Academy 6Fundamental analysis

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ABN Amro Turbo Assignment 15 December

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Who in the world of investment is well known

for using fundamental analysis?

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Warren Buffett

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What is it? Qualitative Quantitative Strategies Where to find it?

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Important:

Cornerstone investing

Making a proposal

No irrationality

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http://www.investopedia.com/video/play/understanding-fundamental-analysis/#axzz2DY0UGQmR

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Is the company’s revenue growing? Is it actually making a profit? Is it in a strong-enough position to beat out

its competitors in the future? Is it able to repay its debts? Is management trying to ”cook the books"?

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Intrinsic value versus market value?

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Intrinsic value versus market value?

“real value”- Long-run - Subjective

Problems?

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Opposition◦ Technical analysis◦ Efficient market hypothesis

No free lunch No long run outperformance

Solution?:◦ Combine technical and fundamental analysis

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Qualitative surrounding business◦ Management◦ Business model◦ Problem?

Quantitative Numerical◦ Profits◦ Assets◦ Cash flows

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First: Business model◦ Important question:

What does a company actually do? Do you understand the product

Warren Buffet

Example Boston Chicken and Macdonalds

Look at key drivers in sector- Future growth?

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Competitive adavantage◦ Long term succes

Example?

Models◦ Five forces model of Porter◦ SWOT analysis

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Question first:◦ In who/what do you actually invest?

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Management◦ Leading the company◦ Planning and investing◦ Agency problems

Monitoring?

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Management◦ Monitoring

Conference calls Magement discussion and analysis

Facts? Ownership or insider sales Past performance

Track record◦ Coporate governance

Transparancy

Where to find information?

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Industry Financial statement

◦ Balance sheet◦ Income statement◦ Cash flow statement

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Industry◦ Market share◦ Industry growth◦ Competition

Entry barriers Pricing power

◦ Regulation

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What causes bankruptcy?

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Balance sheet◦ Snapshot of health

Assets vs. Liabilities

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Aspect to look at:◦ Current assets

Liquidity? Inventory turnover

Cash Apple?

◦ Current liabilities Bankruptcy

Ratio’s◦ Current and quick ratio◦ Cash flow coverage

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Aspect to look at:◦ Debt versus equity?

◦ Off-balance sheet items Intangibles hard to measure

Patents Goodwill Brandname R&D

DEBT!!

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Income statement

◦ What is the most important part to look at?◦ A:Expenses◦ B: Profits◦ C: EBITDA◦ D: Revenue

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Income statement◦ EBITDA◦ Expenses

R&D? Fixed or Variable?

◦ Profit margin Buffer

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Cash flow statement

- Cash flows from operations- Cash flows from financing activities- Cash flows from investing activities

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Competitors◦ Comparing ratio’s

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- Share price should be no more than two-thirds of intrinsic worth.

- Look at companies with P/E ratios at the lowest 10% of all equity securities. PEG should be less than one.

- Stock price should be no more than tangible book value.

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- There should be no more debt than equity (i.e. D/E ratio < 1).

- Current assets should be two times current liabilities.

- Dividend yield should be at least two-thirds of the long-term AAA bond yield.

- Earnings growth should be at least 7% per annum compounded over the last 10 years.

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Current earnings Annual earnings New (change)

Small firm Leaders or laggard? Institutional ownership Market sentiment

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Where to find it?

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Where to find it?◦ Website companies

Financial reports Analysts reports

◦ Financial websites: IEX Bloomberg Yahoo finance

◦ Binck

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What can we find in it?

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What can we find in it?◦ Financial statements◦ Notes to the financial statements◦ Management discussion and analysis

Risks? Clear?

◦ Auditor’s report Accuracy

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Example 1: www.dockwise.nl

Example 2:www.infinancials.com/en/market%20valuation.html

Example 3: www.finance.yahoo.com

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What is it? Quantitative vs. Qualitative Intrinsic value Rule of thumbs Strategies

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Technical analysis

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One Up on Wall Street, Peter Lynch Random Walk Down Wall Street, Burton Malkiel

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