Investment Shastra

Which qualitative aspects to consider while analysing a Company?

After reading this book by Philip A. Fisher – Common Stocks And Uncommon Profits I came across some of the important qualitative aspects that need to be kept in mind  while analysing a company.

Lets see what some of them are:

1) Marketing & Advertising Efforts:

The marketing team of a company should always be aware & ready to adapt to the changing desires of customers.The marketing & advertising activities should be targeted towards the right market. The efforts should bring out worthwhile results.

Also, the company should supply what is desired today & not what was desired earlier.  For example- if a company’s marketing efforts are being wasted in selling & producing better typewriters rather than shifting to the new technology of computers, it is a waste.

2) Research & Development Activities and Technical-Know-How:

Indian companies were not into Research & Development activities till some time back, but now, industries like Pharma & Automobiles have put their step forward.  For  example, Tata Motors has 2 research centres at Jamshedpur & Pune where it carries out all its research & testing activities.The important point that has to be taken care of here is that the research/ technical know how activites ahould have a positive outcome either in way of an inovative product/service or a profitable return on the amount of time & expense spent on the activities.

Now, where do you find the R & D expenses of a company? R & D expenses are capitalized and hence one can find this under the assets heading in a balance sheet of a company.

3) A Strong & Efficient Management Team:

A company should be led by a strong & able leader, along with a well coordinated team of members. All the employees ( even the ones at the lower level) should be involved and should be aware of all the decisions & happenings in the organisation. In this way the employees at the lower levels can be attracted & further trained for larger responsibilities. All the team members should have an entrepreneurial spirit inbuilt. This is a slightly difficult aspect to folloe, but one can always read the annual reports & other news & press releases & get an idea about the management.

Also track the company’s objectives & policies. Are these objecives personally rooted or for the shareholders? Are they formed keeing a short term or long term view in mind? The company’s whose objectives are for the benefitof the shareholders & keep the long term in perspective. A company that only announces its short term objectives is just trying to show a rosy picture for the moment.

4) Law of Leadership:

You should always try to track a company which is the leader of the product/service in the market. A company that gets in first with a product/service, tends to be a leader always & holds a higher market share. Such a company always has a higher profit margin.

The next company that comes into competition will always hold a lower market share. Hence, track companies following this leadership attribute.

5) Adapt To Change:

Companies should realize that the current market will not remain the same & it is changing at a very fast pace. It has to understand & adapt to this change in all areas which could be even the processes they follow or the products they launch. They need to realize that just because a product/process/technology has worked in the past, it is not necessar it will work again.

These are few of the qualitative aspects to be considered…..

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