Company analysis: Financial and Non-financial parameters

13/10/2022 1 By indiafreenotes

Company analysis is a process carried out by investors to evaluate securities, collecting info related to the company’s profile, products and services as well as profitability. It is also referred as ‘fundamental analysis.’ A company analysis incorporates basic info about the company, like the mission statement and apparition and the goals and values. During the process of company analysis, an investor also considers the company’s history, focusing on events which have contributed in shaping the company.

Also, a company analysis looks into the goods and services proffered by the company. If the company is involved in manufacturing activities, the analysis studies the products produced by the company and also analyzes the demand and quality of these products. Conversely, if it is a service business, the investor studies the services put forward.

How to do a company analysis

It is essential for a company analysis to be comprehensive to obtain strategic insight. Being a thorough evaluation of an organization, the company analysis provides insight to rationalize processes and make revenue potentials better.

The process of conducting a company analysis involves the following steps:

  • The primary step is to determine the type of analysis which would work best for your company.
  • Research well about the methods for analysis. In order to perform a company analysis, it is important to understand the expected outcome for doing so. The analysis should provide answer about what is done right and wrong on the basis of a thorough evaluation. It is, therefore, important6 to make the right choice for the analysis methods.
  • The next step involves implementing the selected method for conducting the financial analysis. It is important for the analysis to include internal and external factors affecting the business.
  • As a next step, all the major findings should be supported by use of statistics.
  • The final step involves reviewing the results. The weaknesses are then attempted to be corrected. The company analysis is used in concluding issues and determining the possible solutions. The company analysis is conducted to provide a picture of the company at a specific time, thus providing the best way of enhancing a company, internally as well as externally.

Financial parameters

Working Capital Ratio

Assessing the health of a company in which you want to invest involves measuring its liquidity. Liquidity refers to how easily a company can turn assets into cash to pay short-term obligations. The working capital ratio can be useful in helping you measure liquidity.

Working capital is the difference between a firm’s current assets and current liabilities. It represents a company’s ability to pay its current liabilities with its current assets.

The working capital ratio, like working capital, compares current assets to current liabilities and is a metric used to measure liquidity. The working capital ratio is calculated by dividing current assets by current liabilities.

Quick Ratio

Also called the acid test, the quick ratio is another measure of liquidity. It represents a company’s ability to pay current liabilities with assets that can be converted to cash quickly.

The calculation for the quick ratio is current assets minus inventory minus prepaid expenses divided by current liabilities. The formula removes inventory because it can take time to sell and convert inventory into liquid assets.

Earnings per Share (EPS)

When buying a stock, you participate in the future earnings (or risk of loss) of the company. Earnings per share (EPS) is a measure of the profitability of a company. Investors use it to gain an understanding of company value.

The company’s analysts calculate EPS by dividing net income by the weighted average number of common shares outstanding during the year.

If a company has zero or negative earnings (i.e., a loss), then earnings per share will also be zero or negative. A higher EPS indicates greater value.

Price-Earnings Ratio (P/E)

Called P/E for short, this ratio is used by investors to determine a stock’s potential for growth. It reflects how much they would pay to receive $1 of earnings. It’s often used to compare the potential value of a selection of stocks.

To calculate the P/E ratio, divide a company’s current stock price by earnings-per-share.

Debt-to-Equity Ratio

What if your prospective investment target is borrowing too much? This can increase fixed charges, reduce earnings available for dividends, and pose a risk to shareholders.

The debt-to-equity (D/E) ratio measures how much a company is funding its operations using borrowed money. It can indicate whether shareholder equity can cover all debts, if needed. Investors often use it to compare the leverage used by different companies in the same industry. This can help them to determine which might be a lower risk investment.

Return on Equity (ROE)

Return on equity (ROE) measures profitability and how effectively a company uses shareholder money to make a profit. For common stock shareholders, ROE (which is expressed as a percentage) is calculated by taking net income (income less expenses and taxes) figured before paying common share dividends and after paying preferred share dividends, and dividing the result by total shareholders’ equity.

Non-financial Measures:


  • Conversion Rate: The percentage of interactions that result in a sale. Formula: (Interactions with Completed Transactions) / (Total Sales Interactions) = (Conversion Rate)
  • Retention Rate: The portion of consumers who remain customers for an entire reporting period. Formula: (Customers Lost in a Given Period) / (Number of Customers at the Start of a Period) = (Customer Retention Rate)
  • Contact Volume By Channel: The number of support requests by phone and email. This allows the organization to not only compare which method customers prefer, but also to track the number of support requests month-to-month.
  • Customer Satisfaction Index: Gauge of a company’s success at meeting customers’ needs.
  • Net Promoter Score: The likelihood that customers will recommend a brand to others. A score from 1-10 that qualifies promoters (usually 9-10) and detractors (under 6). Formula: (Number of Promoters) – (Number of Detractors) = (Net Promoter Score)

Internal Processes

  • Customer Support Tickets: The number of new tickets, the number of resolved tickets, and resolution time.
  • Product Defect Percentage: This will give you the percentage of defective products in a specified timeframe. Formula: (Number of Defective Units in a Given Period) / (Total Number of Units Produced in a Given Period) = (Product Defect Percentage)
  • On-Time Rate: The percentage of time products were delivered promptly as scheduled. Formula: (Number of On-Time Units in a Given Period) / (Total Number of Units Shipped in a Given Period) = (On-Time Rate)
  • Efficiency Measure: Efficiency can be measured differently in every industry, so this common KPI will vary. For example, the manufacturing industry can measure efficiency by analyzing how many units are produced every hour and the plant’s uptime percentage.
  • Overdue Project Percentage: The number of projects that are late or behind schedule. This can be pulled from your project status dashboard. Formula: (Number of Overdue Projects in a Given Period) / (Total Number of Projects in a Given Period) = (Overdue Project Percentage)

Learning & Growth

  • Salary Competitiveness Ratio (SCR): The competitiveness of compensation options. Formula: (Average Company Salary) / (Average Salary Offered from Competitors (or Average Salary Offered by Industry)) = (SCR).
  • Employee Productivity Rate: Workforce efficiency measured over time. Formula: (Total Company Revenue) / (Total Number of Employees) = (Employee Productivity Rate).
  • Turnover Rate For Highest Performers: The success of retention efforts for top performers and plans for talent replacement. Formula: (Number of High Performers Who Departed in Past Year) / (Total High Performers Identified) = (High Performer Turnover Rate).
  • Average Time To Hire: The efficiency of the hiring process measured by time to recruit, interview, and hire.
  • Internal Promotion Rate: The successful retention and growth of top performers. (The Number of Promoted Individuals) / (Total Number of Employees) = (Internal Promotion Rate).