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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 companys 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

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

FINANCIAL RATIOS

Introduction to FA
28th January 2016

Financial Ratios

Most common and widespread tools to analyze


a companys 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, 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

Financial Ratios

Liquidity Ratio

Long-term Solvency Ratio

Efficiency Ratio

Profitability Ratio

Market value Ratio

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

Introduction to FA
28th January 2016

Liquidity Ratio

Measures firms ability to


pay bills in short run

E.g. current ratio, cash


ratio, quick ratio

2007-2008 Financial Crisis

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

Introduction to FA
28th January 2016

Long-term Solvency Ratio

Measures firms ability to pay all its financial


obligations

E.g. Total debt ratio, interest coverage ratio, 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, 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

Efficiency Ratio

Measures how effectively the


firms assets are being
managed

E.g. Inventory turnover, fixed


assets turnover, cash
conversion cycle

Allows management to improve


business model

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

Introduction to FA
28th January 2016

Profitability Ratio

Measures firms return on investment

E.g. Profit Margin, ROA, ROE

Higher ratio is desirable

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

Introduction to FA
28th January 2016

Market Value Ratio

Measures how the market


values the share price of a
firm

E.g. P/E, P/B, 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, Cheng Kah Fong, Ryan Please
Chang read the disclaimer and the disclosures which can be found
nusinvest.comFA Department
within this report

VALUING METHODS

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- Trying to determine the true value


of the company

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

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, 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

How to perform Market Valuation

1.Identify the comparable universe-

Industry/Country/Products/Financial Criteria

2.Spreading Comparables- Equity


Multiples/Enterprise Multiples

3.Benchmarking Companies
4.Determining Fair Value

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

Introduction to FA
28th January 2016

How to perform Market Valuation

All Telcos

P/E, EV/EBITDA

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

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, 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

1.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.Discount Rate- WACC


4.Present Value
5.Adjustments to get Equity Value
(How much equity of Singtel is available to us?)

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

Introduction to FA
28th January 2016

Which one should we use?

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

Introduction to FA
28th January 2016

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

VALUE INVESTING

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, 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 Value Investing?


Seeking undervalued stocks
(bargains)

Stocks as businesses, not ticker


symbols
Fundamentals Intrinsic value
Margin of Safety

The intelligent investor is


a realist who sells to
optimists and buys from
pessimists.

Benjamin Graham

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

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, 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

Value Investing - 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, 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

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, 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

Upcoming Workshops

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