A Newbie Guide to Investing

(06-03-2014, 12:05 AM)Ferns Wrote: Hi all,

I was thinking of creating an excel spreadsheet to tabulate important financial info extracted from annual reports. Then I came across morningstar and realised that they provide info over up to 10 years.

So do you guys actually bother with excel or is the direct info from morningstar accurate enough to be relied on?

morning star need to pay leh
how much u pay for morning staR?

(25-03-2014, 07:18 PM)wahkao Wrote:

(06-03-2014, 12:05 AM)Ferns Wrote: Hi all,

I was thinking of creating an excel spreadsheet to tabulate important financial info extracted from annual reports. Then I came across morningstar and realised that they provide info over up to 10 years.

So do you guys actually bother with excel or is the direct info from morningstar accurate enough to be relied on?

morning star need to pay leh
how much u pay for morning staR?

No need. I did create a free account though.

Here's a sample link to what it can show which made me wonder if there is still a need to create an excel spreadsheet to calculate some of these things like ROE, margins, etc...

http://financials.morningstar.com/ratios...ture=en-US

Replace C31 with other symbols to find out about the respective stocks.

Hi Guys, I have a question on how to evaluate a company after divestment of some of its businesses.

Say Coy A has:
EPS = 4 cents
NAV = 40 cents
and prices normally trade @ PE of 8 so about 32cents and price-to-book is then 0.8

It divested one of its biz which contributes EPS of 2 cents @ 20 cents so:
new EPS = 2 cents
new NAV = 60 cents

Say it is normally valuated using PE so based on PE of 8, its price becomes 16cents after divestment and ROE also dropped from 10% to 3%.

However PE is looking at further potential but with this divestment, it realized that potential now rather than over 8 years. So how do one value the Coy after the divestment given that its future EPS and ROE becomes lower but it has already got the other half fully realized EPS (earning) in its pocket?

I hope this doesn't sounded like a stupid question.

(27-03-2014, 04:40 PM)GPD Wrote: Hi Guys, I have a question on how to evaluate a company after divestment of some of its businesses.

Say Coy A has:
EPS = 4 cents
NAV = 40 cents
and prices normally trade @ PE of 8 so about 32cents and price-to-book is then 0.8

It divested one of its biz which contributes EPS of 2 cents @ 20 cents so:
new EPS = 2 cents
new NAV = 60 cents

Say it is normally valuated using PE so based on PE of 8, its price becomes 16cents after divestment and ROE also dropped from 10% to 3%.

However PE is looking at further potential but with this divestment, it realized that potential now rather than over 8 years. So how do one value the Coy after the divestment given that its future EPS and ROE becomes lower but it has already got the other half fully realized EPS (earning) in its pocket?

I hope this doesn't sounded like a stupid question.

The NAV after transaction is wrong. It should be 40ct because you are selling NAV 20ct for 20ct.

(27-03-2014, 04:52 PM)cif5000 Wrote:

(27-03-2014, 04:40 PM)GPD Wrote: Hi Guys, I have a question on how to evaluate a company after divestment of some of its businesses.

Say Coy A has:
EPS = 4 cents
NAV = 40 cents
and prices normally trade @ PE of 8 so about 32cents and price-to-book is then 0.8

It divested one of its biz which contributes EPS of 2 cents @ 20 cents so:
new EPS = 2 cents
new NAV = 60 cents

Say it is normally valuated using PE so based on PE of 8, its price becomes 16cents after divestment and ROE also dropped from 10% to 3%.

However PE is looking at further potential but with this divestment, it realized that potential now rather than over 8 years. So how do one value the Coy after the divestment given that its future EPS and ROE becomes lower but it has already got the other half fully realized EPS (earning) in its pocket?

I hope this doesn't sounded like a stupid question.

The NAV after transaction is wrong. It should be 40ct because you are selling NAV 20ct for 20ct.

Ok if it is a case of turning 20cts of assets into cold hard cash without earning ability, then it may be worse off.

However , say if the disposal resulted in a net gain of 20cts (say they divest 30 cents worth of NAV at 50 cents ie the part of the biz that has a lower ROE), how then do we value the Coy?

(27-03-2014, 05:30 PM)GPD Wrote:

(27-03-2014, 04:52 PM)cif5000 Wrote:

(27-03-2014, 04:40 PM)GPD Wrote: Hi Guys, I have a question on how to evaluate a company after divestment of some of its businesses.

Say Coy A has:
EPS = 4 cents
NAV = 40 cents
and prices normally trade @ PE of 8 so about 32cents and price-to-book is then 0.8

It divested one of its biz which contributes EPS of 2 cents @ 20 cents so:
new EPS = 2 cents
new NAV = 60 cents

Say it is normally valuated using PE so based on PE of 8, its price becomes 16cents after divestment and ROE also dropped from 10% to 3%.

However PE is looking at further potential but with this divestment, it realized that potential now rather than over 8 years. So how do one value the Coy after the divestment given that its future EPS and ROE becomes lower but it has already got the other half fully realized EPS (earning) in its pocket?

I hope this doesn't sounded like a stupid question.

The NAV after transaction is wrong. It should be 40ct because you are selling NAV 20ct for 20ct.

Ok if it is a case of turning 20cts of assets into cold hard cash without earning ability, then it may be worse off.

However , say if the disposal resulted in a net gain of 20cts (say they divest 30 cents worth of NAV at 50 cents ie the part of the biz that has a lower ROE), how then do we value the Coy?

In such a situation, the P/E of the company will typically increase drastically, especially if there are arrangements made to return excess cash to shareholders.

Typically, enterprise value + net cash is a common way to value companies with alot of cash on the balance sheet. So we will need to value the remaining part of the company, and then add the net cash per share on top of it.

(27-03-2014, 05:53 PM)Clement Wrote:

(27-03-2014, 05:30 PM)GPD Wrote:

(27-03-2014, 04:52 PM)cif5000 Wrote:

(27-03-2014, 04:40 PM)GPD Wrote: Hi Guys, I have a question on how to evaluate a company after divestment of some of its businesses.

Say Coy A has:
EPS = 4 cents
NAV = 40 cents
and prices normally trade @ PE of 8 so about 32cents and price-to-book is then 0.8

It divested one of its biz which contributes EPS of 2 cents @ 20 cents so:
new EPS = 2 cents
new NAV = 60 cents

Say it is normally valuated using PE so based on PE of 8, its price becomes 16cents after divestment and ROE also dropped from 10% to 3%.

However PE is looking at further potential but with this divestment, it realized that potential now rather than over 8 years. So how do one value the Coy after the divestment given that its future EPS and ROE becomes lower but it has already got the other half fully realized EPS (earning) in its pocket?

I hope this doesn't sounded like a stupid question.

The NAV after transaction is wrong. It should be 40ct because you are selling NAV 20ct for 20ct.

Ok if it is a case of turning 20cts of assets into cold hard cash without earning ability, then it may be worse off.

However , say if the disposal resulted in a net gain of 20cts (say they divest 30 cents worth of NAV at 50 cents ie the part of the biz that has a lower ROE), how then do we value the Coy?

In such a situation, the P/E of the company will typically increase drastically, especially if there are arrangements made to return excess cash to shareholders.

Typically, enterprise value + net cash is a common way to value companies with alot of cash on the balance sheet. So we will need to value the remaining part of the company, and then add the net cash per share on top of it.

Just to clarify, isn't enterprise value = market cap + debt - cash? And net cash = cash - debt right?

If so, enterprise value + net cash = market cap?? So doing a simple replacement, are we saying that market cap is a common way to value companies with a lot of cash on the balance sheet?

Sorry I lost you there.

Sorry for the confusion.

I think of it as enterprise value = fair value of equity + value of debt less cash.

Just like he was using a p/e multiple to estimate fair value of equity, I think estimating a fair enterprise value (maybe with dcf or some ev/ebitda multiple, then adding net cash to determine equity value might be more appropriate for cash heavy companies.

Hi one question on EV. Investopedia explains 'Enterprise Value - EV'

Think of enterprise value as the theoretical takeover price. In the event of a buyout, an acquirer would have to take on the company's debt, but would pocket its cash.

Now this seems strange to me. You pay more for a company with net debt and less with a company with net cash. So say if I have coy in net cash and someone is eyeing it and I want more I should quickly get huge loan to jack up the acquisition price?

I simply thought if a biz is good, the acquisition will be NAV + premium and if the biz is bad, the acquisition will be NAV with a discount. Biz world really made no sense to me!

(27-03-2014, 11:06 PM)GPD Wrote: Hi one question on EV. Investopedia explains 'Enterprise Value - EV'

Think of enterprise value as the theoretical takeover price. In the event of a buyout, an acquirer would have to take on the company's debt, but would pocket its cash.

Now this seems strange to me. You pay more for a company with net debt and less with a company with net cash. So say if I have coy in net cash and someone is eyeing it and I want more I should quickly get huge loan to jack up the acquisition price?

I simply thought if a biz is good, the acquisition will be NAV + premium and if the biz is bad, the acquisition will be NAV with a discount. Biz world really made no sense to me!

Taking on a huge loan won't help. Let's say you take up a $1 mil loan. You will end up adding debts of $1 mil but also negated by the $1 mil you have now in extra cash. Net impact zero.

Second, not all businesses should be valued based on NAV. Service and other asset-light businesses where some of the key-drivers of value are not capitalised on balance sheet meant that the business will likely be valued many times of NAV.