An Approach to Evaluating a Publicly Traded Company
Smith, Amy Elizabeth, 1969-
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The primary purpose of this project is to explore the various aspects of the detailed investigation that should precede every decision of whether or not to purchase the common stock of a publicly traded company. (Throughout this text, any reference to a "company" or a "firm" implies a publicly traded entity unless otherwise noted.) It is my own belief, and that of the firm at which I interned this past term, that one or two ratios and a quarterly earnings report simply are not a steady foundation upon which to base an important investment decision. "Learning the business" should be a crucial and integral part of the investment process, and the pages to follow lay out the different areas upon which an analyst or reviewer must focus to do just that. Each of these areas is discussed herein independently and is included in one of two general categories, the company audit or the environmental audit. Although the company audit should be recognized as the more important of the two, the relevance of the environment in which a company operates must not be underestimated. The point to remember in distinguishing the significance of the two categories is that the investor ultimately is choosing whether or not to become part-owner of one individual company. Though it is the company's environment that shapes managerial decisions and therefore financial and operating results, in the end it is the stock of that one particular company that is or is not purchased.