Title LM05 Company Analysis - Past and Present IFT Notes.pdf ✅

LM05 Company Analysis: Past and Present 2025 Level I Notes LM05 Company Analysis: Past and Present 1. Introduction............................................................................................................................................................... 2 2. Company Research Reports................................................................................................................................2 3. Determining the Business Model......................................................................................................................4 4. Revenue Analysis.................................................................................................................................................. 11 5. Operating Profitability and Working Capital Analysis.........................................................................15 6. Capital Investments and Capital Structure................................................................................................21 Summary........................................................................................................................................................................ 25 Required disclaimer: IFT is a CFA Institute Prep Provider. Only CFA Institute Prep Providers are permitted to make use of CFA Institute copyrighted materials which are the building blocks of the exam. We are also required to create / use updated materials every year and this is validated by CFA Institute. Our products and services substantially cover the relevant curriculum and exam and this is validated by CFA Institute. In our advertising, any statement about the numbers of questions in our products and services relates to unique, original, proprietary questions. CFA Institute Prep Providers are forbidden from including CFA Institute official mock exam questions or any questions other than the end of reading questions within their products and services. CFA Institute does not endorse, promote, review or warrant the accuracy or quality of the product and services offered by IFT. CFA Institute®, CFA® and “Chartered Financial Analyst®” are trademarks owned by CFA Institute. © Copyright CFA Institute Version 1.0 © IFT. All rights reserved 1
LM05 Company Analysis: Past and Present 2025 Level I Notes 1. Introduction An insightful and well written company research report can help investors understand a company and make good investment decisions about the company’s securities. This and the next two learning modules provide a framework to prepare a company research report. This learning module covers:  Elements of a company research report  Determining a company’s business model  Evaluating a company’s revenue and revenue drivers – including pricing power  Evaluating a company’s operating profitability and working capital management  Evaluating a company’s capital investments and capital structure 2. Company Research Reports Exhibit 1 from the curriculum presents a framework for company and industry analysis. This module focuses on the foundational block – Company analysis: Past and Present. Company research reports examine a company's past and present financial statements, as well as its industry and competitors, and forecast its future financial statements. Reports conclude with a valuation, an investment recommendation, and a discussion of investment risks. The structure content and tone of a research report can vary. For example, reports for distribution to external clients (a sell-side report) often consist of an extensive initial report. The structure of an initial company research report is shown in Exhibit 2 of the curriculum. © IFT. All rights reserved 2
LM05 Company Analysis: Past and Present 2025 Level I Notes The primary audience of this report is those who are not already knowledgeable about the company. Subsequent company research reports are usually shorter than initial reports. Their primary audience consists of people who are already familiar with the company and need an update based on new information (such as a quarterly report) or a change in the analyst's recommendation. The structure of a subsequent company research report is shown in Exhibit 3 of the curriculum. © IFT. All rights reserved 3
LM05 Company Analysis: Past and Present 2025 Level I Notes 3. Determining the Business Model The first step of company analysis is understanding the company’s business model. A business model describes the company’s operations and includes the elements listed below, which analysts investigate by answering several key questions. Business Model Element Key Questions for Analysts The product(s) or service(s) the company sells What is the firm selling? Customers and key customer groups To whom does the company sell? Sales channels, including customer acquisition and product/service delivery mechanisms How does the company reach potential and current customers and how does it deliver products? How the product(s) or service(s) are priced and paid for How much does the company charge and how are prices and payment terms structured? Resource, supplier, and partner relationships need to operate effectively What does the company buy and rely on? For each of the key questions, there are numerous additional questions, such as determining whether customers are few and concentrated, whether suppliers and resources are specialized or difficult to replace, and so on. To answer these questions, analyst rely on both issuer and third-party information sources. Issuer sources (available freely if the company is public) © IFT. All rights reserved 4