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What is Fundamental Analysis?. http://www.investopedia.com/video/play/understanding-fundamental-analysis/. Academy #6 Fundamental analysis. “I’ve never bought a stock unless, in my view, it was on sale.”   John Neff. What is fundamental analysis?. Cornerstone of investing

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what is fundamental analysis
What is Fundamental Analysis?
  • http://www.investopedia.com/video/play/understanding-fundamental-analysis/
academy 6 fundamental analysis
Academy #6

Fundamental analysis

what is fundamental analysis1
What is fundamental analysis?
  • Cornerstone of investing
  • Analyzing fundamentals
  • Qualitative and quantitative
  • Great for proposals
  • Asking the right questions
fundamental questions
Fundamental questions
  • Is the company’s revenue growing?
  • Is it actually making a profit?
  • Is the cash flow positive?
  • 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"?
investment proposal
Investment Proposal
  • Quantitative
  • Qualitative
  • Applications
  • Risks
quantitative
Quantitative
  • Intrinsic Value
  • Accounting
  • Valuation methods
  • Stock screener(s)
what is a stock price
What is a stock price?
  • Price on a:
  • Specific time
  • Quantity (supply / demand)
  • Market price is subjective
  • Opinions differ
intrinsic value
Intrinsic value
  • The “real” value of a company
  • But what determines the real value?
financial statements
Financial statements
  • Balance sheet
  • Income statement
  • Cash flow statement
balance sheet1
Balance sheet
  • What a company owns (debit):
    • Short term assets
    • Long term assets
    • Intangible assets
  • How a company owns it (credit):
    • Equity
    • Short term liabilities
    • Long term liabilities
income statement1
Income statement
  • Net profit -> Shareholders’ equity
income statement2
Income statement
  • Profit/earnings
  • Accrual accounting
  • Revenue – cash flow
  • Costs – expenses
  • EBITDA
  • Earnings before interest, taxation, depreciation and amortization
cash flow statement1
Cash flow statement
  • Cash is king!
  • Cash in and outflow
  • No influence of bookkeeping tricks
valuation methods
Valuation methods
  • Earnings Per Share (EPS)
  • Dividend yield
  • Price/Earnings (P/E)
  • EV/EBITDA
  • Book to market value
  • Gordon’s growth model
metrics per share
Metrics per share
  • Earnings per share (EPS)
  • Earnings divided by shares outstanding
  • Dividend per share
  • (money now – reinvesting)
  • Shell - Google
p e ratio
P/E ratio
  • Value of the company divided by earnings (profit)
  • Price per share divided by EPS
  • What determines height of the ratio?
other multiples
Other multiples
  • Enterprise Value/EBITDA
  • EBITDA – Earnings
  • - Earnings before I tricked that dumb auditor
  • Book to market value
  • Book value firm / market value firm
gordon s growth model
Gordon’s growth model
  • D = dividend
  • g = growth rate
  • r = discount rate
practical implications
Practical implications
  • Compare P/E ratio with peers
  • Is it higher, lower?
  • Why?
  • Good reason(s)?
practical implications1
Practical implications
  • Multiple expansion – contraction
    • Longitudinal: compareratio’s with previous years
    • EPS growth, dividend growth
    • Cross-sectional: compare ratio’s with each other
    • EPS growth, dividend per shares growth but P/E decline -> why?
qualitative
Qualitative
  • Business model
  • Markets
  • Competitive environment
  • Management
  • Market opinion
business model
Business model
  • What does the company do?
  • Where does it generate money?
  • Look at key drivers/factors
  • Don’t invest in a business you don’t understand!
example
Example
  • Boston Chicken
  • Fixed fee
  • MC Donald's
  • Franchise system
business model1
Business model
  • Strategy
  • Value proposition
  • Cost structure
  • Fixed costs – variable costs
  • Commodities (Air France-KLM)
  • Patents (Pharmaceutics)
market
Market
  • What drives success?
  • How are these factors changing?
  • Characteristics of markets:
    • Spare car parts example
    • Smartphones example
    • Nintendo Wii example
competitive environment
Competitive environment
  • What can a company do better than it’s competitors? (Michael Porter)
    • Cheaper/better/faster
  • Google: best search engine
  • Apple: strong brand name
  • Toyota: efficiency advantage
  • Coolblue: fast delivery
competitive environment1
Competitive environment
  • How competitive is the industry?
    • Airlines
    • Soft drinks
management
Management
  • Incentives
    • Shareholder alignment
  • Consistency
    • Skagen funds
  • Track record
  • Example: Angela Ahrendts – Apple
market opinion
Market opinion
  • Material events
    • Earnings, public announcements
  • World events
    • Central bank policies, political and war events
  • Industry appeal
    • Social media stocks
  • Example: BP oil spill
applications
Applications
  • Finding an edge & catalysts
  • Where to find valuable information?
  • Let’sdo this!
edges catalysts
Edges & Catalysts
  • Edge: asymmetric information distribution
    • Interpretation
  • Catalyst: why now
    • Intrinsic value versus market price
valuable information sources
Valuable information sources
  • www.google.com/finance
  • www.yahoo.com/finance
  • www.finviz.com
  • Company website
    • Investor Relations
let s do this
Let’s do this!
  • Which company?
risks
Risks
  • Timing
    • Technical analysis
  • Efficient market hypothesis
    • No free lunch
  • Is the market ever going to reflect the intrinsic value?
  • One can be wrong in calculating intrinsic value
efficient market hypothesis
Efficient market hypothesis
  • Information transfer
    • B&R members
    • Traders
  • Large cap vs small cap
    • Apple - musclepharm
  • Stock reflects all available information
efficient market hypothesis1
Efficient market hypothesis
  • Weak form:
    • past prices can’t lead to outperformance
  • Semi-strong form:
    • Public information can’t lead to outperformance
  • Strong form:
    • All information is incorporated in the price of an asset, even inside information