Objectivity derives from careful
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.
Our analysis does not stop with the reported financial results. We give
careful consideration to a number of factors.
Pattern of Financial
Regulatory or Legal
Insider Buying and Selling
Valuation Relative to
Valuation Relative to