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Methodology

 

         Objectivity derives from careful analysis... 

 

 

Crystal Equity Research provides a viewpoint on the fundamental business characteristics of a company. We also provide commentary on the adequacy of market price and the potential for further price appreciation. When reaching a recommendation, we consider the historical and prospective financial condition, quality of management, and operating performance of the company, as well as any specific characteristics of the stock that might affect valuation. 

  

Valuation and Analysis 


A sound valuation is based on a systematic approach to fact gathering and due diligence. We use accepted valuation methodologies, apply them to the facts and develop a defensible analysis.    Then our process goes one step further. We apply our experience and insight into the developing company to verify our valuation results. Recognizing and properly weighing the underlying components to value and taking into account all the issues at hand are important elements of the art of valuation for small capitalization companies. 

  

A well documented valuation includes an in-depth understanding of the company, its business, financial condition, and earnings capacity.  We look carefully at all of a company’s financial statements in depth. We spend considerable time analyzing the ebb and flow of sales and expenses in the income statement, but we also carefully scrutinize the cash and non-cash components as they are revealed in the cash flow statement. We also watch the balance sheet to see how efficiently assets are being used or what liabilities may be building. We want to see how the smaller, emerging business is evolving and how management is nurturing its business model. 


We employ a set of diagnostic tools which we believe are particularly effective in evaluating a developing and growing company. These tools are meant to evaluate the quality of strategic investments, cash flow, earnings and balance sheet. Asset turnover, operating margins and return on capital are three measures that tell us about efficiency in operations or quality of investment. To determine cash flow quality we adjust cash flow from operations to include only those from current business operations. Earnings quality is determined in much the same way through an extraction of non-recurring expenses or income sources and an adjustment of unusual circumstances to more normal conditions. To judge the balance sheet we look at such measures as days-sales-outstanding. We also compare changes in accounts receivable and inventories to spot bottlenecks in the production and sale of the company’s goods. We also look at accrual accounts such as deferred charges, tax valuation accounts or prepaid items to determine if income is simultaneous with cash flow. 

  

Other Considerations  

  

Our analysis does not stop with the reported financial results.  We give careful consideration to a number of factors. 

 

    Issuer Characteristics

         Accounting Policies               

         Pattern of Financial Filings     

         Disclosure and Accessibility 

         Board Composition 

         Management Compensation 

         Anti-takeover Provisions 

         Regulatory or Legal Actions 


     Issue Characteristics
         Seasoning
         Trading Volume 

         Volatility 

         Dilution 

         Inside Ownership
         Insider Buying and Selling
         Institutional Ownership 

         Research Coverage 

         Valuation Relative to Industry 

         Valuation Relative to Market 

  

 

 

 

 

 

 
 
 
 
 
 
 
 

 

 

 

 

 

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