Fundamental Analysis - Age of Organization

ORGANIZATIONS AGE :-

A Long History for an Organization is much better. Being in the field   for several years it may have faced many Ups and Downs         experiences. How to solve a problem occurring from a specific side        may be known to the Management. In the Upcoming years , sudden    drawbacks if occurring , how to tackle them will also be able from their previous experiences. In that manner the Organizations 

          (a)     Management,

          (b)     About the promoters,

          (c)     About their products,

          (d)     Products Quality,

          (e)     Customer Service,

          (f)      Investor service etc……numerous factors can be known from their track records.

                            

An Organization without Long History can be kept at a Distance. Investing in New comer companies stocks , risk will be considerably more. To achieve success brave actions with courage alone is required.

                            

The very Long history organizations, can be of how many years ? Is there any certain restrictions in this ! No, to how much extent the years are, better it can be involved for Analysis. But a maximum of 20 – 25 years can be considered as reasonable. Apart from these the following factors should also be considered,    

they are

1. Strong Historical Earnings Growth? 
The first question a growth investor should ask is whether the company, based on annual revenue, has been growing in the past. Below are rough guidelines for the rate of EPS growth an investor should look for in companies of differing sizes, which would indicate their growth investing potential: 

Although the NAIC suggests that companies display this type of EPS growth in at least the last five years, a 10-year period of this growth is even more attractive. The basic idea is that if a company has displayed good growth (as defined by the above chart) over the last five- or 10-year period, it is likely to continue doing so in the next five to 10 years. 

2. Strong Forward Earnings Growth? 
The second criterion set out by the NAIC is a projected five-year growth rate of at least 10-12%, although 15% or more is ideal. These projections are made by analysts, the company or other credible sources. 

The big problem with forward estimates is that they are estimates. When a growth investor sees an ideal growth projection, he or she, before trusting this projection, must evaluate its credibility. This requires knowledge of the typical growth rates for different sizes of companies. For example, an established large cap will not be able to grow as quickly as a younger small-cap tech company. Also, when evaluating analyst consensus estimates, an investor should learn about the company's industry - specifically, what its prospects are and what stage of growth it is at. (See The Stages of Industry Growth.) 

3. Is Management Controlling Costs and Revenues? 
The third guideline set out by the NAIC focuses specifically on pre-tax profit margins. There are many examples of companies with astounding growth in sales but less than outstanding gains in earnings. High annual revenue growth is good, but if EPS has not increased proportionately, it's likely due to a decrease in profit margin. 

By comparing a company's present profit margins to its past margins and its competition's profit margins, a growth investor is able to gauge fairly accurately whether or not management is controlling costs and revenues and maintaining margins. A good rule of thumb is that if company exceeds its previous five-year average of pre-tax profit margins as well as those of its industry, the company may be a good growth candidate. 

4. Can Management Operate the Business Efficiently? 
Efficiency can be quantified by using return on equity (ROE). Efficient use of assets should be reflected in a stable or increasing ROE. Again, analysis of this metric should be relative: a company's present ROE is best compared to the five-year average ROE of the company and the industry. 

5. Can the Stock Price Double in Five Years? 
If a stock cannot realistically double in five years, it's probably not a growth stock. That's the general consensus. This may seem like an overly high, unrealistic standard, but remember that with a growth rate of 10%, a stock's price would double in seven years. So the rate growth investors are seeking is 15% per annum, which yields a doubling in price in five years.