3 Risky Mistakes Investors & Bankers Make
Financial professionals and investors regular analyze companies to understand performance, valuation, risk and future prospects.
Below are 3 risky mistakes often made that can lead to incorrect decision-making. Capnote is a financial workflow assistant created by financial professional to help.
1. Only Recognizing A Company’s Core Industry.
Some financial analysts, investors and even regulatory systems only categorize companies according to their core or primary industry of operation. However, this presents an incomplete picture which can omit risks or lead to lost opportunities.
For example, ask yourself, which industry does Tesla operate in? If your answer is the Automotive Industry, you are only partially correct. Failing to recognize that Tesla is also involved in other industries such as Solar Panels, Energy Storage, Robotics and more will give a skewed understanding of the company. Below is a screenshot from Capnote highlighting the various industries that Tesla is in. This is put together by using algorithms to check a variety of data sources. From Capnote’s analysis, publicly listed companies in the United States have operations in 3 industries on average.
2. Lacking Insight Into Company Value Chains.
A company’s value chain highlights the key relationships, inputs and stakeholders that it requires to make its product or deliver its services. These value chains can be quite simple or extraordinarily complicated. It is essential for a financial analyst to understand a company’s value chain and potential production risks or limitations.
To illustrate, earlier this year, Boeing was forced to suspend delivery of its 737-Max planes to its customers. This caused a number of downstream service problems for airlines. United Airlines reported an impact of over $200 million in the first quarter of 2024 due to lost business and cancellations.
Capnote has a value chain feature which can help analysts find key customers of a company like Boeing so they can more easily track any related impact. Below is an image from Capnote’s value chains feature showing some of the other customers of Boeing. Explore it to find other key relationships for companies.
Also Read; Why Capnote Was Created & Is Needed
3. Inadequate Peer Group Analysis.
Peer group analysis involves comparing a company to similar companies to benchmark its performance and valuation. It is essential to do this to fully understand the context of metrics and trends. For example, an operating margin of 30% might sound great. However, if similar companies have average operating margins of 40%, then it could be a red flag that requires further investigation.
Capnote helps analysts automatically form peer groups and compare the metrics. It has automated notes generated by precise algorithms which enables analysts to understand the numbers at a glance. In addition, analysts can create and save their own peer groups on Capnote and still get some automated notes and explanations for those notes.
