Date: 1st October 2018
Steps Criteria
1 Company Size
2 Strong Financial Position
3 Earnings Stability
4 Dividend Record
5 Earnings Growth
6 Moderate P/E Ratio
7 Moderate P/B Ratio
8 Margin of Safety
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Criteria for Selecting Stocks: A Value Investing Approach, Exercises of Economics
The criteria for selecting stocks using a value investing approach. The criteria include company size, strong financial position, earnings stability, dividend record, earnings growth, moderate P/E ratio, moderate P/B ratio, and margin of safety. figures and comments for each criterion.
What you will learn
- What are the seven criteria for selecting stocks using a value investing approach?
- What is the maximum acceptable total debt to shareholders' equity ratio?
- What is the desired current ratio for a company?
- What is the maximum acceptable long-term debt to net current assets ratio?
- What is the minimum acceptable earnings growth rate?
Typology: Exercises
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Date: 1st October 2018 Steps Criteria 1 Company Size 2 Strong Financial Position 3 Earnings Stability 4 Dividend Record 5 Earnings Growth 6 Moderate P/E Ratio 7 Moderate P/B Ratio 8 Margin of Safety
Earnings Yield 10 Year Indian (Bunds) Government Bond Yields Margin of Safety Earnings Yield greater than 10 year govt bonds?
Figures Comments 54.35 Sufficient Market Cap over USD 1Bn
1.04 Current Ratio less than desired 1.2x
2.53 Long-term debt not less than Net Current Assets
54.5 Total Debt less than 2x Shareholders Equity YES Positive earnings per share each year over the last 10 years YES Positive dividend payments over the last 10 years YES 481% growth from average EPS in 2008-10 vs 2015-
YES P/E Ratio of 7.01x is below 12x
45 601,995,
YES P/B Ratio of 1.04x is less than 1.5x
Date: 1st October 2018 Steps Criteria 1 Earnings Yield 2 Dividend Yield 3 Return on Invested Capital 4 Return on Equity
Description Figures Earnings Yield: 3 Year Average Earnings Per Share 11. Share price (Rs.) 77. Earnings Yield 14.27% Dividend Yield: Share price (Rs) 77. 2017 Dividend Per Share (Rs) 3. 2018 Dividend Per Share (Rs) 3. 2019 Dividend Per Share (Rs) 4. 3 Year Average Dividend Per Share 3. Dividend Yield 4.59% a. Owners' Earnings: Net Profit (Rs. Crores) 8. Depreciation & Amortisation 4. Cost of Stock Options Issuance 0 CAPEX Spend (Average over last 10 years) 0. Oversized pension return income 0 Owners' Earnings (Rs. Crores) 12. b. Invested Capital: Total Assets (Rs. Crores) 193. Cash and cash equivalents (Rs. Crores) 9. Past Accounting Changes (Rs. Crores) 0 Invested Capital (Rs. Crores) 184. c. Return on Invested Capital: Return on Invested Capital 6.90% Return on Equity: Net Income (Rs. Crores) 8. Shareholders' Equity (Rs. Crores) 54. Return on Equity 15.98%
EURs Year Earnings per Share (Fully diluted on common stock) Annual Growth 2010 0. 2011 0.31 -37% 2012 4.93 1490% 2013 7.45 51% 2014 7.75 4% 2015 8.1 5% 2016 8.83 9% 2017 9.7 10% 2018 10.45 8% 2019 13.12 26% Ten year absolute growth 481%
EURs Year Dividend per Share (Fully diluted on common stock) Annual Dividend Growth 2010 0. 2011 0.3 0% 2012 1.3 333% 2013 2.3 77% 2014 2.5 9% 2015 2.6 4% 2016 2.9 12% 2017 3.2 10% 2018 3.5 9% 2019 4 14%
Annual Spend Annual Spend Growth 93 1% 42 0% 258 2% 1656 14% 1772 13% 2069 14% 577 3% 201 1% 511 3%