Complete Company Analysis - Case Study#

Let's put everything together with a comprehensive ratio analysis. We'll analyze a fictional but realistic company, "TechMed Solutions," a healthcare technology company, using the framework and ratios learned throughout this course.

Case Study Company: TechMed Solutions - Industry: Healthcare Technology (SaaS) - Market Cap: $8.5 billion - Stock Price: $85 - Business: Cloud-based electronic health records and practice management software

Step 1: Gather Key Data#

Income Statement Data (Latest Year)#

Item	Amount
Revenue	$1,200M
Cost of Revenue	$360M
Gross Profit	$840M
Operating Expenses	$600M
Operating Income	$240M
Interest Expense	$25M
Pre-tax Income	$215M
Net Income	$170M
Shares Outstanding	100M

Balance Sheet Data#

Item	Amount
Cash	$400M
Accounts Receivable	$180M
Total Current Assets	$620M
Total Assets	$2,000M
Accounts Payable	$90M
Current Liabilities	$280M
Long-term Debt	$500M
Total Liabilities	$880M
Shareholders' Equity	$1,120M

Cash Flow Data#

Item	Amount
Operating Cash Flow	$280M
Capital Expenditures	$80M
Free Cash Flow	$200M

Additional Data#

Metric	Value
Prior Year Revenue	$960M
Prior Year EPS	$1.40
Annual Dividend	$0.50
5-Year Avg ROE	14%

Step 2: Calculate Key Ratios#

Valuation Ratios#

Ratio	Calculation	Result
EPS	$170M / 100M	$1.70
P/E Ratio	$85 / $1.70	50x
P/B Ratio	$8,500M / $1,120M	7.6x
P/S Ratio	$8,500M / $1,200M	7.1x
EV	$8,500M + $500M - $400M	$8,600M
EV/Revenue	$8,600M / $1,200M	7.2x
EV/EBITDA	$8,600M / $320M*	26.9x
P/FCF	$8,500M / $200M	42.5x
FCF Yield	$200M / $8,500M	2.4%

*EBITDA estimated as Operating Income + $80M D&A

Profitability Ratios#

Ratio	Calculation	Result
Gross Margin	$840M / $1,200M	70%
Operating Margin	$240M / $1,200M	20%
Net Margin	$170M / $1,200M	14.2%
ROE	$170M / $1,120M	15.2%
ROA	$170M / $2,000M	8.5%

Financial Strength Ratios#

Ratio	Calculation	Result
Current Ratio	$620M / $280M	2.2x
Quick Ratio	($620M - $40M) / $280M	2.1x
Debt/Equity	$500M / $1,120M	0.45x
Interest Coverage	$240M / $25M	9.6x
Debt/EBITDA	$500M / $320M	1.6x

Efficiency & Growth Ratios#

Ratio	Calculation	Result
Asset Turnover	$1,200M / $2,000M	0.6x
Revenue Growth	($1,200M - $960M) / $960M	25%
EPS Growth	($1.70 - $1.40) / $1.40	21.4%
Rule of 40	25% + 20%	45%
FCF Conversion	$200M / $170M	118%

Dividend Ratios#

Ratio	Calculation	Result
Dividend Yield	$0.50 / $85	0.6%
Payout Ratio	$0.50 / $1.70	29%
FCF Coverage	$200M / $50M	4.0x

Step 3: Industry Comparison#

TechMed vs. Healthcare IT Peers#

Metric	TechMed	Peer Avg	Industry
Revenue Growth	25%	18%	15%
Gross Margin	70%	68%	65%
Operating Margin	20%	18%	16%
ROE	15.2%	14%	13%
D/E	0.45x	0.55x	0.5x
P/E	50x	45x	40x
EV/Revenue	7.2x	6.5x	5.5x

Observations:

Above-average growth and margins
Slightly premium valuation vs. peers
Conservative capital structure
Strong competitive position

Step 4: Trend Analysis#

5-Year Trend#

Year	Revenue	Net Margin	ROE	D/E
2020	$600M	10%	12%	0.6
2021	$720M	11%	13%	0.55
2022	$850M	12%	13.5%	0.5
2023	$960M	13%	14%	0.48
2024	$1,200M	14.2%	15.2%	0.45

Trend Assessment:

✅ Revenue: Strong, consistent growth (CAGR: 19%)
✅ Net Margin: Steadily improving (scale benefits)
✅ ROE: Consistently improving
✅ D/E: Declining (strengthening balance sheet)

All trends positive—excellent execution.

Step 5: Integrated Assessment#

Strengths#

Strength	Evidence
Strong growth	25% revenue growth, above peers
High-quality SaaS model	70% gross margin
Improving profitability	Margins expanding yearly
Conservative balance sheet	D/E 0.45x, Interest Coverage 9.6x
Excellent FCF conversion	118% of net income
Passes Rule of 40	45% (25% growth + 20% margin)

Concerns#

Concern	Evidence	Severity
Premium valuation	P/E 50x vs. 40x industry	Medium
Low dividend yield	0.6%	Low (growth focus)
Customer concentration?	Need to check	Unknown
Competitive moat?	Need qualitative analysis	Unknown

Key Questions for Further Research#

Revenue quality: What is net revenue retention? Are customers expanding?
Competitive position: Market share trend? Competitive threats?
Customer concentration: Top 10 customers as % of revenue?
Management: Insider ownership? Track record?
Growth runway: Total addressable market vs. current penetration?

Step 6: Valuation Assessment#

Is the Valuation Justified?#

Factor	Assessment
Growth premium	25% growth justifies some premium over industry
Margin trajectory	Improving margins support higher multiple
Financial strength	No debt risk discount needed
Quality of earnings	FCF conversion excellent
Industry position	Leader justifies premium

PEG Analysis#

Metric	Calculation	Result
P/E		50x
EPS Growth		21.4%
PEG Ratio	50 / 21.4	2.3x

PEG of 2.3x is above the typical 1.0-2.0 "fair" range, suggesting the stock is priced optimistically.

Reverse DCF Implied Growth#

At current valuation, the market expects approximately 20%+ annual earnings growth for 5+ years. Is this achievable?

TAM must be large enough
Competitive position must hold
Margin expansion must continue

Step 7: Investment Conclusion#

Summary Scorecard#

Category	Rating	Notes
Valuation	⭐⭐⭐	Premium, but possibly justified
Profitability	⭐⭐⭐⭐⭐	Excellent and improving
Financial Strength	⭐⭐⭐⭐⭐	Very strong
Efficiency	⭐⭐⭐⭐	Good for software
Growth	⭐⭐⭐⭐⭐	Excellent

Investment Thesis#

TechMed Solutions is a high-quality healthcare IT company with:

Strong competitive position (above-peer metrics)
Excellent growth trajectory (25% revenue growth)
Improving profitability (margins expanding)
Conservative balance sheet (D/E 0.45x)
Superior FCF generation (118% conversion)

However:

Valuation is premium (P/E 50x, PEG 2.3x)
Market expectations are high (20%+ growth priced in)
Any growth disappointment could hit the stock hard

Conclusion: High-quality company at a full valuation. Suitable for growth-oriented investors willing to pay for quality. Value investors should wait for a better entry point. Add to watchlist; consider buying on 15-20% pullback.

Analysis Framework Recap

This case study followed the systematic approach: 1. Gather data (IS, BS, CF) 2. Calculate ratios (Valuation, Profitability, Strength, Efficiency, Growth) 3. Compare to peers and industry 4. Analyze trends 5. Integrate assessment 6. Evaluate valuation 7. Draw conclusions

Key Takeaways

Systematic analysis covers: Valuation → Profitability → Financial Strength → Efficiency → Growth - Compare ratios to peers, industry medians, and company's own history - Trend direction matters as much as absolute levels - Quality companies can justify premium valuations—but quantify expectations - PEG ratio helps assess growth-adjusted valuation - Always identify key questions for further research - Investment conclusions should synthesize all ratio categories - High quality at high prices may be less attractive than good quality at fair prices