1. Introduction Back to Top
Capacity (facility) constraint: Large capacity creates higher entry barrier, and keep higher margin.
Competitive constraint: Severe competition lowers margin.
Operation leverage constraint: Higher operation leverage (higher fixed cost) leads to greater variability in ROA.
Cyclical economy constraint: Sensitivity to cyclical economy affects variability of ROA
Product life cycle constraint: Product life cycle affects ROA (At introduction of a product, ROA becomes lower)
2. Accounting change Back to Top
Accounting change often hide the true profitability and risk of a company.
3. Profitability analysis Back to Top
ROA = Profit margin x Assets turnover
4. Risk analysis Back to Top
5. Forecasting Back to Top
6. Valuation Back to Top
|Intrinsic value approach:||
Discounted Cash Flow or Discounted Dividends shows the value of a company.
Relative value approach:
Competitive companies' market values can be adjusted based on a relative P/E ratio and a relative P/BV ratio.