What are the basic steps of a financial advisor, if he or she is given 2 companies to analyze?

Question

A financial advisor is given two companies in order to analyze the companies using its balance sheet in order to invest in one of the best one's. What are all the steps to follow........in his case for a successful report for the customer, say for eg. the two companies are big food producers............

Answer 1

financial advisor are not stock analysts. They advise people on where to invest their money. And as the 1st responder mentioned, regretably many like to stear their clients where they obtain the best commissions besides charging their clients 1 1/2% of their assets for their advice.

Security analysts are the ones that analyze companies as to their relative investment potential.

Nowadays, much of the work is actually done by computer but there are still some dyed in the wool old time analysts around. Mostly working for themselves.

step 1. compare sales growth or lack of same
step 2. look at the debt/equity ratio
step 3. look at the profit margin
step 4. look at the pe ratios
step 5. look at the cash flow
step 6. look at the dividend history
step 7. look at management compensation

At this point the analyst should have some idea of the relative merits of the two companies. Efficient market theory states that it will be a toss up between the two. The theory may be correct in many instances especially with more widely traded stocks.

Answer 2

Certainly you would want to do a fundamental financial analysis as suggested by the first responder. However, just as important, you want to look at the overall industry that the company is in, it's standing in the industry, and what has been happening to the company and it's management. The fundamentals only tell you what has already happened. You want to try and anticipate what will happen in the future -- for that, you need to understand the company and management from a non-financial perspective. Objective and subjective analysis go hand in hand in properly evaluating a company's invetment potential.

Answer 3

He will report that the one who pays him the most Commission is the best investment ... what do you think ?

One the other hand, if YOU were to do the analysis I suggest start vwith the 'Fundementals' (over the last 5 years plus current & next year (brokers consensus) ..

i.e. :-
Share price trend
PE Ratio
EPS
Dividend Yield
Dividend Cover
Operating Profit
Pretax Profit
Earnings after Tax
Profit Available For Dividend
Preference & Ordinary Dividends
Retained profit
Shareholders funds
Net Current Assets
Adjusted EPS undiluted & diluted
Dividend Per Share for year
Gearing

Answer 4

Consultant with financail advisor companies