How do I Financially compare two companies from two different industries such as UNILEVER (FMCG) and KTM BIKES (CONSUMER DURABLES)? How do I compare the Financial Statements of these two companies? Is there any impact in the fall the Currency on the demand for the products of these 2 companies?
Please help. This is for a project.
There are a few general comparisons you need to make before beginning a comparison of financial results. For example, because each company is in a very different industry, you need to determine what each company's market share is within its industry. Then, it is helpful to understand what the ownership structure is because that determines, to a certain extent, what kind of corporate governance the companies have to follow and whether the company answers to shareholders, which can be very important. General attributes like workforce, physical plant (that is, manufacturing facilities by size and location) are also important. In addition, if the companies have outsourced some or all of production, that is important to understand and, if the company relies on parts or goods from other other countries for manufacturing purposes, the scale of that is very important to understand.
Looking at the most recent financial statements, which must be audited and confirmed by the auditor as being true and accurate, you should focus on items like shares outstanding and current value (as well as the type of shares outstanding); current return on income (ROI); current return on equity (ROE); operating income lines from various types of lending institution, their terms and duration (e. g., it's important to know if a company relies on liquidity lines to operate and, if so, the term of those lines). These items are often the focus of investors while other items are often the focus of analysts who analyze markets, industries and companies for the benefit of investors and others.
Although there are other attributes of performance that you can use for comparison, these are probably the most important. Lastly, the notes to the financial statements are extremely important because they discuss the terms of the company's various operating lines of credit in detail, as well as any outstanding regulatory or legal issues that might affect the company's operations. If the company is contemplating opening up new manufacturing facilities (and their location), that will also be disclosed in the notes. Also, if the parent company has guaranteed the borrowing of a subsidiary, that will be indicated as a contingent liability, which has to be added to the company's overall financial obligations. And if the company has a letter of credit to draw upon for liquidity purposes, that, too, will be a contingent liability that affects its financial obligations.
Financial statement analysis should focus primarily on isolating information useful for making a particular decision. (McGraw-Hill)
Technical divisions of types of analysis an analyst will perform on companies, and companies in differing industries, include, for example, horizontal, or trend, analysis that tracks a specific financial statement item over more than one quarter and looks at materiality and percentage; vertical analysis that compares many items within one time period, say, one quarter (no horizontal time element involved); and ratio analysis that finds relationships within different documents in a financial statement set by comparing an item in one document to an item in another, e.g., net earnings on the income statement compared to total assets on the balance sheet (McGraw-Hill).
Thank you very much for the valuable information. It is really very helpful. I have to do a presentation on this. I will definitely do it based on the guidelines provided bu you.