company doesn't own but have to pay to another identity best example for that could be loan lend by the bank which a company  have to pay back with some interest .

Now let's  understand about balance sheet -

In balance sheet we first have 

1) Equity :- 

          This is the money which the promotors bring into the business when it is launched, and subsequently by the additional shareholders as and when required, who also become owners of the company to extent of their shareholding .

              This is the owners investment in the business , An increase in the equity capital may dilute the proportionate holding of the existence shareholders and therefore their participation in the profits of the company . A dilution may occurs because of additional share capital (equity) being raised or conversion of debt into equity.

2) Reserves and Surplus :-

  In this category those funds are included which company asides for future expenses or for some if uncertain things happen .

And rest are the asset and liability in balance sheet which we have already discussed above.

       · Basics of Cash-flow :-

This is an important parameter to understand company's cash position . If the company is generating profit but don't have quite good cash position thus it can be folly to invest in that company until unless you are too smart or risk taker .

 So in cash-flow there are some terminologies which we will discuss bellow-

1) Operating Cash-Flow -

          Cash flows from business operations is known as operating cash flow. Incoming cash is in positive and outgoing cash is in  negative , this is how they are shown in balance sheet .

         The net profit of a company can be converted into the operating cash flow numbers by adding back non-cash expenditures such as depreciation and amortization and changes in account receivables and payables.

2) Investing Cash-flow-

          Investing cash flow is also written as cash flow from investing activities in balance sheet section of s company . When company buy an asset then cash is shown in negative and when the company sells the asset then cash is shown in positive . 

               So don't afraid if cash flow is higher with negative sign, it generally means that company is buying assets from itself and buying asset is quite a good thing for any business .

3)Financing Cash-Flow-

           All the loan taken or paid are counted in this section . Borrowing money shows in + positive cash flow and redeeming debt is shown in -ve (negative) cash flow.

   ☝ So don't afraid when you see too much negative sign in cash flow just read the balance sheet wisely and only then buy stocks or invest in a company.

                                        Quality of the business is determined through 

                                                    quantitative analysis

IF YOU DON'T NO MUCH ABOUT INVESTMENT OR ANNUAL REPORT YOU CAN GPO WITH THIS .

This is simple method of analyzing a company , and could be enough if you don't have enough time to analyze by yourself.

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