Introduction to FA

28th January 2016

Introduction to
Fundamental Analysis

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NUS Invest
Clement Chung, Cheng Kah Fong, Ryan Chang
Please read the disclaimer and the disclosures which can be found
nusinvest.comFA Department
within this report

Introduction to FA
28th January 2016

What is Fundamental Analysis?

Evaluation of a company’s business through
analyzing its financial statements,
management, competitors and other macro
economic factors

DISCLAIMER AND DISCLOSURES
NUS Invest
Clement Chung, Cheng Kah Fong, Ryan Chang
Please read the disclaimer and the disclosures which can be found
nusinvest.comFA Department
within this report

comFA Department within this report . Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest. Cheng Kah Fong.Introduction to FA 28th January 2016 FA vs TA FUNDAMENTAL ANALYSIS • Focuses company analysis to eventually find an intrinsic value for the business • Analysis of financial statements and valuation techniques are important • Holding period is usually mid to long term • TECHNICAL ANALYSIS Focuses on using past data and charts to identify patterns and trends • The understanding of indicators and movements in the market are important • Holding period is usually short to mid term DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung.

FINANCIAL RATIOS .

comFA Department within this report . Cheng Kah Fong. Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest.Introduction to FA 28th January 2016 Financial Ratios • Most common and widespread tools to analyze a company’s financial position • Numbers calculated from financial statements • Allow comparison between two similar companies • Identify strengths and weaknesses of the companies DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung.

comFA Department within this report . Cheng Kah Fong.Introduction to FA 28th January 2016 Financial Ratios • Liquidity Ratio • Long-term Solvency Ratio • Efficiency Ratio • Profitability Ratio • Market value Ratio DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung. Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest.

current ratio.comFA Department within this report . quick ratio • 2007-2008 Financial Crisis DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung.g. Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest.Introduction to FA 28th January 2016 Liquidity Ratio • Measures firm’s ability to pay bills in short run • E. cash ratio. Cheng Kah Fong.

Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest. interest coverage ratio. Total debt ratio. Cheng Kah Fong. debt to equity • Indicates financial stability of a company • Liquidity measures ability to convert assets to cash in a short time but solvency measures the net worth of a company after paying off all its debt DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung.g.Introduction to FA 28th January 2016 Long-term Solvency Ratio • Measures firm’s ability to pay all its financial obligations • E.comFA Department within this report .

g. fixed assets turnover. Cheng Kah Fong. cash conversion cycle • Allows management to improve business model DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung. Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest. Inventory turnover.comFA Department within this report .Introduction to FA 28th January 2016 Efficiency Ratio • Measures how effectively the firm’s assets are being managed • E.

Cheng Kah Fong.comFA Department within this report . Profit Margin.g.Introduction to FA 28th January 2016 Profitability Ratio • Measures firm’s return on investment • E. ROE • Higher ratio is desirable DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung. ROA. Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest.

P/B. P/E.g. Cheng Kah Fong. Ryan Please Chang read the disclaimer and the disclosures which can be found nusinvest. dividend yield • Used by investors • Not used by management as it does not really help to improve business DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung.Introduction to FA 28th January 2016 Market Value Ratio • Measures how the market values the share price of a firm • E.comFA Department within this report .

VALUING METHODS .

Cheng Kah Fong. Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest.Trying to determine the “true” value of the company DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung.Introduction to FA 28th January 2016 How do we know how much a company is worth? • Two main categories of valuation • Market/Relative – How the company does compared to another company/companies • Intrinsic.comFA Department within this report .

Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest.Introduction to FA 28th January 2016 Market / Relative Valuation • Pros • Reflects Market Sentiment • Quick and Easier to apply than Intrinsic Valuation • Cons • No Company is 100% comparable • Focus on short-term rather than long term DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung.comFA Department within this report . Cheng Kah Fong.

Determining Fair Value DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung.Equity Multiples/Enterprise Multiples 3.Introduction to FA 28th January 2016 How to perform Market Valuation 1.Identify the comparable universe- Industry/Country/Products/Financial Criteria 2. Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest. Cheng Kah Fong.comFA Department within this report .Spreading Comparables.Benchmarking Companies 4.

Cheng Kah Fong. EV/EBITDA DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung.comFA Department within this report . Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest.Introduction to FA 28th January 2016 How to perform Market Valuation All Telcos P/E.

comFA Department within this report .Introduction to FA 28th January 2016 Intrinsic Valuation • Pros • Independent of Market sentiment • Sanity Check • Cons • Large amount of assumptions/ Needs constant updates • Not suited for short-term analysis DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung. Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest. Cheng Kah Fong.

Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest.Discount Rate.Introduction to FA 28th January 2016 1.WACC 4. Cheng Kah Fong.Project the free cash flows of the firm How to perform Intrinsic Valuation ( How much cash can Singtel generate for the next 5 years?) 2.Determine the terminal value of the company ( How much is Singtel worth at the end of 5 years ?) 3.comFA Department within this report .Adjustments to get Equity Value (How much equity of Singtel is available to us?) DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung.Present Value 5.

Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest. Cheng Kah Fong.comFA Department within this report .Introduction to FA 28th January 2016 Which one should we use? DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung.

Cheng Kah Fong.comFA Department within this report .Introduction to FA 28th January 2016 DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung. Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest.

VALUE INVESTING .

comFA Department within this report . Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest. Cheng Kah Fong.Introduction to FA 28th January 2016 Value Investing “Short Term Investing” Trading vs Investing • Long Term Investing • Investing Growth or Value DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung.

comFA Department within this report . Cheng Kah Fong.Introduction to FA 28th January 2016 What is Value Investing? • Seeking undervalued stocks (‘bargains’) • Stocks as businesses.” Benjamin Graham DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung. Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest. not ticker symbols • Fundamentals  Intrinsic value • Margin of Safety “The intelligent investor is a realist who sells to optimists and buys from pessimists.

comFA Department within this report . Cheng Kah Fong. Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest.Introduction to FA 28th January 2016 “Mr Market” • A bipolar business man • Offers companies on a daily basis • Decisions based on mood– exuberance/depression • Only do business when it suits you DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung.

comFA Department within this report . Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest.Warren Buffett • Student of Benjamin Graham • Purchasing ‘wonderful’ companies at a ‘fair’ price • Economic Moat • Honest. capable management • Margin of Safety Warren Buffett DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung. Cheng Kah Fong.Introduction to FA 28th January 2016 Value Investing .

Cheng Kah Fong.Introduction to FA 28th January 2016 Why Value Investing? • May 1999 IPO: $20 • October 1999: $84 • August 2000: $0.09 • Overexpansion of warehouses • March 2001: Filed for bankruptcy • Over expenditure on advertising • Losing $2 for every $1 earned DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung.comFA Department within this report . Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest.

Ryan Chang Please read the disclaimer and the disclosures which can be found nusinvest.comFA Department within this report . Cheng Kah Fong.Introduction to FA 28th January 2016 Upcoming Workshops DISCLAIMER AND DISCLOSURES NUS Invest Clement Chung.