Want to learn basics of Fundamental Analysis

[wbosher]

wbosher,
try your local library,business section.peter lynch and jim slater have also written good books on the market.I found The Zulu Principal by jim slater excellent.If they do not have it they may get it from another library for you.All the Buffet books are good.

Hey, thanks for everyones help here.

I have been looking over some annual reports for several companies, not for any particular reason just curiosity. I have come across several numbers which don't stack up and would like to know if this is normal.

Just as an example I have looked at the balance sheet going back four or five years for a couple of NZX listed companies. Below is some examples.

I will use Total Assets as an example. In the 2010 report it states that this is 46,006,000 and in the column for 2009 it has 10,397,000. However, in the 2009 report, the Total Assets says 42,560,000 and the 2008 column says 32,898,000. In the 2008 report, the figures are different again for 2008 than what is on the 2008 column in the 2009 report.

I would think that if the 2009 annual report says one thing, then in the 2009 column in the 2010 report should say the same thing!

Any advice on this? Why would this change?

Cheers.

[Aaron]

I would guess that there was a change in accounting policies. There will be a note on changes in accounting policies in the financial statements and this should show any changes and their affect to last years comparative figures.

[wbosher]

I would guess that there was a change in accounting policies. There will be a note on changes in accounting policies in the financial statements and this should show any changes and their affect to last years comparative figures.

I could understand if it was just one year, in one company, but it's not. I've gone back 4 years and the same thing occurs every year to varying degrees, and it's not just one company either.

[Aaron]

Give me an example. State the company and the financial year the financial statements are for and if I can get a copy of the financial statements I could have a crack at explaining the difference.
I'm no expert but I understand that NZ companies adopted the International Financial Reporting Standards(IFRS) which lead to some major changes in how some assets are valued.
The companies would then have to change the last year comparative figures so that the comparative figures are calculated using the same accounting policies as the current year.

I also could do with a challenge and I need to understand financial statements better but tend to be lazy.

[wbosher]

Take a look at PHB - Pharmacybrands Limited as an example. It could be the way I'm reading this, but I'm pretty sure I'm reading it correctly.

Got to http://www.lifepharmacy.co.nz/defaul...estorRelations and you can download the reports dating back to 2006. I've only been looking at the balance sheet.

[Aaron]

The 2006 comparatives in the 31/3/2007 financial statements are different. The differences are described in Note3 "Significant Accounting Policies" on page 20. I won't pretend to understand the changes but with time you could probably work it out if you thought it was relevant.
I can't say I understand FA or TA analysis but would note that the 2009 cashflow statement for Life Pharmacies show operating losses for both 2008 and 2009. The first thing I would want a company I invest in is for it to actually make money. I don't know much about Life Pharmacies but maybe there is a growth story or an expansion that about to make heaps or perhaps 2008 and 2009 are affected by the recession. Share issues have kept the company going but who are the shares being issued to. I would guess you would then go to the balance sheet and work out what the net assets you are buying into really are. Would goodwill for a corner pharmacy be worth much. I suppose getting a lease in a good location would be worth something.
I guess you also look at sales growth etc etc. But like you I would like to know what are some key factors to look for so you can screen companies without wasting time looking at dogs.

[wbosher]

I would like to know what are some key factors to look for so you can screen companies without wasting time looking at dogs.

From the little reading I've done so far (and I do mean little) it seems that dividing the net worth by the number of shares, and comparing this to the current share price seems to be a good start. Obvoiusly the company needs to be consistantly making a good profit as well. No doubt this is only a fraction of what is required, but I'm sure someone will help us out, there good like that here.

I wasn't actually looking at this company as an investment, I was just going through a few company reports to see if I can learn a thing or two. Just picked this one at random.

Is there some sort of scanner that can be used to filter out some possibles from hundreds of stocks, and then looking at the remainders for a good deal, or is it just a case of going through tons of stocks manually?

[shasta]

From the little reading I've done so far (and I do mean little) it seems that dividing the net worth by the number of shares, and comparing this to the current share price seems to be a good start. Obvoiusly the company needs to be consistantly making a good profit as well. No doubt this is only a fraction of what is required, but I'm sure someone will help us out, there good like that here.

I wasn't actually looking at this company as an investment, I was just going through a few company reports to see if I can learn a thing or two. Just picked this one at random.

Is there some sort of scanner that can be used to filter out some possibles from hundreds of stocks, and then looking at the remainders for a good deal, or is it just a case of going through tons of stocks manually?

The ASX website has all the companies that make up the various sectors, so if you use the AFR Smart Investor site, you can extract a P/E ratio comparison, that could be a start for you.

I like using the "Return on Capital/Equity" ratio = NPAT/Average shareholder funds - anything over 10% shows the current management have created shareholder value above bank interest rates, over 20% per annum & you have very compentent management onboard!

I also use the Trading Room website to get data on opitons, dividends etc

Here's the links as mentioned:

http://www.asx.com.au/research/industry/index.htm

http://www.afrsmartinvestor.com.au/tables.aspx

http://www.tradingroom.com.au/apps/qt/index.ac

[wbosher]

Thanks Shasta, I'll take a look. Do you think it might be a good idea to start with NZ companies, or doesn't it really matter? I only ask this because it may be easier to keep up to date with local business news, and there are a smaller amount of companies to trawl through.

[winner69]

I like using the "Return on Capital/Equity" ratio = NPAT/Average shareholder funds - anything over 10% shows the current management have created shareholder value above bank interest rates, over 20% per annum & you have very compentent management onboard!

Surprised with you of all people Shasta coming out with such a genaralised statement .... as you know 10% ROE isn't always a good result and doess't always lead to shareholder value

Isn't the real sign of having 'very competent management on board' is whether they have create real economic value when taking into debt levels .... ie a return on invested capital in excess of the company cost of capital .... not just the shareholder part

And i would hate to think that wbosher takes your advice and backs one of the highest ROE companies on the NZX10 because that consistently high ROE means they have 'very competent management on board' .... wbosher might be disappointed with his investment in TEL eh