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Topics in Business: Company Research: Starting company research

Why do company research?


Image from Freerange Stock

 

There are many reasons to investigate a company. Not all of them are related to research for course/academic purposes.

1. To help you get a job that you'll enjoy and pay you what you're worth!

  • After you graduate, you'll want a job with a company with competitive salaries in your industry, good working conditions, and an ethos that agrees with you. Researching a company prior to applying for a job will help you determine whether the advertised position is worth your time and energy.
  • You'll have a much better chance of impressing potential employers if you know something about the company with the job for which you're applying. Research the company ahead of time, and impress the interviewers with your expertise and knowledge!
  • Researching the company will help you customize your answers to the company's needs and wants. It will also help you determine if your own needs and wants concide with the company's needs and wants.

2. To help you make wise investment choices.

  • If you're dipping your toes into investing for the first time, you really should investigate a company thoroughly before buying shares in that company. Is the company on a solid financial standing or is it deep in debt? Has its stock price increased or decreased in the past few years? Does it have any outstanding legal issues or liabilities? The answers to these questions can be found with a solid investigation into the company's financial information and related documents.
  • Having in-depth information about the company will help you avoid scams and poor investments. If you can't find any information about a company, or the information you find appears to be sketchy or incomplete, then it's best to avoid investing in that company.

3. For academic/scholarly purposes.

  • Part of the study of management involves learning how to research company management practices. Any business or management analysis is made better by an in-depth knowledge of the companies whose management practices you're investigating.
  • Because your professor told you to (!).

 

The first question to ask: Private company or public?

All company research begins with one simple question: Is the company publicly traded or privately held?

  • A publicly traded company sells shares on public stock exchanges. The Dow Jones, the NASDAQ, and the New York Stock Exchange (NYSE) are examples of public stock exchanges in the United States. A share is a unit of ownership in a company. It allows the holder of the share to participate in company profits in the form of dividends, if such are available. Publicly traded companies are required to file documents with the US Securities and Exchange Commission (SEC) detailing their business, their liabilities, their assets, and other information. Because of these filing requirements, it's relatively easy to find information about publicly traded companies.
     
  • A privately held company is owned entirely by one person or a group of people. Shares of the company are not sold on any public exchange, and there are usually requirements for those who hold shares in privately held companies wishing to sell their shares to sell to other shareholders within the company.

    More importantly, privately held companies are not required to file information with the SEC. Consequently, it can be very difficult to find information on privately held companies. However, if a privately held company is very large, it tends to leave a "footprint" of sorts in the media and in industry reports. For example, Mars, Inc. (makers of 3 Musketeers bars, Dove chocolates, Altoids mints, and other products) has been privately held by the Mars family since its creation, but the company is so big that it leaves an impression in the media and profiles of the candy and confectionery industry. It's worthwhile to note that large private companies like Mars often maintain websites with significant information about the company.

The second question: Is it a parent company or a subsidiary?

A publicly held company may own private subsidiaries. Subsidiaries are companies that are entirely or majority owned by a larger company (which in such cases are called parent companies). If the subsidiary was a publicly traded company at the time of its acquisition by the parent company, the parent may choose to subsume the subsidiary's operations within its own. For that reason, subsidiary activities may be difficult to research. You may have to comb through the parent company's financial statements for information about the subsidiary, and a great deal of information that's usually common knowledge where publicly traded companies are concerned may not be available from subsidiaries.

A subsidiary that is entirely owned by a parent company is called a wholly owned subsidiary. However, a parent company need hold only a controlling interest in another company for that company to be considered a subsidiary. 

A company that exists only to own subsidiaries, and conducts no business of its own, is called a holding company.

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Olivia Olivares
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