Income Statement
1. Net Profit Margin for the past 10 years
– look out for
– non- recurring earnings
– reserves
– subsidiary earnings
– depreciation and amortization
2. Net Income > Revenue (for the past 5 years)
i.e Operating profit margin
3. Sales Growth
Balance Sheet
1. Current ratio > 1
2. Debt ratio
– ensure no large debt maturing; may cause re-financing issues
3. Rising retained earning for the past 10 years
4. Current Asset Value (liquidation value) = CA – Liability
– if market price < current asset value, then equity is undervalued
5. P/E ratio vs Industry P/E ratio
6. Inventory Turnover, Inventory Growth
7. Stock Buyback
8. Pension Liabilities
Cash Statement
1. FCF/ Share
2. CFO
3. Cash Ratio = (CA – inventory)/ CL
Dividends
1. Dividend yield – look at 5 year average
2. Dividend payout ratio > 50%
Strategy
1. Easy to understand business model
2. “best in breed” firm
3. Mid to large cap firms (< 2 Bn)
Sidenote: refer to CANSLIM