Academy 6 Fundamental analysis
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Transcript of Academy 6 Fundamental analysis
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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