Question

How do you go about evaluating the company's disclosed information?

What information would you use?

Offer two examples of data you will gather.

Answer 1

I will be evaluating the company disclosed information by going through the company's balance sheet along with income statement and cash flow statements and other annual reports of past years so that I will be able to derive the performance of the company by ascertainment of the financial ratios and I will be able to compare the performance of the company in respect to the peers and the industry so I would be able to determine whether the company is underperforming outperforming the industry standards.

I will be evaluating the liquidity of the company by using the current ratios and solvency of the companies by using the the solvency ratio along with profitability of the company by using the profitability ratio and Asset Management ratios will be used to find out the efficiency of the company in order to manage the Assets and generate a higher rate of return.

Two sets of data I will be gathering would be-

A. I would be looking at the liquidity of the company by estimation of the current ratios and the quick ratios and I will be trying to derive out the cash flows of the company which will be helpful in providing an estimation about the current cash flows and an estimation of the future cash flows of the company and it will also help me to determine the liquidity of the company and the interest repayment ability of the company in the short term

B. I would be looking for revenues along with margin on those revenues because it is not important to generate volume but more important is able to maintain a margin on those volumes so that the company can be looking to gain a competitive edge and maintain a pricing power advantage in the long period of time.