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Chapter 49: Comparative Analysis of Companies in the Same Field

Statistical comparisons of groups of concerns operating in a given industry permit each company’s showing to be studied against a background of the industry as a whole. They frequently bring to light instances of undervaluation or overvaluation or lead to the conclusion that the securities of one enterprise should be replaced by those of another in the same field.

The analyst must be cautious about drawing conclusions from the statistical data when dealing with companies in the heterogeneous group – the analyst may give preference to companies making the best quantitative showing but the analyst should be aware that such superiority may prove evanescent. The less homogeneous the group the more attention must be paid to the qualitative factors in making comparisons.

Items for Comparison for Industrial Companies in the Same Field

A.    Capitalization

1.    Bonds at par

2.    Preferred stock at market value (number of shares x market price)

3.    Common stock at market value (number of shares x market price)

4.    Total Capitalization (1 + 2 + 3)

5.    Ratio of Bonds to Capitalization (#1/#4)

6.    Ratio of aggregate market value of common to capitalization (#3/#4)

B.    Income Account (most recent year)

7.    Gross Sales

8.    Depreciation

9.    Net available for bond interest

10. Bond Interest

11. Preferred dividend requirements

12. Balance for common

13. Margin of profit (#9/#7)

14. % earned on total capitalization (#9/#4)

C.    Calculations

15. Number of times interest charges earned

16. Earned on common, per share

17. Earned on common, % of market price

18. Ratio of gross to aggregate market value of common

D.   Seven Year Average

19. Number of times interest charges earned

20. Earned on common stock per share

21. Earned on common stock, % of current market price

E.    Trend Figure

22. Earned per share of common stock each year for the past seven years

F.    Dividends

23. Dividend rate on common

24. Dividend yield on common

G.   Balance Sheet

25. Cash assets

26. Receivables

27. Inventories

28. Total current assets

29. Total current liabilities

30. Notes payable

31. Net current assets

32. Ratio of current assets to current liabilities

33. Ratio of receivables to sales

34. Ratio of inventory to sales

35. Net tangible assets available for total capitalization

36. Net tangible asset value of common per share (deducting all prior obligations)

H.    Supplementary Data

37. Physical output: Number of units; receipts per unit; cost per unit; profit per unit; total capitalization per unit; common stock valuation per unit.

38. Miscellaneous: Number of stores opened; sales per store; profit per store; ore reserves; life of mine at current rate of production.

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