Interactive thread on investment-related questions

Society Business and Career
41

Re: Interactive thread on investment-related questions

I am confused. So if I understand you,

OCF = net income + interest paid + Amort+ depr + payables - receivables?

That is we don't add taxes paid to net income?

42

Re: Interactive thread on investment-related questions

if you are adding tax expense to NI you have to deduct Taxes paid to calculate OCF

43

Re: Interactive thread on investment-related questions

I am afraid I don't understand. Tax was 8000. To me that was tax expense which is same as tax paid. I am sure you are correct. But I cant grasp difference

44

Re: Interactive thread on investment-related questions

FCF = 125,015,000- 50000 = 124, 965, 000

45

Re: Interactive thread on investment-related questions

Granted per Ali there may be some minor errors. Good enough for govt work as saying goes

46

Re: Interactive thread on investment-related questions

So Free cash flow 124, 965 000
Market cap 1 billion

What is the free cash flow yield?

How would you assessed quality of earnings based on income statement and cash flow statement?

47

Re: Interactive thread on investment-related questions

Now let us move on to balance sheet.

On one side is assets tha company owns. On other side is liabilities that company owes and equity that company owners have. How are the two (assets and liabilities + equity related to each other?

48

Re: Interactive thread on investment-related questions

Not sure what you mean by "related to each other" but you have to substract the liabilities from the assets to get the figure for net assets, which is the figure that matters.

49

Re: Interactive thread on investment-related questions

I thought assets = liabilities.

Liabilities = debt + equities.

So assets - debt = equity - one of the figures that matters.

Maybe I am wrong.

50

Re: Interactive thread on investment-related questions

I was wrong. You are spot on Arshad. Will correct question.

51

Re: Interactive thread on investment-related questions

Assets = liabilities + equity.

So if the company assets are 3 billion rupees, it owes 2.2 billion rupees in loans and account payables ( and other items I have missed) what is the equity that the company has accumulated for its owners ( the shareholders)?

52

Re: Interactive thread on investment-related questions

assets 100
liabilities 70
net assets 30
shareholders funds 30

so therefore asset = shareholders fund + liabilities

Liabilities = assets - shareholders funds

53

Re: Interactive thread on investment-related questions

0.8 billion.

54

Re: Interactive thread on investment-related questions

Correct.

What is the relationship between retained earnings and equity ( or shareholder funds)
What is the relationship between book value and equity ( or shareholder funds)

55

Re: Interactive thread on investment-related questions

Book Value (Net Assets) = Shareholders Funds

Shareholders funds -retained profit = net assets for the last year.

56

Re: Interactive thread on investment-related questions

Correct. In voter words the sum of all retained earnings = book value.

Now assuming the earnings growth rate is 5%. Also assume there are no off balance sheet items. The company has good management. And its business is expected to be viable for next 20 years. If you have money set aside that you don't need for 10 years and you have allocated towards individual stocks, would you consider this stock as having passed your initial screen? Why or why not?

57

Re: Interactive thread on investment-related questions

Depends on whether you think that 5% increase in earning is good or not. What the rate of inflation is, what other options are out there and what your goals are will determine to a large extent whether you consider it further or give it a miss.

So basically without further information you don't know whether the investment is good or bad.

58

Re: Interactive thread on investment-related questions

Let us assume I am describing the situation in the US. (Ignore that units given in Rupees).

As for individual's goals, person is a long term investor. Most of his funds are in index mutual funds. This is. Obey set aside for stocks and not needed for 10 years.

59

Re: Interactive thread on investment-related questions

I don't think that 5% increase in earning is sufficient, unless it is part of a wider portfolio where I would want to average closer to 10%. I wouldn't be happy just keeping pace with the market...but I would actually want to beat the market. In the current environment it may make sense but at some stage in the future you would need to get a better earnings growth especially when the economy starts to pick up, so you may need to switch it after a few years to a share that has better growth prospects.

60

Re: Interactive thread on investment-related questions

Note that P/E is 8. Dividend yield is 6.25%. Earning growth 5%. OCF and FCF high. So quality of earnings good.

One wild card is liabilities is 2.2 billion. Assuming 60% of this debt. Do debt is 1.32 billion. Debt to equity 1.32/0.8 > 1.

LET us assume cash in hand 0.8 billion. Now how does stock look.