Wednesday, December 19, 2012

Important calculation

Inventory t/o

Balance Sheet Line ItemAmount
Cost of goods sold$4,075,000
Direct materials expense$1,550,000
Raw materials inventory$388,000
Total inventory$815,000

To calculate total inventory turnover, the accounting staff creates the following calculation:

$4,075,000 Cost of Goods Sold
--------------------------------------   =   5 Turns Per Year
$815,000 Inventory

To determine the number of days of inventory on hand, they divide the number of turns per year into 365 days, as follows:

Cost of Goods Sold
365 /    -----------------------


$4,075,000 Cost of Goods
365 / ---------------------------------
$815,000 Inventory

= 73 Days of inventory

CCC=# days between disbursing cash and collecting cash in connection with undertaking a discrete unit of operations.
=Inventory conversion period  +Receivables conversion period  –Payables conversion period
=Avg. Inventory

COGS / 365
  +Avg. Accounts Receivable

Credit Sales / 365
  –Avg. Accounts Payable

Purchases / 365


readings from common stocks and uncommon profits

Different from Warren, looking for that growth stock, stock that has a propensity to grow.

15 points to look at:

1) Earning visibility for next 2-3 years. 2 years at least

2) Earning visibility for the long term. (Track records, not just the numbers, but the timing of execution, etc)

3) Research and development of new products (Property, does it matter? High end and lower end)

4) Sales team and executive competence, how fast is sales moving, (inventory t/o, receivables t/o), how honest is the executives in recognizing the profits. 

5) Profits margin (Is it stable, it is losing as compared to its peers)

6) any niche or "moats"

7) Short term or long terms outlook? How to tell???

8) Financial strength, for both expansion and collapse

9)Integrity, cannot tell


Property counters' case study

CDL is considered to have a strong balance sheet, its net debt to equity ratio stands at 0.2 while CDLstands at 0.67. Av. is 0.7, above 1 is risky like heeton, thats why its being undervalued, being mark down, cash flow and cash balance is important too

Heeton cash balance can't pay for the current liabilities.

WIngtai balance is strong, businessmodel seems sound, why is market giving such a big discount?? Poor track records? Losses?? Earning visbility??

Saturday, December 15, 2012

How to research on a company?

Basic valuation metrics trends: (Long term)

1) Revenue, GP, NP, GP and NP margins

2) Segments R, GP, NP and margins

3) Debt level, ROE, ROA, FCF

Quarter to quarter:

1) Inventory turnover

2) Receivables size(relative to revenue) and turnover


Business model:

1) Any sustainable moats (Leadership position/ brandname)

2) Key staff turnover and remuneration (Red flags, remuneration increase when profits is falling)

3) Industry your cycle of competence. Understanding the tracking of property prices, calculation of RNAV, etc