Fundamental Analysis Workshop Series Session Seven – Bottom Up Analysis

1. Fundamental Analysis Workshop Series Session Seven – Bottom Up Analysis

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4. Agenda • Introduction to Bottom Up Analysis • Profits • Net Tangible Assets Per Share • Earnings per Share • PE Ratio • Return on Equity • Leverage Ratios • Case Study Introduction Metrics Q & A

5. INTRODUCTION Introduction Metrics Q & A

6. PROFILE • NUS Invest Research Analyst • Year 2 BBA • Pure Fundamental Analysis Introduction Metrics Q & A

7. Introduction to Bottom Up • Basically Ratio Analysis Introduction Metrics Q & A

8. Introduction to Bottom Up • 4 types of ratios • To an investor, arguably the more important ratios are Profitability, Efficiency and Solvency Introduction Metrics Q & A

9. Profits • Net Income • EBIT • EBITDA Introduction Metrics Q & A

10. Net Income • Accounting Revenue – Accounting Cost • Intuitive and easy to understand • However, NI takes into account non cash items • Not usually examined on its own but is subsequently used to generate other indicators. Basic Decrypting Applying the Information Introduction Where to find? Q & A

11. EBIT • Earnings Before Interest and Taxes • Adds Interest and Tax Expense to NI • Gives a clearer picture of company’s ability to generate profits • By taking away distortions from financing cost and tax structure Introduction Metrics Q & A

12. EBITDA • Earnings Before Interest Tax Depreciation Amortization • A PROXY of Operating cash Flow • Important in determining firm’s ability to generate cash Introduction Metrics Q & A

13. Market to Book Ratio • Tells us the market value of a share compared to historical book value • If value is less than 1, means the value of the underlying asset is actually more than the price you can buy it at Introduction Metrics Q & A

14. Earnings per Share • The only financial indicator companies are mandated to provide in their annual report • One of the most important indicators of profitability • Shows the ability of each share in generating accounting profits • Trend is important in analyzing EPS Introduction Metrics Q & A

15. Price Earning Ratio • Price of Share divided by EPS • Values the share based on earnings • The lower the PE compared to similar companies the better the value • However, more research the reason behind low valuations Introduction Metrics Q & A

16. Debt to Equity • Most common leverage ratio • Shows us the capital structure of the firm • Can indicate financing expenditure, solvency of the firm • More than 2 is generally high but depends on industry • If firm goes bankrupt, what happens? Introduction Metrics Q & A

17. Other Leverage Ratios • Current Ratio • Current Assets / Current Liabilities • Not as important compared to debt to equity since current ratio only measures short term liquidity status Introduction Metrics Q & A

18. Profit margin • Net Profits/Net Sales • Shows efficiency of revenue in generating profits • Important in evaluating efficiency within the industry Introduction Metrics Q & A

19. Return on Equity • Net Income / Total Equity • Shows how much of income is attributable to equity holders • Also shows how efficient company is generating profits with given capital Introduction Metrics Q & A

20. Return on Equity • King of all ratios • Du Pont identity • Combines Profit Margin, Equity Multiplier, Total Asset Turnover Introduction Metrics Q & A

21. Other Profitability Ratios • Return on Assets • Shows how efficient assets are in generating profits • We are more concerned with ROE Introduction Metrics Q & A

22. Case Study: GE Introduction Metrics Q & A

23. Introduction Metrics Q & A

24. Other Related News • Pole position in renewable energy market • Buying up French Wind Farms to bolster market shares • New traditional energy deals being signed too • Good business prospects for the company Introduction Metrics Q & A

25. Case Study Conclusion • Never look at only one indicator • Look at trends instead of snapshots in time • Best to complement bottom up analysis with other related company news such as corporate governance Introduction Metrics Q & A

26. Avenues of Information • Bloomberg Terminal • Bloomberg Website • Yahoo Finance • Equity Research Reports Introduction Metrics Q & A

27. Q & A Introduction Metrics Q & A

28. THANK YOU! Introduction Metrics Q & A