Academy 6
Fundamental analysis
Get connected to B&R Beurs @
1


ABN Amro Turbo Assignment
15 December
2
Who in the world of
investment is well known
for using fundamental
analysis?
3

Warren Buffett
4





What is it?
Qualitative
Quantitative
Strategies
Where to find it?
5

Important:

Cornerstone investing

Making a proposal

No irrationality
6
7

http://www.investopedia.com/video/play/un
derstanding-fundamentalanalysis/#axzz2DY0UGQmR
8





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"?
9
Intrinsic value versus market value?
10
Intrinsic value versus market value?
“real value”
- Long-run
- Subjective
Problems?
11
12

Opposition
◦ Technical analysis
◦ Efficient market hypothesis
 No free lunch
 No long run outperformance

Solution?:
◦ Combine technical and fundamental analysis
13

Qualitative  surrounding business
◦ Management
◦ Business model
◦ Problem?

Quantitative  Numerical
◦ Profits
◦ Assets
◦ Cash flows
14

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?
15

Competitive adavantage
◦ Long term succes

Example?

Models
◦ Five forces model of Porter
◦ SWOT analysis
16
Question first:
◦ In who/what do you actually invest?
17

Management
◦ Leading the company
◦ Planning and investing
◦ Agency problems
 Monitoring?
18

Management
◦ Monitoring
 Conference calls
 Magement discussion and analysis
 Facts?
 Ownership or insider sales
 Past performance
 Track record
◦ Coporate governance
 Transparancy
 Where to find information?
19


Industry
Financial statement
◦ Balance sheet
◦ Income statement
◦ Cash flow statement
20

Industry
◦ Market share
◦ Industry growth
◦ Competition
 Entry barriers
 Pricing power
◦ Regulation
21

What causes bankruptcy?
22

Balance sheet
◦ Snapshot of health
 Assets vs. Liabilities
23
24

Aspect to look at:
◦ Current assets
 Liquidity?
 Inventory turnover
 Cash
 Apple?
◦ Current liabilities
 Bankruptcy

Ratio’s
◦ Current and quick ratio
◦ Cash flow coverage
25

Aspect to look at:
◦ Debt versus equity?
◦ Off-balance sheet items
 Intangibles  hard to measure




Patents
Goodwill
Brandname
R&D
 DEBT!!
26

Income statement
◦
◦
◦
◦
◦
What is the most important part to look at?
A:Expenses
B: Profits
C: EBITDA
D: Revenue
27

Income statement
◦ EBITDA
◦ Expenses
 R&D?
 Fixed or Variable?
◦ Profit margin
 Buffer
28

-
-
Cash flow statement
Cash flows from operations
Cash flows from financing activities
Cash flows from investing activities
29
30
31

Competitors
◦ Comparing ratio’s
32
-
-
Share price should be no more than twothirds 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.
33
-
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.
34







Current earnings
Annual earnings
New (change)
Small firm
Leaders or laggard?
Institutional ownership
Market sentiment
35

Where to find it?
36

Where to find it?
◦ Website companies
 Financial reports
 Analysts reports
◦ Financial websites:
 IEX
 Bloomberg
 Yahoo finance
◦ Binck
37

What can we find in it?
38

What can we find in it?
◦ Financial statements
◦ Notes to the financial statements
◦ Management discussion and analysis
 Risks?
 Clear?
◦ Auditor’s report
 Accuracy
39
Example 1: www.dockwise.nl
Example
2:www.infinancials.com/en/market%20valuati
on.html
Example 3: www.finance.yahoo.com
40





What is it?
Quantitative vs. Qualitative
Intrinsic value
Rule of thumbs
Strategies
41

Technical analysis
42


One Up on Wall Street, Peter Lynch
Random Walk Down Wall Street, Burton Malkiel
43