Company Analysis is a broad term. It means analyzing a company's financial statements, competitive advantages, operations, aspects that drive its profits, future outlook, and much more than these. Generally it is done before going in for an investment in a company. It is to estimate returns and risk by analyzing the position of the company in the particular industry, its market share, its capital structure, and the order book such as profit, EPS, growth, etc.
Company Analysis also refers to actions taken to gain an understanding of the company's past performance and also its growth prospects. It should focus on all aspects of a company including its management structure, and expertise, fund position, growth prospects and profitability, market share in the industry and intangible factors like good will and brand image.
Company Analysis results are often used for reaching business decisions by outside parties whether to invest or not in the company or to go into a partnership with the company.
Internal Analysis: Internal analysis helps in identifying problems and to remedy a situation. Even if a company is doing well, there may be internal areas in practices and processes that may be requiring improved performance. If the performance improves, correspondingly costs go down and profit margins go up. In large companies with completely independent divisions or units, a company analysis may prove that practices and processes currently practiced in one division or unit may prove to be equally useful in another unit of the business. A timely analysis may even inspire innovation to gain market gain or leadership position.
External Analysis: A likely investor gets all his questions about the company answered by external analysis. An investor can use the SWOT analysis to better understand the company standing in the industry, probable position in the near and long term future to take a calculated decision about the company. SWOT analysis is especially useful for reviewing businesses operating in markets that are economically, culturally and demographically different.
Ratio Analysis: Ratio Analysis or Fundamental Analysis is to evaluate a company`s financial statements which give an indication of the company`s past performance and future direction. Analysts form a comprehensive picture of the company`s financial position using different ratios; different groups of ratios try to evaluate different aspects of a company`s finances, viz., liquidity, profitability and balance sheet items. Financial ratios are formed using information of the company over a period of years to assess the trend and direction, or using financial data form different companies for a comparison with competitors.
Frequency: Companies that are managed well undertake internal analysis on regular basis to keep abreast of changes affecting the companies` performance. Companies present their reports of analysis to shareholders annually, or to attract fresh business prospects. Conducting routine analysis helps a company to be in touch with different contextual factors affecting the business and is generally more dynamic and responsive to market forces.