Module 2 ยท Understanding Companies
Understanding what a company sells and how it makes money is the heart of stock analysis.
A sector groups companies that do similar things - banking, IT, consumer goods, energy, pharma and so on. Each sector has its own economics, cycles and risks.
A business model is how a company actually makes money: a bank earns from interest and fees, an IT firm from services, a retailer from margins on goods.
Before investing, ask: what does this company sell, who buys it, how does it make a profit, and what could disrupt it? The clearer the model, the easier it is to judge the stock.
Example: HDFC Bank vs TCS
HDFC Bank earns from the spread between lending and deposit rates plus fees. TCS earns by selling software services to global clients. Same market, very different economics and drivers.
Why does a company's business model matter to an investor?
Pick a company you know. In one sentence, how does it make money? Who are its customers?