Security Analysis Jason Botzler And Graham Holding

Quick Notes: The Premise of the Top Down Investment approach claims that we have already allocated our assets in high growth areas. The Premise of the Top Down Investment approach claims that we have already allocated our assets in high growth areas. In our Security analysis we are primarily concerned with finding: In our Security analysis we are primarily concerned with finding: Financially secure companies within these industries Financially secure companies within these industries Under Valued Securities within these industries. Under Valued Securities within these industries.

Todays Objectives How to attain proper Information to perform security analysis. How to attain proper Information to perform security analysis. Learn to use the Tools available to us. Learn to use the Tools available to us. Analyze the Outputs of Financial Ratio Analysis. Analyze the Outputs of Financial Ratio Analysis.

Information Retrieval Performing Security Analysis requires both cross sectional data, as well as, time series. Performing Security Analysis requires both cross sectional data, as well as, time series. The raw data for all of our Security Analysis will come from the companies Financial Statements. The raw data for all of our Security Analysis will come from the companies Financial Statements. This data is available on Wrds, Bloomberg, and Reuters. This data is available on Wrds, Bloomberg, and Reuters. Suggestions: 3-5yrs of data Suggestions: 3-5yrs of data Industry Data can also be found on Reuters. Industry Data can also be found on Reuters. Once this information is retrieved we can begin ratio analysis. Once this information is retrieved we can begin ratio analysis.

Tools Available On Reuters we can compile the financial statements using Fundamentals.

Tools available We can find Financial Ratio analysis on Reuters, and it compares it to the Industry for us. We can find Financial Ratio analysis on Reuters, and it compares it to the Industry for us.

5 Categories of Financial Ratios 1. Common size statements 2. Internal liquidity (solvency) 3. Operating performance a. Operating efficiency b. Operating profitability 4. Risk Analysis 5. Growth Analysis

Internal Liquidity Ratios Current ratio=Current Assets/Current Liabilities Current ratio=Current Assets/Current Liabilities Quick Ratio= (Cash+Marketable Securites+Receivables)/Current Liabilities Quick Ratio= (Cash+Marketable Securites+Receivables)/Current Liabilities Inventory Turnover=CGS/((Beg Inv+End Inv)/2) Inventory Turnover=CGS/((Beg Inv+End Inv)/2) Inventory Processing Period=365/Inventory Turnover Inventory Processing Period=365/Inventory Turnover

The DuPont Ratio The DuPont Analysis breaks down the components of ROE The DuPont Analysis breaks down the components of ROE The DuPont Ratio offers investors a quick way to analyze the Performance, Liquidity and Risk. The DuPont Ratio offers investors a quick way to analyze the Performance, Liquidity and Risk. ROE=(NI/S)*(S/A)*(A/E) ROE=(NI/S)*(S/A)*(A/E) NI=Net Income NI=Net Income S = Sales S = Sales A=Average Assets A=Average Assets E= Average Equity E= Average Equity

Reuters DuPont Output Performance Efficiency Leverage Returns on Stockholders Capital

Du Pont analysis (cont.) The time series data, from Reuters, offers a look at the trends in these ratios and could help us get an inside look on company goals. The time series data, from Reuters, offers a look at the trends in these ratios and could help us get an inside look on company goals. Looking at the DuPont analysis of say IBM’s Competitor we can find out more information. Looking at the DuPont analysis of say IBM’s Competitor we can find out more information.

Valuation

Current Event Studies Don’t ignore the news! Don’t ignore the news! Current event studies often times can give signals of the financial strength of a company. Current event studies often times can give signals of the financial strength of a company. It is also important to not over emphasize the news, these are Billion dollar companies we are looking at, we must keep the news in perspective to what drives ROE. It is also important to not over emphasize the news, these are Billion dollar companies we are looking at, we must keep the news in perspective to what drives ROE.