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Piramal Enterprises Ltd - Value Investing?Piramal Enterprises Ltd - Analysis The stock is displaying a promising bullish candlestick pattern , signaling a potential halt to its recent downtrend and a possible upward turn in the short term. There is price and psi divergence seen on daily chart, which is positive indication. Moreover, the stock seems to present an appealing value investment opportunity based on two crucial valuation metrics: Price/Book Ratio of 0.69 : This indicates that the stock price is relatively low compared to the company's book value, reflecting a potentially undervalued asset. Price/Cash Flow Ratio of 14.12 : This ratio suggests that the share price is reasonably low when weighed against the company's generated cash flow, indicating a potentially favorable investment in terms of cash flow generation. Additionally, the Earnings Yield of 18% signifies the return the company generates on each invested dollar, indicating a relatively robust performance in generating earnings. PLEASE NOTE THAT: This chart analysis is only for reference purpose. This is not buying or selling recommendations. I am not SEBI registered. Please consult your financial advisor before taking any trade
NSE:PEL
by hardeepssethi
2
HDFC BANK - AN INVESTMENT PICK AT MOUTHWATERING VALUATION?The HDFC Bank extended decline today, after marking its biggest single-day drop since March 2020.In the last two days alone, HDFC Bank has corrected more than 12%. This decline is fine but there's another picture to it which no one is talking about. While there is so much panic among investors and traders but this panic can be a good investment opportunity. There exists a curve resistance at long term charts around 1700-1720 levels which HDFC respected this time also and fell from that level. On the other hand, If we talk about technical patterns, There is a clear Inverse Head & Shoulders pattern in making at long term charts. Such long term chart patterns don't fail most of the time. HDFC current market price is 1500 and It is trading at a support zone of 1480-1500 & valuation is good at cmp. Inverse Head & Shoulders pattern breakout level is 1690-1700. Breakout of this pattern will take it to 2200 levels which is approximate 46-47% upside from current level. Incase It falls further, then It can be added more at 1450-1420-1400 levels. This could be a great investment for long term investors.
NSE:HDFCBANKLong
by akshit_official
17
LONG TERM INVESTMENT PICK - BANDHAN BANK - READY TO TAKE OFF ?SYMBOL - BANDHANBNK Incorporated in 2014, Bandhan Bank is a commercial bank focused on serving underbanked and underpenetrated markets in India. The company has a PAN-India presence and offers a wide range of banking products & services and asset & liability products and services designed for micro banking and general banking. This company is fundamentally good. having 32,800 cr. market cap, Bandhan Bank is currently trading 11 P/E. This stock is in a downtrend since a long time. Currently trading at 200 which is a long term strong demand zone. Long positions can be made at CMP 200 with stoploss of 170. I believe this stock can be next multibagger & this is a great investment pick at current levels. Targets can be 600 & 700 which is ATH & beyond. Disclaimer - I have invested my investment allocation today. Do not consider this as buy/sell recommendation. I'm sharing my analysis & my investment position. You can track it for educational purposes. Thanks!
NSE:BANDHANBNKLong
by akshit_official
3
KOTAK BANK - A Value Buying Pick for Long Term Investors?Symbol - KOTAKBANK CMP - 1755 Kotak Mahindra Bank is a diversified financial services group providing a wide range of banking and financial services including Retail Banking, Treasury and Corporate Banking, Investment Banking, Stock Broking, Vehicle Finance, Advisory services, Asset Management, Life Insurance and General Insurance. This is one among India's top banks. Currently trading at lowest valuation in last 10 years which makes it a great value buying pick at current levels. Stock has gone nowhere in last 3.5 years and consolidating in a range. 1700 Level is a long term support. It can be added at current levels and If 1720-1700 comes, can be added more. Long term targets comes around 2500 level which is almost 50% upside from here.
NSE:KOTAKBANKLong
by akshit_official
9
BAJAJ FINANCE- Consistent Compounder getting ready for comeback?SYMBOL - BAJFINANCE Bajaj Finance is one among India's the biggest NBFCs. This stock has been a consistent compounder. This stock is currently trading in a support zone of 6500 level. This area is a major support zone for Bajaj Finance. This is a good time to invest in it as long term investment. This stock is a blue chip compounder stock. It has made & It will make a lot of wealth to long term investors in long run. There is also a trading opportunity. As this stock is in a good support zone, I have made a long position in far month futures today around CMP 6555. I will add more longs if getting 6500-6450 levels. My stoploss would be below 6400 & targets would be 6880-7200 & 7420. Disclaimer - Do not consider this as a buy/sell recommendation. I'm sharing my analysis & my investment/trading position. You can track it for educational purposes. Thanks!
NSE:BAJFINANCELong
by akshit_official
11
HOW-TO apply an indicator that is only available upon request?Recently, I've realized that my typical day involves constant encounters with indicators. For example, when the alarm clock rings, it's an indicator that it's morning and time to get up. I am checking the phone and once again paying attention to the indicators: battery charge and network signal level. I figure out in just one second that such a complex element of the phone as the battery is 100% charged and the signal from the cell towers is good enough. Then I’m going out on a busy street, and it's only because of the traffic light indicator that I can safely cross the road to reach the parking lot. Looking at the on-board computer of my car, with its many indicators, I know that all the components of this complicated mechanism are working properly, and I can start driving. Now, imagine what would happen if none of this existed. I would have to act blindly, relying on luck: hoping that I would wake up on time, that the phone would work today, that car drivers would let me cross the road, and that my own car would not suddenly stop because it ran out of gas. We can say that indicators help to explain complex processes or phenomena in simple and understandable language. I think they will always be in demand in today's complex world, where we deal with a huge flow of information that cannot be perceived without simplifications. If we talk about the financial market, it's all about constant data, data, data. Add in the element of randomness and everything becomes totally messed up. To create indicators that simplify the analysis of financial information, the TradingView platform uses its own programming language — Pine Script . With this language, you can describe not only unique indicators, but also strategies — meaning algorithms for opening and closing positions. All these tools are grouped together under the term "script" . Just like a trade or educational idea, a script can also be published. After this, it will be available to other users. The published script can be: 1. Visible in the list of community scripts with unrestricted access. Simply find the script by its name and add it to the chart. 2. Visible in the list of community scripts, but access is by invitation only. You'll need to find the script by its name and request access from its author. 3. Not visible in the list of community scripts, but accessible via a link. To add such a script to a chart, you need to have the link. 4. Not visible in the list of community scripts; access is by invitation only. You'll need both a link to the script and permission for access obtained from its author. If you have added to your favorites a script that requires permission from the author, you'll only be able to start using the indicators after the author includes you in the script's user list. Without this, you will get an error message every time you add an indicator to the chart. In this case, contact the author to learn how to gain access. Instructions on how to contact the author are located after the script's description and highlighted within a frame. There you will also find the 'Add to favorite indicators' button. The access can be valid until a certain date or indefinitely. If the author has granted access, you will be able to add the script to the chart.
NSE:BANKNIFTYEducation
by Be_Capy
UPL: Supply turned demandUPL(United Phosphorus Ltd.) has been declining over the past few sessions & has recently entered a supply turned demand area on weekly timeframe Earlier in 2021, 650 was a key resistance and later on we saw a momentum filled breakout with high volumes after which the stock has been consolidating since then. For now 630 seems to be a good accumulation level as it has been tested as a support many time during this accumulation phase and below which we have higher chances of seeing further downside so it is a crucial level to watch for! For value investors after such a long accumulation phases the breakout of the pennant can be a better opportunity as risk is high as per now. On the fundamental side, the company has good amount of cashflows and is fairly priced at price to book ratio of 1.6 times SETUP: Entry near 630 keeping a strict stop loss near 595 & target up to 740 is a decent risk to reward setup. Kindly do your own research. Thanks a lot for reading!
NSE:UPLLong
by UnknownUnicorn21160479
8
Banco Products, Positional CallBanco Products has broken out to new highs, making it a good stock to consider for a long-term investment. The company currently has a dividend yield of 6.95%. Banco Products (India) Ltd manufactures and supplies engine cooling modules and systems for automotive and industrial applications. A recent articlkes says "The Global Automotive Heat Exchanger Market size was valued at USD 22 billion in 2021 and is expected to reach USD 39 billion in 2030 at a CAGR of 7% from 2021 to 2030."
NSE:BANCOINDIALong
by GOVEGETA
Price/Earnings: amazing interpretation #2In my previous post , we started to analyze the most popular financial ratio in the world – Price / Earnings or P/E (particularly one of the options for interpreting it). I said that P/E can be defined as the amount of money that must be paid once in order to receive 1 monetary unit of diluted net income per year. For American companies, it will be in US dollars, for Indian companies it will be in rupees, etc. In this post, I would like to analyze another interpretation of this financial ratio, which will allow you to look at P/E differently. To do this, let's look at the formula for calculating P/E again: P/E = Capitalization / Diluted earnings Now let's add some refinements to the formula: P/E = Current capitalization / Diluted earnings for the last year (*) (*) In my case, by year I mean the last 12 months. Next, let's see what the Current capitalization and Diluted earnings for the last year are expressed in, for example, in an American company: - Current capitalization is in $; - Diluted earnings for the last year are in $/year. As a result, we can write the following formula: P/E = Current capitalization / Diluted earnings for the last year = $ / $ / year = N years (*) (*) According to the basic rules of math, $ will be reduced by $, and we will be left with only the number of years. It's very unusual, isn't it? It turns out that P/E can also be the number of years! Yes, indeed, we can say that P/E is the number of years that a shareholder (investor) will need to wait in order to recoup their investments at the current price from the earnings flow, provided that the level of profit does not change . Of course, the condition of an unchangeable level of profit is very unrealistic. It is rare to find a company that shows the same profit from year to year. Nevertheless, we have nothing more real than the current capitalization of the company and its latest profit. Everything else is just predictions and probable estimates. It is also important to understand that during the purchase of shares, the investor fixates one of the P/E components - the price (P). Therefore, they only need to keep an eye on the earnings (E) and calculate their own P/E without paying attention to the current capitalization. If the level of earnings increases since the purchase of shares, the investor's personal P/E will decrease, and, consequently, the number of years to wait for recoupment. Another thing is when the earnings level, on the contrary, decreases – then an investor will face an increase in their P/E level and, consequently, an increase in the payback period of their own investments. In this case, of course, you have to think about the prospects of such an investment. You can also argue that not all 100% of earnings are spent paying dividends, and therefore you can’t use the level of earnings to calculate the payback period of an investment. Yes, indeed: it is rare for a company to give all of its earnings to dividends. However, the lack of a proper dividend level is not a reason to change anything in the formula or this interpretation at all, because retained earnings are the main fundamental driver of a company's capitalization growth. And whatever the investor misses out on in terms of dividends, they can get it in the form of an increase in the value of the shares they bought. Now, let's discuss how to interpret the obtained P/E value. Intuitively, the lower it is, the better. For example, if an investor bought shares at P/E = 100, it means that they will have to wait 100 years for their investment to pay off. That seems like a risky investment, doesn't it? Of course, one can hope for future earnings growth and, consequently, for a decrease in their personal P/E value. But what if it doesn’t happen? Let me give you an example. For instance, you have bought a country house, and so now you have to get to work via country roads. You have an inexpensive off-road vehicle to do this task. It does its job well and takes you to work via a road that has nothing but potholes. Thus, you get the necessary positive effect this inexpensive thing provides. However, later you learn that they will build a high-speed highway in place of the rural road. And that is exactly what you have dreamed of! After hearing the news, you buy a Ferrari. Now, you will be able to get to work in 5 minutes instead of 30 minutes (and in such a nice car!) However, you have to leave your new sports car in the yard to wait until the road is built. A month later, the news came out that, due to the structure of the road, the highway would be built in a completely different location. A year later your off-road vehicle breaks down. Oh well, now you have to get into your Ferrari and swerve around the potholes. It is not hard to guess what is going to happen to your expensive car after a while. This way, your high expectations for the future road project turned out to be a disaster for your investment in the expensive car. It works the same way with stock investments. If you only consider the company's future earnings forecast, you run the risk of being left alone with just the forecast instead of the earnings. Thus, P/E can serve as a measure of your risk. The higher the P/E value at the time you buy a stock, the more risk you take. But what is the acceptable level of P/E ? Oddly enough, I think the answer to this question depends on your age. When you are just beginning your journey, life gives you an absolutely priceless resource, known as time. You can try, take risks, make mistakes, and then try again. That's what children do as they explore the world around them. Or when young people try out different jobs to find exactly what they like. You can use your time in the stock market in the same manner - by looking at companies with a P/E that suits your age. The younger you are, the higher P/E level you can afford when selecting companies. Conversely, in my opinion, the older you are, the lower P/E level you can afford. To put it simply, you just don’t have as much time to wait for a return on your investment. So, my point is, the stock market perception of a 20-year-old investor should differ from the perception of a 50-year-old investor. If the former can afford to invest with a high payback period, it may be too risky for the latter. Now let's try to translate this reasoning into a specific algorithm. First, let's see how many companies we are able to find in different P/E ranges. As an example, let's take the companies that are traded on the NYSE (April 2023). As you can see from the table, the larger the P/E range, the more companies we can consider. The investor's task comes down to figuring out what P/E range is relevant to them in their current age. To do this, we need data on life expectancy in different countries. As an example, let's take the World Bank Group's 2020 data for several countries: Japan, India, China, Russia, Germany, Spain, the United States, and Brazil. To understand which range of P/E values to choose, you need to subtract your current age from your life expectancy: Life Expectancy - Your Current Age I recommend focusing on the country where you expect to live most of your life. Thus, for a 25-year-old male from the United States, the difference would be: 74,50 - 25 = 49,50 Which corresponds with a P/E range of 0 to 50. For a 60-year-old woman from Japan, the difference would be: 87,74 - 60 = 27,74 Which corresponds with a P/E range of 0 to 30. For a 70-year-old man from Russia, the difference would be: 66,49 - 70 = -3,51 In the case of a negative difference, the P/E range of 0 to 10 should be used. It doesn’t matter which country's stocks you invest in if you expect to live most of your life in Japan, Russia, or the United States. P/E indicates time, and time flows the same for any company and for you. So, this algorithm will allow you to easily calculate your acceptable range of P/E values. However, I want to caution you against making investment decisions based on this ratio alone. A low P/E value does not guarantee that you are free of risks . For example, sometimes the P/E level can drop significantly due to a decline in P (capitalization) because of extraordinary events, whose impact can only be seen in a future income statement (where we would learn the actual value of E - earnings). Nevertheless, the P/E value is a good indicator of the payback period of your investment, which answers the question: when should you consider buying a company's stock ? When the P/E value is in an acceptable range of values for you. But the P/E level doesn’t tell you what company to consider and what price to take. I will tell you about this in the next posts. See you soon!
Editors' picks
NSE:HDFCBANKEducation
by Be_Capy
8
Price / Earnings: Interpretation #1In one of my first posts , I talked about the main idea of ​​my investment strategy: buy great “things” during the sales season . This rule can be applied to any object of the material world: real estate, cars, clothes, food and, of course, shares of public companies. However, a seemingly simple idea requires the ability to understand both the quality of “things” and their value. Suppose we have solved the issue with quality (*). (*) A very bold assumption, I realize that. However, the following posts will cover this topic in more detail. Be a little patient. So, we know the signs of a high-quality thing and are able to define it skilfully enough. But what about its cost? "Easy-peasy!" you will say, "For example, I know that the Mercedes-Benz plant produces high-quality cars, so I should just find out the prices for a certain model in different car dealerships and choose the cheapest one." "Great plan!" I will say. But what about shares of public companies? Even if you find a fundamentally strong company, how do you know if it is expensive or cheap? Let's imagine that the company is also a machine. A machine that makes profit. It needs to be fed with resources, things are happening in there, some cogs are turning, and as a result we get earnings. This is its main goal and purpose. Each machine has its own name, such as Apple or McDonald's. It has its own resources and mechanisms, but it produces one product – earnings. Now let’s suppose that the capitalization of the company is the value of such a machine. Let's see how much Apple and McDonald's cost today: Apple - $2.538 trillion McDonald's - $202.552 billion We see that Apple is more than 10 times more expensive than McDonald's. But is it really so from an investor's point of view? The paradox is that we can't say for sure that Apple is 10 times more expensive than McDonald's until we divide each company's value by its earnings. Why exactly? Let's count and it will become clear: Apple's diluted net income - $99.803 a year McDonald's diluted net income - $6.177 billion a year Now read this phrase slowly, and if necessary, several times: “The value is what we pay now. Earnings are what we get all the time” . To understand how many dollars we need to pay now for the production of 1 dollar of profit a year, we need to divide the value of the company (its capitalization) by its annual profit. We get: Apple - $25.43 McDonald’s - $32.79 It turns out that in order to get $1 profit a year, for Apple we need to pay $25.43, and for McDonald's - $32.79. Wow! Currently, I believe that Apple appears cheaper than McDonald's. To remember this information better, imagine two machines that produce one-dollar bills at the same rate (once a year). In the case of an Apple machine, you pay $25.43 to issue this bill, and in the case of a McDonald’s machine, you pay $32.70. Which one will you choose? So, if we remove the $ symbol from these numbers, we get the world's most famous financial ratio Price/Earnings or P/E . It shows how much we, as investors, need to pay for the production of 1 unit of annual profit. And pay only once. There are two formulas for calculating this financial ratio: 1. P/E = Price of 1 share / Diluted EPS 2. P/E = Capitalization / Diluted Net Income Whatever formula you use, the result will be the same. By the way, I mainly use the Diluted Net Income instead of the regular one in my calculations. So do not be confused if you see a formula with a Net Income – you can calculate it this way as well. So, in the current publication, I have analyzed one of the interpretations of this financial ratio. But, in fact, there is another interpretation that I really like. It will help you realize which P/E level to choose for yourself. But more on that in the next post. See you!
NSE:NIFTYEducation
by Be_Capy
What can financial ratios tell us?In the previous post we learned what financial ratios are. These are ratios of various indicators from financial statements that help us draw conclusions about the fundamental strength of a company and its investment attractiveness. In the same post, I listed the financial ratios that I use in my strategy, with formulas for their calculations. Now let's take apart each of them and try to understand what they can tell us. - Diluted EPS . Some time ago I have already told about the essence of this indicator. I would like to add that this is the most influential indicator on the stock market. Financial analysts of investment companies literally compete in forecasts, what will be EPS in forthcoming reports of the company. If they agree that EPS will be positive, but what actually happens is that it is negative, the stock price may fall quite dramatically. Conversely, if EPS comes out above expectations - the stock is likely to rise strongly during the coverage period. - Price to Diluted EPS ratio . This is perhaps the best-known financial ratio for evaluating a company's investment appeal. It gives you an idea of how many years your investment in a stock will pay off if the current EPS is maintained. I have a particular take on this ratio, so I plan to devote a separate publication to it. - Gross margin, % . This is the size of the markup to the cost of the company's product (service) or, in other words, margin . It is impossible to say that small margin is bad, and large - good. Different companies may have different margins. Some sell millions of products by small margins and some sell thousands by large margins. And both of those companies may have the same gross margins. However, my preference is for those companies whose margins grow over time. This means that either the prices of the company's products (services) are going up, or the company is cutting production costs. - Operating expense ratio . This ratio is a great indicator of management's ability to manage a company's expenses. If the revenue increases and this ratio decreases, it means that the management is skillfully optimizing the operating expenses. If it is the other way around, shareholders should wonder how well management is handling current affairs. - ROE, % is a ratio reflecting the efficiency of a company's equity performance. If a company earned 5% of its equity, i.e. ROE = 5%, and the bank deposit rate = 7%, then shareholders have a reasonable question: why invest equity in business development, if it can be placed in a bank deposit and get more, without expending extra effort? In other words, ROE, % reflects the return on invested equity. If it is growing, it is definitely a positive factor for the company and the shareholders. - Days payable . This financial ratio is an excellent indicator of the solvency of the company. We can say that it is the number of days it will take the company to pay all debts to suppliers from its revenue. If the number of days is relatively small, it means that the company has no delays in paying for supplies and therefore no money problems. I consider less than 30 days to be acceptable, but over 90 days is critical. - Days sales outstanding . I already mentioned in my previous posts that when a company is having a bad sales situation, it may even sell its products on credit. Such debts accumulate in accounts receivable. Obviously, large accounts receivable are a risk for the company, because the debts may simply not be paid back. For ease of control over this indicator, they invented such a financial ratio as "Days sales outstanding". We can say that this is the number of days it will take the company to earn revenue equivalent to the accounts receivable. It's one thing if the receivables are 365 daily revenue and another if it's only 10 daily revenue. Like the previous ratio: less than 30 days is acceptable to me, but over 90 days is critical. - Inventory to revenue ratio . This is the amount of inventory in relation to revenue. Since inventory includes not only raw materials but also unsold products, this ratio can indicate sales problems. The more inventory a company has in relation to revenue, the worse it is. A ratio below 0.25 is acceptable to me; a ratio above 0.5 indicates that there are problems with sales. - Current ratio . This is the ratio of current assets to current liabilities. Remember, we said that current assets are easier and faster to sell than non-current, so they are also called quick assets. In the event of a crisis and lack of profit in the company, quick assets can be an excellent help to make payments on debts and settlements with suppliers. After all, they can be sold quickly enough to pay off these liabilities. To understand the size of this "safety cushion", the current ratio is calculated. The larger it is, the better. For me, a suitable current ratio is 2 or higher. But below 1 it does not suit me. - Interest coverage . We already know that loans play an important role in a company's operations. However, I am convinced that this role should not be the main one. If a company spends all of its profits to pay interest on loans, it is working for the bank, not for the shareholders. To find out how tangible interest on loans is for the company, the "Interest coverage" ratio was invented. According to the income statement, interest on loans is paid out of operating income. So if we divide the operating income by this interest, we get this ratio. It shows us how many times more the company earns than it spends on debt service. To me, the acceptable coverage ratio should be above 6, and below 3 is weak. - Debt to revenue ratio . This is a useful ratio that shows the overall picture of the company's debt situation. It can be interpreted the following way: it shows how much revenue should be earned in order to close all the debts. A debt to revenue ratio of less than 0.5 is positive. It means that half (or even less) of the annual revenue will be enough to close the debt. A debt to revenue ratio higher than 1 is considered a serious problem since the company does not even have enough annual revenue to pay off all of its debts. So, the financial ratios greatly simplify the process of fundamental analysis, because they allow you to quickly draw conclusions about the financial condition of the company, without looking up and down at its statements. You just look at ratios of key indicators and draw conclusions. In the next post, I will tell you about the king of all financial ratios - the Price to Diluted EPS ratio, or simply P/E. See you soon!
NSE:RELIANCEEducation
by Be_Capy
Financial ratios: digesting them togetherI hope that after studying the series of posts about company financial statements, you stopped being afraid of them. I suggest we build on that success and dive into the fascinating world of financial ratios. What is it? Let's look at the following example. Let's say you open up a company's balance sheet and see that the amount of debt is $100 million. Do you think this is a lot or a little? To me, it's definitely a big deal. But can we say the company has a huge debt based only on how we feel about it? I don't think so. However, if you find that a company that generates $10 billion in annual revenue has $100 million in debt (i.e. only 1% of revenue), what would you say then? That's objectively small, isn't it? It turns out that without correlating one indicator with another, we cannot draw any objective conclusion. This correlation is called the Financial Ratio . The recipe for a normal financial ratio is simple: we take one or two indicators from the financial statements, add some market data, put it all into a formula that includes a division operation - we obtain the financial ratio. In TradingView you can find a lot of financial ratios in the section Financials -> Statistics . However, I only use a few financial ratios which give me an idea about the financial situation of the company and its value: What can you notice when looking at this table? - Profit and revenue are frequent components of financial ratios because they are universal units of measurement for other reporting components. Just as length can be measured in feet and weight in pounds, a company's debts can be measured in revenues. - Some financial ratios are ratios, some are percentages, and some are days. - There are no financial ratios in the table whose data source is the Cash Flow Statement. The fact is that cash flows are rarely used in financial ratios because they can change drastically from quarter to quarter. This is especially true for financial and investment cash flow. That's why I recommend analyzing cash flows separately. In my next post, I'll break down each financial ratio from this table in detail and explain why I use them specifically. See you soon!
Editors' picks
NSE:BANKNIFTY1!Education
by Be_Capy
1
Cash flow vibrationsIn the previous post we started to analyze the Cash flow statement. From it, we learned about the existence of three cash flows - operating cash flow, financial cash flow, and investment cash flow. Like three rivers, they fill the company's "lake of cash" (that is, they go with a "+" sign). However, there are three other rivers that flow out of our lake, preventing it from expanding indefinitely. What are their names? They have absolutely identical names: operating cash flow, financial cash flow, and investment cash flow (and they go with a "-" sign). Why so? Because all of the company's outgoing payments can also be divided into these three rivers: Operating payments include the purchase of raw materials, the payment of wages - everything related to the production and support of the product. Financial payments include repayment of debt and interest on it, payment of dividends, or buyback of shares from shareholders. Investment payments include the purchase of non-current assets (say, the purchase of additional buildings or shares in another company). If the inflows from the three rivers on the left are greater than the outflows into the rivers on the right, then our lake will increase in volume, meaning that the company's cash balances will grow. If the outflows into the three rivers on the right are greater than the inflows from the rivers on the left, the lake will become shallow and eventually dry up. So, the cash flow statement shows how much our lake has increased or decreased over the period (quarter or year). This report can be presented as four entries: Each value of A, B, and C is the difference between what came into our lake from the river and what flowed out of the lake by the river of the same name. That is, the value can be either positive or negative. How can we interpret the meanings of the different flows? Let's break down each of them. Operating cash flow . In a fundamentally strong company, it is the most stable and powerful river. The implication is that it should be the main source of "water" for our lake. Negative operating cash flow is an indicator of serious problems with the business because it means it is not generating money. Investment cash flow . This is the most unpredictable river, as sometimes it can be very powerful and sometimes it can flow like a thin trickle. This is due to the fact that the purchase or sale of non-current assets (recall that these may be buildings, equipment, shares in other companies) does not occur as regularly as operational activities. A sudden negative investment flow tells us about some big purchase. Shareholders do not always view such events positively, as they may consider it an unwise expenditure or a threat to dividend payments. Therefore, they may start to sell their shares, which causes their price to drop. If a big purchase is perceived as an opportunity to reach the next level and capture more market share, then we may see exactly the opposite effect - an increase in share price. Financial cash flow . A negative value of this cash flow can be seen as a very positive signal because it means that the company is either actively reducing its debt to creditors, or using the money to pay dividends, or spending the money to buy its own stock (*), or maybe all of these together. (*) Here you may ask, why would a company buy its own stock? Management sometimes does this when they are confident in the success of their business and want to support the growth of their stock. The company becomes a major buyer of its own stock for some time so that it begins to grow. The process itself is called share buyback . Positive financial cash flow, on the other hand, signals either an increase in debt or the sale of its own stock. As far as debt is concerned, you can't say that loans are bad for business. But there has to be a measure. But the sale by a company of its own shares is already an alarming signal to the current shareholders. It means that the company doesn't have enough money coming out of operating cash flow. There is another type of cash flow that is not a separate "river," but is used as information about how much cash the company has left to meet its obligations to creditors and shareholders. This is Free cash flow . It is simple to calculate: just subtract one of the components of the investment cash flow from the operating cash flow. This component is called Capital expenditures (often abbreviated as CAPEX). Capital expenditures include outgoing payments that go toward the purchase of non-current assets , such as land, buildings, equipment, etc. (Free cash flow = Operating cash flow - Capital expenditures) Free cash flow can be characterized as the "living" money that a company has created over a period, which can be used to repay loans, pay dividends, and buyback stocks from shareholders. If free cash flow is very weak or even negative, it is a reason for creditors, shareholders and investors to think about how the company is doing business. This concludes my discussion of the cash flow statement topic. Next time, let's talk about the magic ratios that you can get from a company's financial statements. They greatly facilitate the process of fundamental analysis and are widely used by investors around the world. We will talk about the so-called Financial Ratios . See you soon!
NSE:TATAMOTORSEducation
by Be_Capy
2
Cash flow statement or Three great riversToday we're going to start taking apart the third and final report that the company publishes each quarter and year - it's Cash flow statement. Remember, when we studied the balance sheet , we learned that one of the company's assets is cash in accounts. This is a very important asset because if the company doesn't have money in the account, it can't buy raw materials, pay employees' salaries, etc. What, in general, is a "company" in the eyes of an accountant? These are assets that have been purchased on credit or with equity, for the purpose of earning a net income for its shareholders or investing that income in further growth. That is, the source of cash in a company's account may be profits . But why do I say "may be"? The point is that it's possible to have a situation where profits are positive on the income statement, but there is no money physically in the account. To make sense of this, let's remember the workshop I use in all the examples. Suppose our master sold all of his boots on credit. That is, he was promised payment, but later. He ended up with a receivable in assets and, most interestingly, generated revenue. The accountant will calculate the revenue for these sales, despite the fact that the shop hasn't actually received the money yet. Then the accountant will deduct the expenses from the revenue, and the result will be a profit. But there is zero money in the account. So what should our master do? The orders are coming in, but there is nothing to pay for the raw materials. In such circumstances, while the master is waiting for the repayment of debts from customers, he himself borrows from the bank to top up his current account with money. Now let us make his situation more complicated. Let us assume that the money borrowed he still does not have enough, and the bank does not give more. The only thing left is to sell some of his property, that is, some of his assets. Remember, when we took apart the assets of the workshop , the master had shares in an oil company. This is something he could sell without hurting the production process. Then there is enough money in the checking account to produce boots uninterrupted. Of course, this is a wildly exaggerated example, since more often than not, profits are money, after all, and not the virtual records of an accountant. Nevertheless, I gave this example to make it clear that cash in the account and profit are related, but still different concepts. So what does the cash flow statement show? Let's engage our imagination again. Imagine a lake with three rivers flowing into it on the left and three rivers flowing out on the right. That is, on one side the lake feeds on water, and on the other side it gives it away. So the asset called "cash" on the balance sheet is the lake. And the amount of cash is the amount of water in that lake. Let's now name the three rivers that feed our lake. Let's call the first river the operating cash flow . When we receive the money from product sales, the lake is filled with water from the first river. The second river on the left is called the financial cash flow . This is when we receive financing from outside, or, to put it simply, we borrow. Since this is money received into the company's account, it also fills our lake. The third river let's call investment cash flow . This is the flow of money we get from the sale of the company's non-current assets. In the example with the master, these were assets in the form of oil company stock. Their sale led to the replenishment of our notional money lake. So we have a lake of money, which is filled thanks to three flows: operational, financial, and investment. That sounds great, but our lake is not only getting bigger, but it's also getting smaller through the three outgoing flows. I'll tell you about that in my next post. See you soon!
Editors' picks
NSE:HDFCBANKEducation
by Be_Capy
8
What should I look at in the Income statement?The famous value investor, Mohnish Pabrai , said in one of his lectures that when he visited Warren Buffett, he noticed a huge handbook with the financial statements of thousands of public companies. It's a very dull reading, isn't it? Indeed, if you focus on every statement item - you'll waste a lot of time and sooner or later fall asleep. However, if you look at the large volumes of information from the perspective of an intelligent investor, you can find great interest in the process. It is wise to identify for yourself the most important statement items and monitor them in retrospect (from quarter to quarter). In previous posts, we've broken down the major items on the Income statement and the EPS metric: Part 1: The Income statement: the place where profit lives Part 2: My precious-s-s-s EPS Let's now highlight the items that interest me first. These are: - Total revenue The growth of revenue shows that the company is doing a good job of marketing the product, it is in high demand, and the business is increasing its scale. - Gross profit This profit is identical to the concept of margin. Therefore, an increase in gross profit indicates an increase in the margin of the business, i.e. its profitability. - Operating expenses This item is a good demonstration of how the management team is dealing with cost reductions. If operating expenses are relatively low and decreasing while revenue is increasing, that's terrific work by management, and you can give it top marks. - Interest expense Interest on debts should not consume a company's profits, otherwise, it will not work for the shareholders, but for the banks. Therefore, this item should also be closely monitored. - Net income It's simple here. If a company does not make a profit for its shareholders, they will dump its shares*. *Now, of course, you can dispute with me and give the example of, let's say, Tesla shares. There was a time when they were rising, even when the company was making losses. Indeed, Elon Musk's charisma and grand plans did the trick - investors bought the company's stock at any price. You could say that our partner Mr. Market was truly crazy at the time. I'm sure you can find quite a few such examples. All such cases exist because investors believe in future profits and don't see current ones. However, it is important to remember that sooner or later Mr. Market sobers up, the hype around the company goes away, and its losses stay with you. - EPS Diluted You could say it's the money the company earns per common share. So, I'm finishing up a series of posts related to the Income statement. This statement shows how much the company earns and how much it spends over a period (quarter or year). We've also identified the items that you should definitely watch out for in this report. That's all for today. In the next post, we will break down the last of the three financial statements of a public company - the Cash flow statement. Goodbye and see you later!
NSE:NIFTYEducation
by Be_Capy
My precious-s-s-s EPSIn the previous post , we began looking at the Income statement that the company publishes for each quarter and year. The report contains important information about different types of profits : gross profit, operating income, pretax income, and net income. Net income can serve both as a source of further investment in the business and as a source of dividend payments to shareholders (of course, if a majority of shareholders vote to pay dividends). Now let's break down the types of stock on which dividends can be paid. There are only two: preferred stock and common stock . We know from my earlier post that a stock gives you the right to vote at a general meeting of shareholders, the right to receive dividends if the majority voted for them, and the right to part of the bankrupt company's assets if something is left after paying all debts to creditors. So, this is all about common stock. But sometimes a company, along with its common stock, also issues so-called preferred stock. What advantages do they have over common stock? - They give priority rights to receive dividends. That is, if shareholders have decided to pay dividends, the owners of preferred shares must receive dividends, but the owners of common shares may be deprived because of the same decision of the shareholders. - The company may provide for a fixed amount of dividend on preferred shares. That is, if the decision was made to pay a dividend, preferred stockholders will receive the fixed dividend that the company established when it issued the shares. - If the company goes bankrupt, the assets that remain after the debts are paid are distributed to the preferred shareholders first, and then to the common shareholders. In exchange for these privileges, the owners of such shares do not have the right to vote at the general meeting of shareholders. It should be said that preferred shares are not often issued, but they do exist in some companies. The specific rights of shareholders of preferred shares are prescribed in the founding documents of the company. Now back to the income statement. Earlier we looked at the concept of net income. Since most investments are made in common stock, it would be useful to know what net income would remain if dividends were paid on preferred stock (I remind you: this depends on the decision of the majority of common stockholders). To do this, the income statement has the following line item: - Net income available to common stockholders (Net income available to common stockholders = Net income - Dividends on preferred stock) When it is calculated, the amount of dividends on preferred stock is subtracted from net income. This is the profit that can be used to pay dividends on common stock. However, shareholders may decide not to pay dividends and use the profits to further develop and grow the company. If they do so, they are acting as true investors. I recall the investing formula from my earlier post : give something now to get more in the future . And so it is here. Instead of deciding to spend profits on dividends now, shareholders may decide to invest profits in the business and get more dividends in the future. Earnings per share or EPS is used to understand how much net income there is per share. EPS is calculated very simply. As you can guess, all you have to do is divide the net income for the common stock by its number: - EPS ( Earnings per share = Net income for common stock / Number of common shares issued). There is an even more accurate measure that I use in my analysis, which is EPS Diluted or Diluted earnings per share : - EPS Diluted ( Diluted earnings per share = Net income for common stock / (Number of common shares issued + Issuer stock options, etc.)). What does "diluted" earnings mean, and when does it occur? For example, to incentivize management to work efficiently, company executives may be offered bonuses not in monetary terms, but in shares that the company will issue in the future. In such a case, the staff would be interested in the stock price increase and would put more effort into achieving profit growth. These additional issues are called Employee stock options (or ESO ). Because the amount of these stock bonuses is known in advance, we can calculate diluted earnings per share. To do so, we divide the profit not by the current number of common shares already issued, but by the current number plus possible additional issues. Thus, this indicator shows a more accurate earnings-per-share figure, taking into account all dilutive factors. The value of EPS or EPS Diluted is so significant for investors that if it does not meet their expectations or, on the contrary, exceeds them, the market may experience significant fluctuations in the share price. Therefore, it is always important to keep an eye on the EPS value. In TradingView the EPS indicator as well as its forecasted value can be seen by clicking on the E button next to the timeline. We will continue to discuss this topic in the next publication. See you soon!
Editors' picks
NSE:RELIANCEEducation
by Be_Capy
4
The income statement: the place where profit livesToday we are going to look at the second of the three main reports that a company publishes during the earnings season, the income statement. Just like the balance sheet, it is published every quarter and year. This is how we can find out how much a company earns and how much it spends. The difference between revenues and expenses is called profit . I would like to highlight this term "profit" again, because there is a very strong correlation between the dynamics of the stock price and the profitability of the company. Let's take a look at the stock price charts of companies that are profitable and those that are unprofitable. 3 charts of unprofitable : 3 charts of profitable : As we can see, stocks of unprofitable companies have a hard enough time growing, while profitable companies, on the contrary, are getting fundamental support to grow their stocks. We know from the previous post that a company's Equity grows due to Retained Earnings. And if Equity grows, so do Assets. Recall: Assets are equal to the sum of a company's Equity and Liabilities. Thus, growing Assets, like a winch attached to a strong tree, pull our machine (= stock price) higher and higher. This is, of course, a simplified example, but it still helps to realize that a company's financial performance directly affects its value. Now let's look at how earnings are calculated in the income statement. The general principle is this: if we subtract all expenses from revenue, we get profit . Revenue is calculated quite simply - it is the sum of all goods and services sold over a period (a quarter or a year). But expenses are different, so in the income statement we will see one item called "Total revenue" and many items of expenses. These expenses are deducted from revenue gradually (top-down). That is, we don't add up all the expenses and then subtract the total expenses from the revenue - no. We deduct each expense item individually. So at each step of this subtraction, we get different kinds of profit : gross profit, operating income, pretax income, net income. So let's look at the report itself. - Total revenue This is, as we've already determined, the sum of all goods and services sold for the period. Or you could put it another way: this is all the money the company received from sales over a period of time. Let me say right off the bat that all of the numbers in this report are counted for a specific period. In the quarterly report, the period, respectively, is 1 quarter, and in the annual report, it is 1 year. Remember my comparison of the balance sheet with the photo ? When we analyze the balance sheet, we see a photo (data snapshot) on the last day of the reporting period, but not so in the income statement. There we see the accumulated amounts for a specific period (i.e. from the beginning of the reporting quarter to the end of that quarter or from the beginning of the reporting year to the end of that year). - Cost of goods sold Since materials and other components are used to make products, accountants calculate the amount of costs directly related to the production of products and place them in this item. For example, the cost of raw materials for making shoes would fall into this item, but the cost of salaries for the accountant who works for that company would not. You could say that these costs are costs that are directly related to the quantity of goods produced. - Gross profit (Gross profit = Total revenue - Cost of goods sold) If we subtract the cost of goods sold from the total revenue, we get gross profit. - Operating expenses (Operating expenses are costs that are not part of the cost of production) Operating expenses include fixed costs that have little or no relation to the amount of output. These may include rental payments, staff salaries, office support costs, advertising costs, and so on. - Operating income (Operating income = Gross profit - Operating expenses) If we subtract operating expenses from gross profit, we get operating income. Or you can calculate it this way: Operating income = Total revenue - Cost of goods sold - Operating expenses. - Non-operating income (this item includes all income and expenses that are not related to regular business operations) It is interesting, that despite its name, non-operating income and operating income can have negative values. For this to happen, it is sufficient that the corresponding expenses exceed the income. This is a clear demonstration of how businessmen revere profit and income, but avoid the word "loss" in every possible way. Apparently, a negative operating income sounds better. Below is a look at two popular components of non-operating income. - Interest expense This is the interest the company pays on loans. - Unusual income/expense This item includes unusual income minus unusual expenses. "Unusual" means not repeated in the course of regular activities. Let's say you put up a statue of the company's founder - that's an unusual expense. And if it was already there, and it was sold, that's unusual income. - Pretax income (Pretax income = Operating income + Non-operating income) If we add or subtract (depending on whether it is negative or positive) non-operating income to operating income, we get pretax income. - Income tax Income tax reduces our profit by the tax rate. - Net income (Net income = Pretax income - Income tax) Here we get to the income from which expenses are no longer deducted. That is why it is called "net". It is the bottom line of any company's performance over a period. Net income can be positive or negative. If it's positive, it's good news for investors, because it can go either to pay dividends or to further develop the company and increase profits. This concludes part one of my series of posts on the Income statement. In the next parts, we'll break down how net income is distributed to holders of different types of stock: preferred and common. See you soon!
Editors' picks
NSE:BANKNIFTYEducation
by Be_Capy
2