1. 1 ShareScope How investors evaluate company performance Tim Clarke General Manager, ShareScope

2. 2 The market Why invest in shares?

3. 3 Private Investors Merchant Banks / Fund Managers Stockbrokers SELL SIDEBUY SIDE Stock Market Structure of the market

4. 4

5. 5 Minefield Continuous operations Exceptional items GAAP Practical considerations

7. 7 Profitability

8. 8

9. EPS = Earnings per Share 9 Profitability

10. 10 Profitability

11. 11 Profitability

12. 12 Profitability

13. 13 P/E = Price/Earnings Ratio Price EPS

14. 14 Price/Earnings Ratio

15. 15 Price/Earnings Ratio

16. 16 Price/Earnings Ratio

17. 17 Price/Earnings Ratio

18. 18 PEG = PE / Earnings Growth PEG

19. What are dividends? Expressed as a yield (dividend/price) Income Compound interest 19 Dividends

20. Reinvested Dividends According to a Barclays study, £1000 invested in shares in 1945 would now be worth £2,960, adjusted for inflation. If the investor had re-invested the dividends, this figure would have risen to £45,770. Einstein described compound returns as the “eighth wonder of the world”. 20 Dividends

21. 21 Dividends

22. GM = Gross Profit / Turnover (Sales) 22 Gross Margin

23. OM = Operating Profit / Turnover (Sales) 23 Operating Margin

24. 24 Debt Gearing = Debt / Net Assets

25. 25 Cash Flow & Liquidity

26. 26 Returns

27. 27 Discount/Premium to NAV

28. 28 City Expectations

29. 29 City Expectations

30. 30 City Expectations

31. 31 City Expectations -16%

32. 32 Was Tesco a good investment?

33. 33 Stock Screening Search the stock market Use understanding of financial metrics to find attractive investment opportunities Criteria to use depend on the type of investor you are

34. 34 Growth - Warren Buffett Capitalisation above £250m Exclude property stocks Below average PE in subsector EPS has increased in four out of the last five years Operating margin is trending upwards Net gearing below 100% Interest cover of 1.5 or more Cash flow higher than EPS ROCE of at least 12% for last three years ROCE trending upwards over last three years Ideally above average in sub-sector for most of PE, ROCE, Op margin, Net Gearing, Price to cash flow Stock Screening