How to do management Analysis of company before investing in stocks: Management and qualitative analysis in share market

How to do management Analysis of the company before investing in stocks: best and effective ways of doing management analysis of the company are discussed in this blog. grab an opportunity to uplift your financial knowledge by reading this blog.

Table of content

  1. What is Management Analysis?
  2. How to do Management Analysis?
  3. conclusion


management analysis


What is Management Analysis?

Management analysis refers to the process of analyzing and interpreting the top-level management of the company and the systematic examination of decisions and actions taken by the management.

It is one of the most important qualitative fundamental aspects that every investor must do before buying the shares of any company.

Let's understand with examples

suppose you purchase a very expensive helicopter, but if the pilot doesn't know how to drive well, your helicopter is going to crash eventually, putting you at risk. similarly, bad and poor management and promoters put your investment at risk.

once warren buffet says, "you can't make a good deal with a bad person"

Therefore, Investors should always buy the shares of a company having a good management team and hold them for the long term.


How to do Management Analysis?

Actually, Management Analysis is the qualitative aspect of fundamental analysis of the company so it ignores the financial statement and ratios. there isn't any fixed formula to calculate the management efficiency and integrity.

Some of the major parts of management analysis are listed below with detailed explanations:


Background of Management

  • Know about the education qualification of the management team
  • know about the family background of the management team
  • know about the past decision of the management team or BOD in minutes of the company
  • Watch the interview of the management team, BOD, and CEO 
management analysis

He is one of the best examples of good management who change the loss-making entity to a profit-making entity by his leadership qualities and proper human resources management. similarly, while investing in the company you have to know about the management team of that entity. It creates a huge difference.

Stable management team

you have to check whether the management team is stable or not. If the management team is stable then it is the plus point for the investor to invest in such a company. If the management team is changing frequently due to conflict among themselves then you have to remain away from such a company. If the labor turnover is high then it shows that a high number of employees are leaving or resigning from that entity. Investors should check such ratios which help investors to take a rational decision. some business entities in Nepal has suffered a loss due to conflict among promoters and poor management team.

Promoters shareholding

  • Purchase of shares of a company by its promoter is the sign of a good promoter.
  • It shows that the promoter believes that shares of the company represent a good investment opportunity.
  • An investor would appreciate that no one knows about a company better than its promotors do.
  • Therefore, when promoters buy shares, you should buy them too. (But keep in mind that all other indicators indicate everything fine)
In the case of banks and financial institutions of Nepal, promoters should hold a minimum of 51% shares of the company.

Salary of the management team

you can check the salary of the CEO and director in the annual report of the company. you can identify 
whether the salary of the CEO or Director is increasing or decreasing compared to the net profit of the company. if there is a loss in the company but the salary of the CEO is in increasing trend. then you should remain far away from such company shares.

Timely completion of Annual general meeting (AGM)

According to the provision of the companies act, every company shall have to conduct the annual general meeting within six months of the end of the fiscal year. so investors should select those companies who have conducted the AGM on time. you would get dividends on time if you select such companies. you will not lose the time value of money.

Timely publishing of Annual and Quarterly report

those companies who do not publish their annual and quarterly report on time shall not be your preference because it shows the management weakness. They are not responsible towards the stakeholder. they are not worried about the shareholders of the company. you should prefer shares of those companies which publishes annual and quarterly reports on time.

Related party transaction

There are high chances of fraud and manipulation in the case of related party transactions. they may show loss-making entity to profit-making entity by window dressing. generally, it is done to make the shareholder happy by showing a high profit.
  •  Interest-free loan to promoters and their relatives.
  • management involvement in other companies with the same business model.

Future plans, strategy, and goals

goal

  • It's essential to review the plans, strategy, and goals, the management is setting while investing in any stock. you have to begin via the company's vision and value statement.
  • By reviewing all the details, you will know whether the strategy will perform well or not. By understanding such details, you can pick your stocks for long-term investment.

capital Allocation

  • capital allocation means how the management is using its free cash flows in a firm. these involve reinvestment into the company, giving dividends, etc.
  • The company's CEO has to know the cash management and finally has to satisfy the investors and grow the business.

Insider trading

Click here to know about insider trading.

Dividend history

it is very important to know the dividend history of the company that you are planning to invest in. you have to check the dividend history of at least the past 10 years. you can check the dividend history of the company from the very popular website. Click here to check the dividend history.


conclusion

The above mention point is the major part of management analysis. If you are a long-term investor you must do a qualitative fundamental analysis of the company in detail. but while investing for the long term you also have to analyze the quantitative fundamental analysis of the company which we will discuss in the next blog.

keep learning, keep growing
Have a great time

Thank you

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