HOW TO ANALYSE COMPANY RESULTS ON YOUR OWN ?
IT DOESN’T MATTER WHICH COUNTRY DO YOU LIVE IN. IF YOU ARE AN INVESTOR OR TRADER YOU MUST HAVE TO KNOW CERTAIN THINGS. ONE OF THEM IS COMPANY RESULTS ANALYSIS. HERE IN IN THIS BLOG, WE ARE GOING TO LEARN HOW TO ANALYSE A COMPANY THROUGH ITS RESULTS.
WHEREAS IN BANKING COMPANIES WE HAVE TO KNOW SOME ADDITIONAL TERMS LIKE NIM, NPA, ETC... WE WILL KNOW ABOUT THEM IN DETAIL IN THE NEXT UPCOMING ARTICLES.
OKAY, LET’S BEGIN THE PROCESS OF ANALYSING COMPANY RESULTS:
ANY COMPANY, IF IT WANTS TO BE IN PROFITS THE COMPANY HAVE TO MAKE MORE SALES RIGHT, TAKE FOR EXAMPLE IN MANUFACTURING SECTOR: TATA MOTORS, MARUTHI SUZUKI, THESE COMPANIES SELL THEIR MANUFACTURED CARS TO PEOPLE ALL OVER THE WORLD AND EARNS MONEY, WHEREAS IN IT SECTOR COMPANIES LIKE INFOSYS AND TCS EARNS MONEY BY SELLING IT PRODUCTS AND SOFTWARES ETC.., SO WHAT EVER THE PRODUCT IS THE COMPANY HAVE TO GENERATE PROFITS FROM MAKING SALES, IF THE SALES OF A PARTICULAR COMPANY IS MORE MEANS IT MAKES MORE PROFIT.
HERE WE SHOULD KNOW ABOUT THE TERM REVENUE:
REVENUE MEANS THE TOTAL MONEY EARNED BY THE COMPANY THROUGH SALES, OKAY TAKE FOR EXAMPLE TATA MOTORS EARNED 100 CRORES THROUGH SALES. IT IS CALLED REVENUE OF THAT COMPANY.
EBITDA :
EBITDA MEANS EARNINGS BEFORE INTERESTS, TAXES, DEPRECIATION AND AMORTIZATION. OKAY LET’S SEE WHAT DOES EBITDA MEAN. IN THE ABOVE EXAMPLE TATA MOTORS COMPANY MADE 100 CRORES REVENUE, FROM THAT REVENUE WE HAVE TO DEDUCT PRODUCTION COSTS AND OPERATING EXPENSES, SALARIES, SO THAT WE WILL GET TO KNOW EBITDA.
INTERESTS:
THE COMPANY TAKES LOANS FROM VARIOUS BANKS RIGHT, SO THE COMPANY HAS TO PAY INTEREST REGULARLY TO BANKS.
TAXES:
THE COMPANY HAVE TO PAY TAXES FOR THE GOVERNMENT, SO THE TAXES SHOULD BE DEDUCTED FROM THE REVENUE.
DEPRECIATION:
THE COMPANY OWNS SOME ASSETS LIKE MACHINERY, FURNITURE ETC.., THE VALUE OF THOSE ASSETS WILL DECREASE GRADUALLY YEAR BY YEAR. THAT DECREASED VALUE IS KNOWN AS DEPRECIATION, THE COMPANY DEDUCTS IT FROM REVENUE.
AMORTIZATION:
THE COMPANY HAVE TO TAKE SOME LICENSES FROM THE GOVERNMENT FOR DOING BUSINESS RIGHT, SO THAT AMOUNT WILL BE DEDUCTED FROM REVENUES, THIS IS CALLED AMORTIZATION. FOR EXAMPLE, THE COMPANY HAVE TO RENEW IT’S LICENSE AFTER EVERY 5 YEARS SO THE COMPANY DEDUCTS 1,00,000 EVERY YEAR AS AMORTIZATION.
DIFFERENCES BETWEEN DEPRECIATION AND AMORTIZATION:
DEPRECIATION IS CALCULATED FOR PHYSICAL ASSETS, PHYSICAL THINGS ETC...WHEREAS AMORTIZATION IS FOR LICENSES, SERVICES, ETC...
NET PROFIT:
AS AN INVESTOR YOU HEARD THIS WORD MANY TIMES AT THE TIME OF RESULTS OF COMPANIES, WHAT DOES NET PROFIT EXACTLY MEAN, THE NET PROFIT IS THE TOTAL AMOUNT THAT A COMPANY GETS AFTER EBITDA.
NET PROFIT = REVENUE-EBITDA
MARGINS:
WE WILL FIND THIS WORD IN SOME OF THE COMPANY RESULTS, FOR UNDERSTANDING THIS WORD WE TAKE AN EXAMPLE HERE, FOR EXAMPLE, A PERSON BOUGHT A PRODUCT OF RS. 100 AND SOLD IT FOR RS.120, SO THE DIFFERENCE AMOUNT HERE IS RS.20 AND THIS IS CALLED AS MARGIN.
AFTER UNDERSTANDING ALL THE TERMS REPRESENTED IN THIS ARTICLE YOU WILL GET TO KNOW THE MOST IMPORTANT TERMS IN THE BALANCE SHEET OF A COMPANY. AFTER KNOWING THESE TERMS YOU CAN MAKE YOUR OWN ANALYSIS ON ANY COMPANIES BALANCE SHEET OTHER THAN BANKING SECTOR, BECAUSE THERE, IS SOME OTHER IMPORTANT TERMS ABOUT THE BANKING SECTOR WE WILL DISCUSS IN THE UPCOMING ARTICLES. TO SUBSCRIBE TO OUR FINANCE SCHOOL BLOG FOR THE LATEST UPDATES.
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