PapaDam

PapaDam

12-07-2022

07:07

Pravachaaan Chaalu! A company survives well on its two feet alone ie Growth and Profitability

For a company if having a problem on Revenue side one has to look what it has done which has lead to a state where it is not able to increase revenues. If the things are fine all good move on to Cost Side ie Profitability we then have to look at the break up of cost structure.

But if they are having Revenue side problems, then we have to see why it is having a problem and what management is doing to address that! You either launch more products or services or expand geography wise!

IE create more or enhance current ones or simply expand to different locations just to get more cash into the business.

Usually a company works in following category...cyclical/seasonal/day-today business. Cyclicals are those based on demand constantly revolving. Seasonal or not regular type business could be once an event occurs you do business and day to day where customers come and go

and indulge themselves with the company’s products and services offering more of habits...

Now looking at the creative aspect of the Revenues....because certain aspects can be known in partial way due to the element of human behaviour...which is....the product/service a part of NEED or WANT...the company which you track falls where...

if not laser sharp estimation but a general sense can be gathered on what the company is offering is it out of fashion or something else happened and hence things are not working so evaluation of the revenues from that perspective will help in learning where it might be heading..

If Revenues aren’t the problem then profitability might be..whats the cost structure of this co + we then compare it with others...is it in the same/off range? The company you pick should be the Leader....or the one just ahead of this company Asset/Sales wise....take your pick!

It is wise to form the order of the company which are leaders or laggards either by Assets or by Revenues and not Market Cap! when one is comparing...it helps to know what the position of the others are and why they are in that position! One can use Herfindahl–Hirschman Index

Comparing margins based on the industry/sector helps in analysing the company with respect to others. Asking management about it in the concall what are they upto helps in understanding where this company will head or reading past transcripts based on the above matters...

A problematic company might take 2/3/5 years to peel out its own old skin and in the mean time gets ready to crawl and move swiftly with its new skin but for that constant watch is required..

.but important point is either of the two - Growth or Profitability has to remain consistent moving lever or rangebound of some sort...if either of them aren’t showing energy....ask ask ask....if one is in a position to the management or....stay alert!

Now the third part Balance Sheet problem.....mostly occurs on the part of the Debt hangover or some other liability side problem....too much cash borrowed but sadly Growth train was missed or

one did boarded but somehow was taken for a ride in opposite direction...IE you did follow growth but couldn’t make money! Meh waste of time!

For this constructive talks with lenders is preferred as company can cling onto the assets so as to keep the business going because if lenders want their money back (wasooli karke rahegaa) then they will put their hands on the assets to sell them and

recover their amount (pocket me se rampuri nikalegaa! I guess) So thats ideal situation...(mandavali)...if its not able to raise equity due to the credibility issues....

otherwise equity issuances are the best option to lower debt make the balance sheet neat and focus on business...look into that as to what company is doing...

Now going back to the topline....and not failing to mention about competition....

How many players are there in the industry....regulated one has few players and similar Growth and Profitability unless they acquire some entitlements to utilise region or area to expand their business...and reach out to customers!

More of oligopoly and this also can be considered based on Size....as in standalone or consolidated entity....because Capital Mix of both entities does affect business operations...as it is linked to the Rating of the Firm which is linked to Capital Raising process....

so...that also needs to be seen...whats the competition like!? If its a standalone in the competition then...look at their Capital/Asset Mix! If its a consolidated then slice and dice the only part required to the domain which the industry you are looking into...

We also know a thing on competitive strategy....which can be applied here...a well documented one...cost and differentiation strategies....yaad aayaa padhaa kya kidhar? Idhar udhar? Nai no problem! Like two broad strategies rule the business world...

either play as a low cost provider or provide product/service with some differentiation factor which helps you make more money!

We then have to look into this as to what Management is upto in bringing its glory back I mean bringing the mojo back into the firm and compete well in the business arena! Here also one can note on related or unrelated expansion of the company...

but for this one has to study well what they are upto...so as to grow revenues...and which other unrelated expansion they are looking at...

we have seen small time steel firms entering into cement industry...they incurred heavy losses in steel operations so lets do cement this time that kind of thing! Beware Aware...Tuuperware!

Whether an industry/sector has many or less players in it...who is where and what are the margins helps in understanding how our shortlisted company's situation is like..in order to be at top or climbing up what all efforts would be required operationally or financially!

Just because some company is doing a certain thing doesnt mean our shortlisted company has to do the same thing..we have to look at the innovative/creative approach of management to tackle its affairs..copy karke utna hi marks aayegaa uske jaise we have to see the X factor action


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