When carrying out the analysis of a company to add to your portfolio what considerations do...

When carrying out the analysis of a company to add to your portfolio what considerations do you take into account? explain how you will build a portfolio based on your knowledge acquired in the last 7 weeks.

Expert Solution

When I am carrying out the analysis of a company to be added to my portfolio, I will be taking following consideration in my account-

A. I will be analysing the solvency of the company using debt to equity ratio along with debt to Capital ratio so that I will be able to find the long term sustainability of the company.

B. I will also link my valuation to free cash flows which are available to the company and cash flows generation ability which is embedded with the company as this will be providing them with optimum liquidity

C. I will also analyse the liquidity of the company in respect to current ratio and quick ratio is along with net working capital and I will also consider the cash conversion cycle associated with the company.

D. I will consider the relative valuation approach about the price to its value by application of the price to earning approach and price to earning cross approach which will providing me with idea about the undervaluation and relative overvaluation of the company in respect to the industry

E. I will be trying to adopt the profitability analysis by ascertainment of the gross profit margin and net profit margin and ability of the company to generate higher profit

F. I will also ascertain whether the company is paying out enough dividend or reinvesting it back into the business or it is a growth company and matured company.

jeff jeffy answered 2 years ago

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