What analysis is for
Not to predict the share price. To work out what a business earns, how reliably, and what it would be worth if you owned all of it — so that when the price says something different you know which of you is wrong.
Chapter 1 · Beginner
Chapter 2 of the markets subject established that a share price is the opinion of whoever traded most recently. This subject is about forming your own.
The question
Company analysis answers one question, and it is worth stating before any arithmetic:
What does this business earn, how reliably, and what is that worth?
Not where the share price is going. Not what the market will think next quarter. What the business produces, and what a rational buyer of the whole thing would pay for it.
That distinction matters because the two activities look similar and are not. Forecasting a price means predicting other people. Analysing a business means understanding an operation — one that files audited accounts, employs people, sells things, and will go on existing whatever the screen says this afternoon.
Why it is worth the trouble
Three reasons, and the third is the real one.
Because price and value come apart. Chapter 2 of the equity subject showed that a share's return splits into earnings growth, the change in the multiple, and dividends — and that the multiple is opinion. Opinion moves far more than businesses do. If you have your own estimate of what a business is worth, a moving price becomes an opportunity rather than a verdict.
Because it tells you what you own. Most people holding shares could not say what fraction of the company's revenue comes from which product. That is not a moral failing; it is just a gap, and it is the gap that makes a 30% fall unbearable.
Because it is what lets you hold. Chapter 9 of the equity subject: the investor forced to sell at the bottom turns a fall into a loss. What lets somebody hold through a fall is a view of the business formed when they were calm. Analysis is mostly the manufacture of that view.
What it cannot do
Be honest about this early, because the subject is often oversold.
It will not tell you what happens next quarter. Accounts are historical. They describe what happened, extremely well, and the future is a judgement laid on top.
It will not make you right. Good analysis of a business whose industry then changes produces a well-reasoned wrong answer. The work raises the odds; it does not settle them.
It cannot find what is not disclosed. You are reading what the company filed, audited to a standard, within rules. That is a great deal and it is not everything, and chapter 7 is about reading the parts where the gaps show.
What you are actually reading
A listed Indian company tells you about itself on a schedule, and the schedule is set by regulation rather than goodwill. Audited annual results are filed within sixty days of the financial year end, with the audit report. Quarterly results follow each quarter. The annual report arrives with the directors' and auditors' commentary around the numbers.
That cadence is the raw material of this subject, and chapter 2 is about what each document is and which parts repay reading.
The shape of the subject
Twenty-two chapters in three movements.
Chapters 2 to 7: where the numbers are and what they say. The three statements, how they connect, and the notes and audit report that qualify them.
Chapters 8 to 15: what the numbers mean. Margins, returns on capital, working capital, debt, growth, and the quality of the earnings being reported. This is where a business becomes legible — where you can say why one company earns more than another rather than just that it does.
Chapters 16 to 22: what it is worth. Multiples, their traps, discounted cash flow done honestly, and the trick of running it backwards to see what the current price is assuming. That last one is the most useful thing in the subject.
One habit to start with
Before any ratio, answer in one sentence: how does this company make money?
Who pays it, for what, and why do they keep paying. A business you cannot describe in a sentence is one whose numbers you will misread, because you will not know which of them matter.
Most analysis that goes wrong goes wrong here rather than in the arithmetic.
The point
Analysis answers what a business earns, how reliably, and what that is worth — not where the price is going. It is what makes a falling price an opportunity rather than a verdict, and what lets you hold. It cannot predict next quarter or find what was never disclosed.
Check yourself
4 questions. Every answer is explained afterwards, including the ones you get right — guessing correctly is not the same as knowing. Score 70% or more and the chapter is marked done.
Question 1 of 4
0 of 4 answered. You can submit with questions unanswered — they simply score zero.
Now do it with your own numbers
Pick a company you use the products of. Before opening any document, write down how you think it makes money and what could stop it. Then read its annual report and mark what you got wrong.
Almost everyone gets the revenue split wrong. Companies are usually earning most of their money somewhere less obvious than their advertising suggests.