How to research a company from scratch

In simple terms

Researching a company means building an honest picture of a business: how it makes money, how strong its position is, how well it is run, what its numbers show, what it is worth, and what could go wrong. Doing the steps in a sensible order, and every time, makes your research more complete and easier to check later.

Throughout this path, the aim is to learn a method of reasoning. Nothing here is a recommendation to buy or sell any share.

Start with a question, not a conclusion

Most bad research begins with a conclusion: "I like this company; let me find reasons to buy." That invites confirmation bias. Start instead with questions:

• What does this company actually do, and who pays it?
• Why do customers choose it over competitors, and will that last?
• Do the numbers support the story?
• What would I have to believe to pay today's price?

The order of work

The proportions are a rough guide. For a complex business or a company with governance questions, steps 1 and 4 deserve more time.

Step by step

1. Business. Read the business description, segment information and the management discussion in the annual report, as the annual report lesson explains. Write, in two or three sentences, how the company makes money. If you cannot, you are not ready to go further. The products and customers lesson goes deeper.

2. Industry and competition. Identify the main competitors and read their reports too. Look for evidence of a competitive advantage: stable margins, high returns on capital, market share held over time.

3. Financial statements. Build a table of several years of results, as the analysing statements lesson explains. Look at growth, margins, returns, debt and cash flow, and explain each big change.

4. Management and governance. Compare past promises with results, study capital allocation, related-party dealings, pay and promoter pledging, as the evaluating management lesson explains.

5. Valuation. Choose methods that suit the business, build scenarios from explicit assumptions, and ask what the current price implies, as the valuation method lesson explains.

6. Risks and conclusion. List the main risks, rank them, and write a short thesis with what would prove it wrong, as the research report lesson explains.

Primary and secondary sources

Primary sources come from the company or a regulator: annual reports, quarterly results, investor presentations, earnings call transcripts, and filings on the NSE and BSE websites, as the exchange filings lesson explains.

Secondary sources include data websites, broker reports and news. They save time, but they can contain errors, use different definitions, or reflect someone else's opinion. Use them to find questions, then check the answers in primary sources.

Writing as you go

Keep notes at each step: what you found, where, and what you could not find out. Gaps matter. If you cannot find how a company earns most of its profit, that is itself a finding.

Why it matters

A repeatable process means you ask the important questions every time, rather than only the ones that occur to you when you are excited about a company. It also makes your conclusions checkable, by you later or by anyone you show them to.

Limitations

No process guarantees good results. Research takes time, information is always incomplete, and markets may already reflect what you find. The order is a guide, not a rule; findings in later steps often send you back to earlier ones.

Common mistakes

• Starting with the share price or a target.
• Relying on data websites without checking the annual report.
• Skipping governance because the numbers look good.
• Researching only to confirm a decision already made.

Try it yourself

1. Choose a listed company whose products you know.
2. Download its latest annual report from the company's website or the exchange.
3. Write two or three sentences on how it makes money, using only the annual report.
4. List its three closest competitors and one question for each of the six steps.