Value Investing Made Easy
Brought To You By : ShareInvestor.com
Product Manager : Jery Lai
Famous Value Investors
What is Value Investing ?
As a value investor, you only invest in companies with
strong business fundamentals – solid track record,
sustainable competitive advantage, good growth
prospects, strong financial position and great
managements.
Financial Analysis Income Statement Analysis (Profit & Loss)
Balance Sheet Analysis
Cash Flow Analysis
Management Analysis Shares Holding & Buyback
Fundamental Ratios
Industry Analysis Stocks Comparison
VALUE INVESTING Fundamental Analysis
What are the criteria to be checked?
Financial Analysis (income statement analysis)
The income statement shows the record of a company’s
operating results for the whole year.
It also serves as a valuable guide in anticipating how the
company may do in the future.
FINANCIAL ANALYSIS
1. Earning Per Share (EPS)
Total Income
Total No. of Shares
earnings per share remains the
industry standard in determining
corporate profitability for
shareholders
Income Statement Analysis
Annual Report
2. Price Earning Ratio (PE)
Current Share Price
EPS
The P/E ratio tells how much the
market is willing to pay for a
company’s earnings
EX. ABC Company EPS RM0.20
and market price is RM2.00 so the
PE will be RM2.00/RM0.20 = 10
Investor willing to pay 10 times for
ABC company’s earning
FINANCIAL ANALYSIS Income Statement Analysis
Annual Report
3. Net Operating Margin
Total Income
Total Revenue
Profit margin is very useful when
comparing companies in similar
industries. A higher profit margin
indicates a more profitable
company that has better control
over its costs compared to its
competitors.
FINANCIAL ANALYSIS Income Statement Analysis
Annual Report
Preferably more than 10%
4. Revenue & Profit Growth
Current Year Total Revenue
by analysing historical revenue
and profit growth, you can
assess the potential for growth
in the future
Last Year Total Revenue X 100%
FINANCIAL ANALYSIS Income Statement Analysis
FINANCIAL ANALYSIS Income Statement Analysis
Dividend Per Share
5. Dividend Yield
Measures how much dividends
the company pays out
compared to the stock price.
Ideally consistent dividend
yields between 4% - 8%.
Current Share Price X 100%
Yearly Dividend Per Share
6. Dividend Payout Ratio
Measures the percentage of a
company's net income that is
given to shareholders in the
form of dividends
Earning Per Share X 100%
DIVIDEND
Ex. Share Price = RM 1.00
Full Year Dividend = RM 0.05
Yield = 0.05/1.00 x 100% = 5%
Ex. EPS = RM 0.20
Full Year Dividend = RM 0.05
Payout = 0.05/0.20 x 100% = 25%
FINANCIAL ANALYSIS Income Statement Analysis
6. Price Earning To Growth (PEG Ratio)
PE Ratio
better understanding of whether
or not a company’s stocks is
overpriced, underpriced, or just
right.
If a company’s stock is fairly
priced, then it’s P/E Ratio should
equal it’s annual growth rate.
Annual EPS Growth
Ex. PE Ratio = 10
Earning Growth Rate = 20%
PEG = 10/20 = 0.5
7. Compound Annual Growth Rate (CAGR)
The year-over-year growth rate of an
investment over a specified period
Below 1.0 = Undervalued
Above 1.0 = Overvalued
Financial Analysis (balance sheet statement
analysis)
Balance Sheet Analysis
Current Assets, Non-current Assets, Total Assets,
Current Liabilities, Non-current Liabilities, Total Liabilities, Total Equity
FINANCIAL ANALYSIS
Annual Report
Balance Sheet Analysis FINANCIAL ANALYSIS
Current Assets
Inventories
Trade Receivables
Cash and Deposit
Non-Current Assets
Property, Plant and Equipment
Investment in Subsidiary
Goodwill & Trademarks
Current Liabilities
Trade Payables
Loan and Borrowings
Deferred Tax
Non-Current Liabilities
Long Term Loan and Borrowings
Balance Sheet Analysis
1. Net Tangible Asset Per Share (NTA)
Total Net Tangible Assets
Also known as "net asset value" or
"book value"
Total No. of Shares
2. Price/NTA
Indicates whether the stock is overvalued or
undervalued
Ex. Share Price = RM 1.00
NTA = RM 2.00
Price/NTA = 1.00/2.00 = 0.50
* 50% discount on the assets
Current Share’s Price
NTA
FINANCIAL ANALYSIS
Annual Report
3. Debt Ratio
Debt ratio shows the proportion of a
company's assets which are
financed through debt
The higher the ratio, the greater risk
will be associated with the firm's
operation
Total Liabilities
Total Assets
4. Current Ratio
Current Assets
Current Liabilities
FINANCIAL ANALYSIS
A liquidity ratio that measures a company's
ability to pay short-term obligations.
Balance Sheet Analysis
Annual Report
Balance Sheet Analysis
Net Profit
5. Return on Equity - ROE
How much profit a company makes
from shareholder equity. The
higher the ROE, the better the
company is at generating profit for
shareholders.
Shareholder’s Equity
Net Profit
6. Return on Asset - ROA
ROA gives an idea as to how
efficient management is at using its
assets to generate earnings.
Total Assets
FINANCIAL ANALYSIS
Warren Buffet’s investment
require 15% of ROE
Financial Analysis (cash flow statement analysis)
Cash Flow Analysis FINANCIAL ANALYSIS
Annual Report
Operating Activities
Financing Activities
Investing Activities
Cash Flow Analysis FINANCIAL ANALYSIS
What is Cash Flow ?
Cash flow is the amount of money coming in to a business and the amount of money
going out. It is a key indicator of financial health.
Financing Activities
Investing Activities
Measure of the cash outflows and inflows related to the purchase and sale of
investments
Operating Activities
Measure of the amount of cash generated by a company's normal business
operations. Must be always Positive to sustain the company.
Positive mean receiving cash from issuing stock, receiving cash from issuing
bonds or loan from banks.
Negative mean spending cash to repurchase previously issued stock, to pay
down debt, to pay interest on debt and to pay dividends to shareholders.
Positive mean Return from investments. Negative mean cash have been
reinvest to expand the business.
Cash Flow Analysis FINANCIAL ANALYSIS
OPERATING
CASH FLOW
INVESTING
CASH FLOW
FINANCING
CASH FLOW
BALANCE
HEALTHY
CASH FLOW
OPERATING
CASH FLOW INVESTING
CASH FLOW
FINANCING
CASH FLOW
LESS HEALTHY
CASH FLOW
CASH PER SHARE
A company's total cash divided by its shares outstanding. Value Investors always look
for cash stable companies.
Ex. Share Price : RM1.00 / Cash Per share : RM0.20
:: Price / Cash Per Share = 1.00/0.20 = 5 Preferably ratio is around 3
Management Analysis (Shareholders)
Shareholders Analysis MANAGEMENT ANALYSIS
What is Shareholders Analysis?
Management holds a company a
significant no. of shares > 40% is a
healthy sign.
Management buy back their shares
from the market from time to time is
another good indication of confidence
level.
Annual Report
Shareholders Buyback MANAGEMENT ANALYSIS
Shareholders buy back their company’s shares are
always is a good indication.
Example : BJFood
[23 – 25 July]
BJFood price spike 80% in
3 days to
RM3.00
CEO Shares Buyback on 7 July 2014
Insider Trades Case Study
21 July – Price : RM1.73
ANNOUNCEMENT
STOCKS COMPARISON
Stock Comparison give you an idea how is your stock doing compare with the
same sector players.
STOCKS COMPARISON VALUATION & GROWTH
VALUATION
GROWTH
STOCKS COMPARISON PROFITABILITY & MANAGEMENT
PROFITABILITY
MANAGEMENT
STOCKS COMPARISON LEVERAGE & LIQUIDITY
LEVERAGE
LIQUIDITY
Summary
Make Value Investing simple and safe by selecting a company
with fundamental supports.
Low PE Ratio (Less than 10)
Net profit margin > 10%
Return on Equity > 15%
Low Debt Ratio (Debt/Asset <0.3)
Always perform positive operating cash flow
Management holding significant shares > 40% of total shares
Always remember to compare the stocks among the same
sector stocks.
Must check the quarterly financial
results from time to time
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