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Growth of a company
Points to check
1. Sales growth Rate % wrt peers
2. Sales growth coming organically vs acquisitions
EPS is only one no. Find sources of this no.
Points to check
1. Sales growth Rate % wrt peers
2. Sales growth coming organically vs acquisitions
EPS is only one no. Find sources of this no.
FCF
Points to check if sudden drop in free cash flow or muted free cash flows, instead having good cash flow from operations.
1. Check Financial inflows, sometimes companies report this under cash from operation to inflate the nos.
2. Expense capitalization, under Investing.
Points to check if sudden drop in free cash flow or muted free cash flows, instead having good cash flow from operations.
1. Check Financial inflows, sometimes companies report this under cash from operation to inflate the nos.
2. Expense capitalization, under Investing.
Sales vs Expense
Points to check
1. Sales breakup product sales vs one time sales
2. Growth in expense with respect to sales, sometimes companies do under reporting to boost EPS and capitalize expense under assets
Points to check
1. Sales breakup product sales vs one time sales
2. Growth in expense with respect to sales, sometimes companies do under reporting to boost EPS and capitalize expense under assets
Receivables and inventories
Many a time balance sheets managed and balanced by these 2 important entries.
Points to check
1. Receivables: significant increase be cautious
2. Inventories : significant increase be cautious
Many a time balance sheets managed and balanced by these 2 important entries.
Points to check
1. Receivables: significant increase be cautious
2. Inventories : significant increase be cautious
Earnings: Inflated vs deflated
Inflated: push more sales (improperly), one time gains, shift expense to next period
Deflated: report low sales against actual sales and create buffers for next period, report future period expense in current period to inflate future earnings
Inflated: push more sales (improperly), one time gains, shift expense to next period
Deflated: report low sales against actual sales and create buffers for next period, report future period expense in current period to inflate future earnings
Short term gain, long term pain.
To boost EPS companies sometimes record revenue too soon via.
1. Recording future revenue (I.e licence, contracts, long term service) at beginning of the contract, but real bills/ cash comes in future
2. Jump in unbilled receivables.
To boost EPS companies sometimes record revenue too soon via.
1. Recording future revenue (I.e licence, contracts, long term service) at beginning of the contract, but real bills/ cash comes in future
2. Jump in unbilled receivables.
Red flags in this case.
1. A sharp jump in receivables
2. Cash flow from operation increased in initial years but muted free cash flow.
3. Both future revenue and cash from operation compromised as upfront recording of future revenue.
1. A sharp jump in receivables
2. Cash flow from operation increased in initial years but muted free cash flow.
3. Both future revenue and cash from operation compromised as upfront recording of future revenue.
I remembered 2 companies which tried these tactics in past.
1. Rolta India
2. Zen tech
Kindly read attached picture, it may clear these points and help in better understanding
1. Rolta India
2. Zen tech
Kindly read attached picture, it may clear these points and help in better understanding
Cash flows very important but this too has many loopholes and space for manipulation.
Being a most important section "Cash flow from operation": companies inflate this by adding non operative cash inflows like borrowing, sell of an asset tangible or intangible.
Being a most important section "Cash flow from operation": companies inflate this by adding non operative cash inflows like borrowing, sell of an asset tangible or intangible.
In addition to above point...
Companies boost cash from operation further by sending all unwanted cash outflows to the other 2 sections.
Cash from investing
Cash from financing
Companies boost cash from operation further by sending all unwanted cash outflows to the other 2 sections.
Cash from investing
Cash from financing
Main components of CASH FROM OPERATION
PAT
Finance cost
Depreciation
Receivables
Payables
Inventory
Check main source of cash, if main source depreciation be cautious.
All other entries excluding above need to be scrutinized I.e any bogus entry to inflate the cash from ops
PAT
Finance cost
Depreciation
Receivables
Payables
Inventory
Check main source of cash, if main source depreciation be cautious.
All other entries excluding above need to be scrutinized I.e any bogus entry to inflate the cash from ops
Be cautious if PAT rising significantly and ballooning the receivables.
Especially companies having many subsidiaries outside India and major sales by these subsidiaries, which increase PAT without generating real cash.
Especially companies having many subsidiaries outside India and major sales by these subsidiaries, which increase PAT without generating real cash.
In above case be cautious if u find PAT AND RECEIVABLES increasing and same time subsidiaries outside India not audited by Indian auditors.
Many a time Indian auditors accept data provided by management regarding this subsidiaries.
Avoids these companies
E.g 8k miles soft
Many a time Indian auditors accept data provided by management regarding this subsidiaries.
Avoids these companies
E.g 8k miles soft
Cash flow from operation and balance sheet red flags.
Recording operating cost as a capital asset rather than as an expense.
Points to check.
1. Rapid growth in assets especially intangible assets, goodwill and other assets account.
2. Calc % of tangible , goodwill other assets
Recording operating cost as a capital asset rather than as an expense.
Points to check.
1. Rapid growth in assets especially intangible assets, goodwill and other assets account.
2. Calc % of tangible , goodwill other assets
3. Calculate above % wrt tangible assets and total assets.
Significant contribution will create problem.
Attached few examples for better understanding
Significant contribution will create problem.
Attached few examples for better understanding
Few more red flags on cash flow statement.
1. Recording the purchase of Inventory in cash from investing section instead its a part of cash from operation section.
2. Cash from operation growing organically or via series of acquisition.
1. Recording the purchase of Inventory in cash from investing section instead its a part of cash from operation section.
2. Cash from operation growing organically or via series of acquisition.
Whole point is to show good cash from operation
More tricks
Slow or delay payments to vendors, hold good for near future no doubt but significant increase in payables will create problem in future cash management. Hand twisting of vendors, reputation of a company compromised
More tricks
Slow or delay payments to vendors, hold good for near future no doubt but significant increase in payables will create problem in future cash management. Hand twisting of vendors, reputation of a company compromised
Watch for swings in OTHER PAYABLES ACCOUNT.
payments that the company is due, such as payment to employees that have been awarded but are only due in the future.
payments that the company is due, such as payment to employees that have been awarded but are only due in the future.
Lastly read credit terms of company , easy way compare debtor days with peers, it will tell you strength of company and his product wrt peers.
Too tighten or too loosen credit terms will hamper business and relationship with customers.
Too tighten or too loosen credit terms will hamper business and relationship with customers.
I hope this thread will be helpful to you. In past I have shared many such threads, max time with examples.
I will add more and more example in this thread.
I will add more and more example in this thread.
My favorite books..
Pic 1 retail analyst publishing thr reports excel sheet and herd following without knowing or asking q?
Pic 2 smart money operator take advantage and start moving out with wealth
Pic 3 practical example "RAIN IND", white font retail investors holdings
Be cautious whn u luk this
Pic 2 smart money operator take advantage and start moving out with wealth
Pic 3 practical example "RAIN IND", white font retail investors holdings
Be cautious whn u luk this
Friends, as you already know, I give equal importance to SHP analysis as well while analyzing fundamentals of any company.
I have compiled data for: "Increase in retail investors holding Mar-16 vs Mar-20 in various companies" .
Link of PDF file below: https://drive.google.com/file/d/1PxJBBdujcmSiv-MIg6wMArES27R9mqTE/view?usp=drivesdk
I have compiled data for: "Increase in retail investors holding Mar-16 vs Mar-20 in various companies" .
Link of PDF file below: https://drive.google.com/file/d/1PxJBBdujcmSiv-MIg6wMArES27R9mqTE/view?usp=drivesdk
Condition I have applied.
1. Increase in holding more than 5% wrt Mar-16
2. Highlighted in red, Companies where significant increase in retail investors holding more than 10% wrt Mar-16
Data used: Individual share capital upto Rs 2 Lacs - Holdings (I treat them retail holding)
1. Increase in holding more than 5% wrt Mar-16
2. Highlighted in red, Companies where significant increase in retail investors holding more than 10% wrt Mar-16
Data used: Individual share capital upto Rs 2 Lacs - Holdings (I treat them retail holding)
https://phreakonomics.in
Data source.
A big thank to @phreakv6
For such resourceful website.
Really a awesome website and very useful for me.
Data source.
A big thank to @phreakv6
For such resourceful website.
Really a awesome website and very useful for me.
Friends Ctrl + F Working in PDF.
PLS check any particular company names by doing this...It will help.
You may or may not find specific companies due to data filters.
Thanks.
PLS check any particular company names by doing this...It will help.
You may or may not find specific companies due to data filters.
Thanks.
Hope this will be useful
Next I have compiled companies list having retail participations more than 20% (Individual share capital up to Rs 2 Lacs) as per Mar-20 holdings.
Companies having more than 30% retail investors highlighted in Red cells. https://drive.google.com/file/d/17OrR1s3xPoeM4iKPo81YgnrtovAIPSyE/view?usp=drivesdk
Companies having more than 30% retail investors highlighted in Red cells. https://drive.google.com/file/d/17OrR1s3xPoeM4iKPo81YgnrtovAIPSyE/view?usp=drivesdk
Purpose of this exercise.
To show, the wealth erosion done by companies where with time retail participations increasing.
Today companies having 20% retail investors, may increase to 30% in future due to law of averaging.
Max wealth gone in averaging bad companies in HOPES.
To show, the wealth erosion done by companies where with time retail participations increasing.
Today companies having 20% retail investors, may increase to 30% in future due to law of averaging.
Max wealth gone in averaging bad companies in HOPES.
Friends, I have done SHP analysis of 
CUPID , just to show how smart money sells dreams and hopes to retail investors, especially where institution holding negligible and share always react based on HNI / INSIDERS / OPERATORS WISH.
Check the crowd of retail investors.
CUPID , just to show how smart money sells dreams and hopes to retail investors, especially where institution holding negligible and share always react based on HNI / INSIDERS / OPERATORS WISH.Check the crowd of retail investors.
Check how few handful individuals sold shares at high price to retail investors.
Check the participation of retail investors with time and price.
All are buying hope stories.
If company is very strong, Whr is institution participation
Don't believe EPS, CASH is real.
Check the participation of retail investors with time and price.
All are buying hope stories.
If company is very strong, Whr is institution participation
Don't believe EPS, CASH is real.
Sharing original document link...In case snap shot not legible. https://drive.google.com/file/d/1oCLGgOcKY3mO03m9TVx_k4Otn6jWhuST/view?usp=drivesdk
Thread for CAPITAL STRUCTURE
Authorised Capital vs Shared Capital
I have compared ITC / HUL / NESTLE.
Pls have a look...And try to understand impact of equity dilution.
Wealth created by companies, who don't dilute equity.
Pls analyse data authorised vs issued capital.
Authorised Capital vs Shared Capital
I have compared ITC / HUL / NESTLE.
Pls have a look...And try to understand impact of equity dilution.
Wealth created by companies, who don't dilute equity.
Pls analyse data authorised vs issued capital.
Comparison of ITC / HUL / NESTLE
Price with respect to Time.
This will tell you, importance of capital structure.
Companies keep on raising money for their regular business requirements by diluting equity.
Mr. Market also analyse these data before giving PE.
Price with respect to Time.
This will tell you, importance of capital structure.
Companies keep on raising money for their regular business requirements by diluting equity.
Mr. Market also analyse these data before giving PE.
Brief explanation authorised and issued capital.
Please use this thread only for learning purpose.
Keep learning.
Thanks.
Keep learning.
Thanks.
