Question

How do you analyze a company and its industry from the perspective of:

a) a manager

b) investor

c) creditor

Answer 1

a) From the point of view of a manager i look at the operating ratios.

The asset turnover ratio, the fixed asset turnover ratio, sales to net working capital ratio, receivables turnover ratio, inventory ratio.

These ratios measure how well a company utilizes it's assets to generate income.

b) Investor : As a investor i would be interested in a company's profitability ratios.
The net profit margin, gross profit margin, the return on assets, return on equity.

An investor would like to analyse the profit making capacity of the business , if the business is making profits the share price will rise and hence benefit the investor.

c) As a creditor, i would be interested in the ability of the business to pay-off debts.

The EBIT margin = EBIT/ interest this shows the ability of the business to service it's debts.

The debt ratio , what proportion of debts exists in the business. DEBT/EQUITY ratio.