INDUSTRY ANALYSIS

• What is the objectives of

performing Industry analysis?
 OBJECTIVE OF INDUSTRY ANALYSIS

• To find out whether to invest in the

“selected Industry” or not
FIRST STAGE
BASIC REQUIREMENTS
• Select 3-5 listed companies
• Download the financial statements of the
companies : Income statement, Balance sheet,
and cash flow statement for the past 5-7 years
• Create the commons size statements
• Create Comparative statement analysis (CAGR
for important parameters)
• Calculate all the important ratios & Du
Pont Analysis
• Calculate the industry aggregates
• Make tables / graphs to bring it inside the
reports
• Analyse and Interpret
 RATIO ANALYSIS
• Comparative statement analysis
• Common size statement analysis
• Compare it with peers as well with
industry aggregates
• For a period of 5-7 years
• Based on the cyclicality of sales
• Du-Pont Analysis
TO COME TO THAT CONCLUSION YOU NEED TO
COMMENT ON THE FOLLOWING:
• Profitability : Sales, Assets
• Asset Turnover
• Equity Multiplier
• Valuation
• Liquidity
 PROFITABILITY
• Whether the companies in the selected
industries have been profitable?
• How long they have been profitable?
• Will they be profitable in the future?
• Why they are profitable?
• What assumptions should hold correct if
they continue to be profitable?
 RATIOS
• Operating Profit margin
• Net Profit Margin
• Return on net worth
• ROI
• Return on Assets
 ASSET TURNOVER
• What is the asset turnover in this
industry?
• Fixed assets , current assets composition
in total assets.
• Changes in assets ( fixed or current) Vs
changes in sales
• How long it takes to generate the sales?
 EQUITY MULTIPLIER
• Debt – Equity ratio
• Equity to Total assets ratio
• Change in the ratio – what does it imply?
• What effect it has brought on the fixed
assets side of the balance sheet?
 VALUATION
• Book value per share
• Market price per share
• PE ratio
• Dividend per share
• Dividend yield
• EV per share
 LIQUIDITY
• Current ratios
• Liquidity ratios
• Cash ratio
 ANALYSIS
• Why there is a change? – Business reasons
• Will the change continue?
• Is it only for a company or the same trend
observed in other companies as well?
• What is the impact it will have on our
final conclusion?
FINANCIAL ANALYSIS
• Industry Aggregates – for relevant ratios
• Du Pont Analysis
•Capital Structure
•Profit Margin
•Assets Turnover

IA-STAGE II- NM-2017 15

INDUSTRY AGGREGATES VS
INDUSTRY AVERAGES
• Industry Aggregates is better than Industry
Averages
Net Profit Sales Profit Margin
Company 1 15000 60000 25%
Company 2 1400 7000 20%
Industry average ( 25%+20%)/2 22.5%
Industry aggregate ((15000+1400) / 24.48%
(60000+7000)) 100

IA-STAGE II- NM-2017 16

SECOND STAGE
COST STRUCTURE ANALYSIS
• Major Cost element
• Operating Leverage- Presence of Fixed cost &
its effect
• Cost Unit
• Cost Audit
• Cost Leadership
• Drivers of Cost

IA-STAGE II- NM-2017 18

THIRD STAGE
FINANCIAL DIMENSIONS
• Composition of Capital Structure
• Proportion of Debt in the capital structure
• Proportion of Current Assets to Total Assets
• Proportion of Fixed Assets to Total Assets
• Profitability Aspects – Will the profits will be
continued to be earned by the companies?
• Sustainable Growth rate of the companies selected
• Working Capital Requirements – Operating Cycle &
Cash Cycle
 GOING BEYOND THE NUMBERS
• Are the company’s revenues tied to a few
customers or a few segments?
• To what extent are the company’s revenues
tied to a few key products?
• To what extent does the company rely on a
single supplier?
• What percentage of company’s business is
generated overseas?
 GUIDELINES FOR FINANCIAL STATEMENT
ANALYSIS
• Use ratios to get clues to ask the right questions
• Be selective in the choice of ratios
• Employ proper benchmarks
• Know the tricks used by accountants
• Read the notes to financial statements
• Remember that FSA is an art & science: it is a
process requiring care, thought , common sense and
business judgement
 FINANCE AREA
Stages Session Details Number of Trimester
Sessions

Introduction Course Overview 1 II

Stage 1 Data Collection & Ratios 2 II

Stage 2 Guidelines – Stage 2 2 II

One pager Presentation 1 II
Stage 3 Guidelines – Stage 3 1

Presentation & Viva 2 III

Feedback 1 III

Total 10
Assessment &
Grading –
Finance Area

Criteria Trimester II Trimester III Total

Marks
Report 15 20 50
(Group wise)
Presentation 15 - 30
( Individual
evaluation )
Viva-voce - 20 20
( Individual
evaluation)
Total 30 40 100