How to do Management analysis of company before investing in Stocks

How to analyze management of a company

One of the most important steps that’s often overlooked while investing in a company’s shares is Management analysis and quality. However, this is one of the most important things to understand while evaluating any company . Lets understand by a simple analogy – you may purchase a very expensive and great car , but if the driver does not know how to drive well, your car is going to crash eventually , putting you at risk. Similarly , a poor management and promotor puts your investment in any company at risk

Why is Management Analysis or Promoter Analysis overlooked by investors?

There may be various reasons why investors neglect to analyze the Management Quality. Let’s discuss them in detail.

  • There isn’t any fixed formula to judge good or bad management.
  • Nobody can calculate the management quality using a balance sheet, p&l statement, or annual reports.
  • The information about the company’s management is not readily available on the internet.
  • It isn’t easy to calculate the management efficiency and integrity.

But still, if you are a serious investor and want to pick quality stocks for investment, you have to put some time and effort into management analysis. If you want to get information about the company’s promoters and management, there are few ways through which you can get fair details about it. Some of them are listed below.

How to Analyze Management of a Company

Two most important things to see in company management or promoters while evaluating any business for investment are 

  • Their experience and execution to run the business.
  • Their future vision for the company, sincerity and confidence to achieve that vision.

If any of the traits mentioned above are missing in the management, then your investment in that firm can be risky. If management is ambitious but not fair for its investors, one should not invest in such firms. The understanding of the above two points is fundamental to management analysis.

Know about the CEO and key personalities in the Company: 

It’s essential to know about management’s key people and their working principles. These are the people whose business reputation gives an advantage to the firm over their peers. Like Ratan Tata, who is recognized for his work ethics, loyalty, and sincerity. You have to know about the CEO of the company via news, articles, and magazines.

Go Through Annual Reports Deeply: 

Every investor should make a habit of reading the company’s annual reports in detail. A section called management discussion and analysis is a very important part in the annual report where the company shares its history, its current performance and the important milestones they have achieved. They share their future plans and strategies for running the business, the new developments and areas they will look into for expansion and much more key information.

Management interviews and videos: 

It’s essential to watch management interviews with keen attention because they discuss its operations, issues and performance. They also share various key information like plans for expansion or any temporary problems that the company faces.

Know about the past records of frauds and promoter’s background: 

You can quickly get this information from Google regarding the company’s past scams and frauds. If there are allegations and cases running against the top management people of a company, it’s good to stay away from such companies. You have to know about the promoter’s past decisions and whether those decisions are taken to keep minority shareholder’s interest.

Earnings Conference Call

Again very important to attend the quarterly earnings conference call where the management discusses the quarterly performances and the key decisions taken for future growth. One can get detailed insight into a firm’s temporary problems and what management is doing to resolve those issues. Also, Q&A sessions are there where people can ask about their problems. By attending these Q&A session, you would get know about the important decisions management is taking and how these decisions are going to impact its future performance.

Future Plans, Policy, and goals

It’s essential to review the plans, policies 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 the stocks for your 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.

Usually, the cash in a company is earned via profits. These cash can be either used for company’s growth or to reward the investors by paying out dividends. If investors are getting dividends, they must also recognize the source. In the year 2014, the companies like L&T, Hindalco gave dividends to all their investors even when the firm did not clear their debts.

Promoters Salary And Remuneration: 

The salary of the key personalities in management gives an excellent idea about management intention and quality. If a company is going via the lousy phase, but the promoters are still taking a hefty pay to their home, that indicates they don’t care to take the company out of the tough times.

Promoter’s salary details can be obtained from yearly reports. So it is essential to go through every section of the annual statement.

A quick analysis of the above points can give you a good idea about its management type and how likely the firm will perform in the future.



What is company analysis in investment management?

Investors must do company analysis to evaluate securities, its profile, products, services, and profitability. A company analysis includes all the company details, like the mission statement, values, and goals.

What makes a company stable?

Stability means how a company can withstand difficult situations, like a decrease in sales, capital issues, customer issues, etc. Examining your cash flow and various contradictory problems will help you decide whether your company is financially stable or not.

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