Week 41 (26.1.08)

Learn

Who are the user of fundamental analysis and how do they use it?

From the perspective of equity investors (equity analysts)

Enquity investors are probably the most frequent and common users of fundamental analysis tools. Professional investors like fund managers, and the stockbrokers and equity analysts who support them, use fundamental analysis as their primary tool for selecting investments. The uses include:

• Determining trends in the financial stability and operating performance of companies over time;
• Comparing companies against their peer industry group, both domestic and international
• Helping the investors make decisions on which stocks to buy, sell or hold (after making profit forecasts and valuation assessments) in order to maximise investment profits; and
• Assisting shareholders when considering approving or opposing corporate proposals.

Unlearn

All informations are new learning to me.

Relearn

Operating performance of company as a whole is determine by ROIC/ROA. However, operating performance at a business unit level = Return on Net Asset (RONA).

RONA = Operating Profit/Assets Allocated to Unit

Where, Assets Allocated to Unit = Acc Receivable + Inventory + Fix Asset - Accounts Payable

Therefore, I have a role in influencing the Fix Asset at a business unit level ie equipment purchase, and managing Inventory - efficient stock level to supply. As Pfizer appointed Zuellig Pharma as a distributor and collector, we have minimal role in Acc Receivable in collecting debts from customers.

Week 40 (18.1.08)

Learn

What is Fundamental (Financial) analysis?

• Fundamental Analysis is a broad term, which includes financial ratio analysis and valuation techniques.
• The bottom line is we're trying to analyse companies. Fundamental analysis is the assessment of a company's current financial and operating position.
• It seeks to understand the economic and competitive environment in which the company operates.
• This assessment is compared against the company's past performance, and also compared against its competitors.
• An assessment is also made of what the future is likely to hold for the company. It evaluates the company's strategies to see if they are likely to help it succeed or cause it to fail.

Unlearn

Drop off learning thinking that financial analysis is looking only at the current situation of the company. It actually encompass a very broad macroeconomy, industry and individual companies.

Relearn

As an NSM, when making decision for strategy setting for my division or sales expenses, start to be sensitive in the financial figures on how it can impact the bottom line (net profit) of my division and subsequently on Pfizer.

Week 39 (11.1.08)

Learn

1. Capital expenditure budgets cover projects that last over one year and initial costs are typically spread over the life of the project.


2. Operating budget address the day-to-day costs of the business which are expensed.


3. The sooner an organization receives cash, the greater the value of the cash to the organization. Since capital projects last over one year, it is important to consider the time value of money in evaluating them.


4. A project's payback is the time required to recover the investment in the project. Since payback does not consider cash flows after recovery, it should not be used to rank projects.


5. The hurdle rate is an organization's minimally acceptable rate of return on capital projects.


6. The net present value (NPV) of a project is its cash inflows discounted at the hurdle rate less the cash outflows.


7. A positive net present value indicates the project's rate of return exceeds the hurdle rate.


8. A net present value of zero indicates the projects's rate of return is the same as the hurdle rate.


9. A negative net present value indicates that the project's rate of return is less than the hurdle rate.


10. The internal rate of return (IRR) is the project's rate of return.


11. The profitability index (PI) is the project's cash inflows discounted at the hurdle rate divided by the cash outflows.


12. A profitability index greater than 1 indicates that the project's return exceeds the hurdle rate. Comparing profitability indexes is a good way to rank projects.

Unlearn

Nothing to unlearn as all informations are new learning.

Relearn

I do an imaginary Debt Financing:

Capital RM100,000

A. Saving of FD in bank for 10 yrs

100,000 x 3.5% x 10 = 35,000

Total return = 135,000 (aft 10 yrs)

B. Alternative to invest 600K shop house

Loan 500,000 from bank at BLR -1.5% for 25 yrs (BLR 6.75%- 1.5% = 5.25% annually)

Interest expense = 500,000 at 5.25% x 10 yrs = 262,500

Monthly repayment = 3,500 x 12 x 10 = 420,000

Total investment (aft 10 yrs) = 100K + 262.5K + 420K = 782.5K

After 10 yrs, assume shop house appreciation of 7% annually = 600K + (600K x 7%x 10) =1,020,000

Therefore, total return if property sold after 10 yrs = 1,020,000 - 782,500 = 237,500

In conclusion, with capital of RM100,000 - if invested in property with good assumption of appreciation, the Return on Equity (ROE) is higher with Debt Financing.

Week 38 (6.1.08)

Learn

1. Fixed costs do not move in relation to sales or business volume. Variable costs do.
2. At break even, revenues equal cost.
3. A positive contribution margin indicates that all variable costs are covered and that the business segment is "contributing" to fixed cost.
4. The contribution margin of a product or service is its sales minus variable costs.
5. Pre-tax income of a product or service is its revenue minus total costs (variable+fixed cost)
6. Activity-based costing quantifies the cost of the activities most frequently performed by the organization. By sequencing activities together, the organization can identify the total cost of a product or service.

Unlearn

Do not know that when a business is in a break even situation, the revenue it generates equal to the costs of a business. Cost also can be separated into fixed and variable categories.

Relearn

Break some of the home expenses into fixed and variable categories. As fixed costs is relatively stable and can't be changed much, by reducing the variable costs, can help to generate more saving to the home. Start to be more conscious on expenses that can reduce the variable costs to generate more income for home.