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COMPANY ANALYSIS: PAST AND PRESENT

Q: Subsequent (or follow-up) research reports

These reports only explain what changed since the last big report. Key items typically included in a subsequent company research report are as follows: - Front matter - Changes in recommendation with rationales - Analysis of new information - Changes in valuation and risks

Q: proprietary primary research and proprietary third-party information

- This is information you create yourself because no one else has it. - This is information you must pay for , created by other companies , not by you and not by the company you are analyzing.

Q: What is DFL (degree of financial leverage) and give me the formula

- DFL=%ΔNet Income%ΔOperating Income Explanation: DFL tells you how sensitive net income is to changes in operating income because of fixed interest expenses . If a company borrows more → interest becomes larger and fixed Fixed interest makes net income jump up and down more when sales change This increases risk So: More debt → higher DFL → higher earnings volatility → higher financial risk DFL literally measures how much debt amplifies profit swings .

Q: Explain levered and unlevered returns and give me the formulas of the two

✅ 3. Levered vs. Unlevered Returns Unlevered Returns (Debt removed) These show how profitable the company is before considering debt . Measured by: ROA (Return on Assets) ROIC (Return on Invested Capital) These reflect pure operating performance . Levered Returns (Debt included) These show returns after debt is considered . Measured by: ROE (Return on Equity) Debt affects ROE because: If the company performs well → debt boosts ROE If the company performs poorly → debt drags down ROE harder - ROA=Net IncomeAverage Total Assets - ROE=Net IncomeAverage Common Equity

8 important questions on COMPANY ANALYSIS: PAST AND PRESENT

Company research report

Explain what a company is worth, and say whether investors should buy, hold, or sell the stock. A company research report is the document where you show all your work.A full (“initiating coverage”) report includes every major piece of information an investor needs.
Later updates are shorter and focus only on what changed.

Subsequent (or follow-up) research reports

These reports only explain what changed since the last big report.

Key items typically included in a subsequent company research report are as follows:
- Front matter
- Changes in recommendation with rationales
- Analysis of new information

- Changes in valuation and risks

proprietary primary research and proprietary third-party information

- This is information you create yourself because no one else has it.

- This is information you must pay for, created by other companies, not by you and not by the company you are analyzing.

Formula operating profit and contribution margin per unit

= (P − VC) Where:

P = price per unit
VC = variable cost per unit

This tells you how much money each unit contributes toward paying fixed costs and generating profit.
If CM > 0, every additional sale helps cover fixed costs.If CM = 0, selling doesn’t help or hurt.If CM < 0, the company loses money on each sale.A company becomes profitable when:
Total CM>Fixed Costs Total CM > Fixed Costs

Formulas Gross profit, EBITDA, EBIT

Gross profit = revenue − cost of sales
EBITDA = gross profit − operating expenses
EBIT = EBITDA − depreciation and amortization

A long (short) conversion cycle indicates ......... And (..........) need for external financing.

Greater, less

What is DFL (degree of financial leverage) and give me the formula

- DFL=%ΔNet Income%ΔOperating Income

Explanation: DFL tells you how sensitive net income is to changes in operating income because of fixed interest expenses.

If a company borrows more → interest becomes larger and fixed
Fixed interest makes net income jump up and down more when sales change
This increases risk

So:

More debt → higher DFL → higher earnings volatility → higher financial risk

DFL literally measures how much debt amplifies profit swings.

Explain levered and unlevered returns and give me the formulas of the two

✅ 3. Levered vs. Unlevered ReturnsUnlevered Returns (Debt removed)These show how profitable the company is before considering debt.
Measured by: