With markets in wild swings, bottom still far, unstable global situation. I think it is time to sit back relax, watch from sidelines, analyze your picks and then take action.

If one reads the posts under fundamental section, it has been long standing demand to show the nitty gritty of fundamental analysis with a example.

Thus, I will do here simple analysis & get it reviewed from experts especially ALCHEMIST!

I will focus on interpreting data rather than calculating data, which i believe is easily available in calculated form on internet.

Data Links
http://www.indsec.co.in/Fundamental....&MajorSector=1

I am choosing Sector: Shipping

Company1: Varun Shipping
Company2: Mercator

I hope! everybody would support this thread and we will build it slowly into "state of the art" learning thread!

You can read about shipping industry in Sector thread , regarding overview and prospects.

Varun Shipping

Price = 65
EPS = 8.46
P/E = 7.76

Forward Earnings Growth rate = {(PAT FY08- PAT FY07)/PAT FY07} *100
PAT FY08 = 207 crore
PAT FY07 = 14134 Lakh
OR
PAT FY07 =14134/100 = 141.34 Crore

Forward Earnings Growth rate= 46%

FY08 Estimate -Source ICICI & FY07 Website of varun shipping

PEG = P/E divided by "Forward Earnings Growth rate "

PEG = 7.76/46 = 0.16

MERCATOR

Price = 71
EPS = 10.88
P/E = 6.56
Forward Earnings Growth rate = {(PAT FY08- PAT FY07)/PAT FY07} *100
PAT FY08 = 238 Crore
PAT FY07 = 134 Crore

Forward Earnings Growth rate= 77.6%

FY08 estimate -Source ICICI report on Mercator

PEG = P/E divided by "Forward Earnings Growth rate "

PEG = 7.76/77.6 = 0.1

In this particular case both companies are low P/E and high growth companies.

To Summarize
Mercator scores better with Lowest PEG thus, highest growth potential..

Judgement to make w.r.t PEG within companies which can be compared with each other

- High P/E & Low PEG (below 1) - Good buy
- High P/E & PEG above 1 - Bad Buy
- Low P/E & PEG below 1 - Good Buy
- Low P/E & PEG above 1 - Bad Buy

Debt/Equity Ratio - Analyzing how much Debt company has as compared to Equity. More the number is Big means More is Debt. Below 1 is low Debt.

Debt/Equity = Total Debt/Total Shareholder Funds

Shipping is a capital intensitive and cyclical industry. In this particluar case More Debt is expected.But still low debt company is always good.

Varun Shipping

Total Debt : 1793 Crore - FY2007
Total Debt: 1138 Crore - FY2006
Total Debt: 580 Crore - FY 2005
Total Debt : 260 Crore - FY 2004

Total Shareholder Funds: 729 - FY07
Total Shareholder Funds: 475 - FY06
Total Shareholder Funds: 342 - FY05
Total Shareholder Funds: 225 - FY04

Debt/Equity = 2.46 - FY07
Debt/Equity = 2.39 - FY06
Debt/Equity = 1.69 - FY05
Debt/Equity = 1.15 - FY04

For Varun it acquired more debt as compared to last year.
-----------------------------------------------------------------------
Mercator

Total Debt: 1337 Crore - FY 2007
Total Debt: 1310 Crore - FY2006
Total Debt: 526 Crore - FY 2005
Total Debt : 101 Crore - FY 2004

Total Shareholder Funds: 566 - FY07
Total Shareholder Funds: 521 - FY06
Total Shareholder Funds: 343 - FY05
Total Shareholder Funds: 90 - FY04

Debt/Equity = 2.36 FY 07
Debt/Equity = 2.51 FY 06
Debt/Equity = 1.53 FY 05
Debt/Equity = 1.12 FY 04

What this infer?

For Mercator, ratio improved in Last Financial year as well as it is less than Varun Shipping.
Thus, Mercator is slightly better placed in this comparison.

As of now if we look at 9 months Interest Payout in expenses towards the Debt held by each company

Varun Shipping

Interest payout = 106 Crore - FY08 (9 Months Dec 07)
Interest payout = 77 Crore - FY07 (9 Months Dec 07)

Mercator

Interest payout = 48.96 Crore - FY08 (9 Months Dec 07)
Interest payout = 48.10 Crore - FY07 (9 Months Dec 07)

This implies for Mercator we can expect year ending with marginal increase in Debt/Equity ratio while for VarunShipping there would be a further increase in Debt Equity ratio.

Enterprise Value (EV)

This is the minimum amount someone has to pay to buy the Company Outright, incase of Mergers or Acquisitions.

Now, how does it gains importance while comparing companies?

In our example

Varun Shipping

EV = 2767 Crore
Total Debt = 1793 Crore
Cash = 35 Crore

Mercator

EV = 3010 Crore
Total Debt = 1337 Crore
Cash = 119 Crore

This means if somebody buys Mercator outright, he will pay EV = 3010 Crore, but will also get Cash = 119 Crore

Thus, actual Price paid would be EV- Cash = 3010 - 119 =2891 Crore.
and Less debt would be acquired as compared to varun Shipping.

Similarly, incase of varun Shipping he will pay more price and acquire more Debt.

So what's the final decision?

Well Sir there is more to Follow next week!. Till Now Mercator is winning the battle!, by the factors evaluated till now.
There is more comparisons
- Current Ratio (acid test)
- ROE
- ROCE
Profit Margin Analysis etc etc

Some definitions

NPM- Net profit margin

- The net profit margin is simply the after-tax profit a company generated for a Sale or revenue generated.
- Net profit margins vary across industries, making it important to compare a potential investment against its competitors.
- Although the general rule-of-thumb is that a higher net profit margin is preferable, it is not uncommon for management to purposely lower the net profit margin in a bid to attract higher sales.
- This low-cost, high-volume approach has turned companies such as Reliance Capital and Reliance Communications into giants.

Asset turnover
- The asset turnover ratio is a measure of how effectively a company converts its assets into sales
- The asset turnover ratio tends to be inversely related to the net profit margin.
- This means if NPM is high and Asset Turnover will be low and company is following a High profit and low volume startegy and vice versa.

This implies companies might be following 2 approaches
---low-profit, high-volume(NPM is low and Asset Turnover is high)
---high-profit, low-volume(NPM is high and Asset Turnover is low)

- The result is that the investor can compare companies using different models (low-profit, high-volume vs. high-profit, low-volume) and determine which one is the more attractive business.

Equity Multiplier
- It is possible for a company with terrible sales and margins to take on excessive debt and artificially increase its return on equity.
-The equity multiplier, a measure of financial leverage, allows the investor to see what portion of the return on equity is the result of debt.

In our example

Mercator


FY07 in Crores

Assets = 1904
Sales = 718
Net profit margin(NPM) = 8%
Shareholder Equity = 566.73

Equity Multiplier = Assets/Shareholder Equity = 1904/566.73 = 3.36

Asset turnover = Sales/Assets = 718/1904 = 0.37

Return on Equity
ROE = NPM * Asset turnover * Equity Multiplier
= 8*0.37*3.36 = 9.94%

Now if we assume company is debt free, by taking the Equity multiplier out

ROE = NPM * Asset turnover = 8*0.37 = 3 %

This means 9.94% -3% = 6.94% return were because of Debt at work in business for MERCATOR.

Varun Shipping
FY07 in Crores

Assets = 2522
Sales = 672
Net profit margin(NPM) = 20.96%
Shareholder Equity = 729

Equity Multiplier = Assets/Shareholder Equity = 2522/729 = 3.45

Asset turnover = Sales/Assets = 672/2522=0.26

Return on Equity
ROE = NPM * Asset turnover * Equity Multiplier
= 20.96*0.26*3.45 = 19.2%

Now if we assume company is debt free, by taking the Equity multiplier out

ROE = NPM * Asset turnover = 20.96*0.26 = 5.4%

This means 19.2% -5.4% = 13.8% return were because of Debt at work in business for Varun Shipping.

Thus, inspite varun Shipping having high profit margin than Mercator, sales are not concluding to ROE and high Debt is concluding more to ROE, which means for share holders, actual return on their equity is 5.4 %

This implies Mercator is still a better bet and increase in sales can result in better returns in long run. Same is reflected by Low NPM % & bigger Asset turnover ratio as compared to Varun

Note: I do this automatically through XLsheet now!

Mercator

FY08
Average Price in March FY06 = 34 Rs

Current Price = 75

Expected Growth = 42%

Target Price in FY08 = Average Price in March FY06 * 42% = 48 Rs

FY09

Target Price in FY08 = 48 Rs

Current Price = 75

Expected Growth = 43%

Target Price in FY09 = Target Price in FY08 * 43% = 69 Rs

Thus, the forward earnings is already being priced in Mercator. One should look for buying opportunities below this price.

Varun Shipping

FY08
Average Price in March FY06 = 54 Rs

Current Price = 70

Expected Growth = 51%

Target Price in FY08 = Average Price in March FY06 * 51% = 81 Rs

FY09

Target Price in FY08 = 81 Rs

Current Price = 70

Expected Growth = 14%

Target Price in FY09 = et Price in FY08 * 14% = 92 Rs

Thus, varun shipping is under valued as compared to current market price.

Learning: Estimated Growth in Earnings converge with Price in Long term.

You are a man for all our hearts. Thanks for the time you spend in this forum

Hi, very nice and thorough analysis. But cud u clarify the growth rate in the 13th post for me pls. is it growth in eps or growth in price that analyst expect? Thanx.

mr.man could you give me the roe and roae for these 2 cmp's here
calculated step by step

thanks
ram

Hi There,
I have been regularly reading you guys and really love visiting this site regularly.

I hold some amt of GSPL, and I think I want to buy some Petronet LNG soon. Now Inspired by this thread and some wonderful explanations and encouragement from our dear Alchemist through How to analyse a stock
I thought this time I also wanted to try my hands on some analysis .
Please help me, correct me ..
****************************
First of all what I could gether about this company is "Petronet sells regassified-LNG to Indian Oil, GAIL and Bharat Petroleum who then retail it to industrial users.". The comes

EPS and PEG ratios:
Year::::::::::::2006 => 2007 => 2008
PAT:::::::::::::19492.66 => 31325.37 => 47465.34
EPS:::::::::::::2.60 => 4.18 => 6.33
Price::::::::::::41.25 => 71.35 => 58
PE:::::::::::::::15.87 => 17.08 => 9.12
Growth Rate::::xxxx => 60.70 => 51.52
PEG::::::::::::::xxxx => 0.28 => 0.18

****
Growth rate FY07 = {(31325.37- 19492.66)/19492.66} *100 = 60.70%
Growth rate FY08 = {(47465.34- 31325.37)/31325.37} *100 = 51.52%
****

Debt / Equity:
Year:::::::::::::::2005 => 2006 => 2007 => 2008
Debt:::::::::::::::1,259.89 => 1,259.89 => 1,383.20 => 1,577.62
Equity::::::::::::::877.02 => 1071.95 => 1275.52 => 1618.55
Debt/Equity::::::::1.44 => 1.18 => 1.08 => 0.97

My observations:
EPS is increasing
PEG is good and still decreasing
Debt/Equity is okay and decreasing..

Now My questions
1. The price data I used in this analysis is that of some particular day around the year end, should I be using the avg of entire year ? where do I get that. ?
2. the three of my observations make this scrip a good investment rt ? though I understand there are more factors to consider. ROE and all, I m yet to catch up on them..
3. How do I procede on the post#13 of this thread. I want to calculate the possible future price of this script say at the end of FY09 / FY10.

This is my first attempt, please correct the analysis or data anything if you find wrong and add more information that helps us.

And btw some sites show GSPL as a peer company, should we consider GSPL a competitor ?
As I understand Petronet LNG is into production of gas and GSPL is into transmission of gas ( or something similar ), dont they complement each other ?

thanks in advance for your patience to go thru this ... !

i would like to know tht the peg ratio found out is useful for long term investment or intraday?????
also which report do u refer to for the data? annual, quarterly or half yearly?

PEG ratio is useful for investing which can be for view of 1-3 years!

ANNUAL report!

The analysis should be multi Dimensional!
1. You have analysed past year data for this company!
2. Forward PEG should be calculated and compared to it's peer!
3. Similarly compare Debt/Equity, Growth rate etc with its peers and pick the best growing company!

- It is also important to read multiple brokerage estimates, as they come out with earnings report using various methodologies to calculate future price before investing in any company apart from your own judgement!
- This will give u a view what others think about your pick!

hey thanks!!... but i was wondering why can't we find the peg ratio n the target price of a stock quarterly... we do get similar data.

Well technically you can do that, but Signals for short term have low reliability and when most people do it annually it becomes a self fulfilling prophecy!

1 Dear from where you got expected growth ?
2 Can you send the same XL sheet whre you do automatically ?

icicidirect has earning estimates

http://content.icicidirect.com/resea...mentdetail.asp

for intraday trading, i believe it's all about charts.

Sir,

What is PAT? Please reply.I am new here. Thanx.

Profit After Tax.... the net profit.

__________________
Read All Rules Before Making Any Post | E-Investing on Google+

All, I am finding it hard to find the estimated PAT on the internet. Is there any website where I can search on the stock for current FY estimated PAT? or do you guys derive this from other figures?

P.S[edit]:then I found your post 24. But couldn't find the company I was looking for . Thanks for the link anyway.[/edit]

Also, order book for a company is really hard to find. Let me know if this available on any website.

What company do you want the estimates for?

Some companies give guidance about the future revenues and profits, but not all.

For others, one has to rely on estimates of analysts.

Not all companies are tracked by analysts and no analyst tracks all companies.

__________________
Read All Rules Before Making Any Post | E-Investing on Google+

I am looking for Century Plyboard.
Is this same for order book?

I started this thread, but I have changed my methodology of estimation.

The Warren Buffett Way: Investment Strategies of the World's Greatest Investor

I read the above book on Warren buffet and I found it very interesting! The way he estimated and identified the company's and their values where one should buy is exceptional.

Instead of running after growth companies, if you are long term investors, one should buy a stable cash flow and giving high Return of Equity invested company with low debt.

If you want to evaluate Century Ply, find what are there profit margins?

What market value have they created in past 5-10 years vs their earnings.

How much is debt of company. How much cash reserves it has?

Find what is intrinsic value of century plywood. I will post same soon.

But try it yourself and we can compare our results!

Hi man4urheart,

If we want to look at a stock from fundamental point of view, what other data we need to look at apart from this ?

Having the Book Value of the company would be useful - you can the get the Price/Book Value.

Other things to you may want to check.

How much have the earnings per share gone up in the last 10 years (you would need to normalize the EPS for changes in no of equity shares)

Dividend History of the company for 10 years.

Current Dividend Yield.

My apologies for late reply. I kept this one post for weekend.

If you read Financial Analysis with Warren Buffet, you won't ask this question. It is available for download free on internet if you search google.

On high level I am looking on profit margins only and calculating the value w.r.t to RBI bonds paying 8% interest as advocated in this book.

Company should have low or negligible debt and minimum capital investments required.

Example: Look at ICRA or CRISIL both fit above parameters, now next market fall you will find one of them in my portfolio.

If you see I avoided even all IPO's where they didn't meet the Warren Buffet method.

I actually invested in COAL INDIA and Career Point IPO this season only.

What I am saying trade (buy/Sell) not more than 12 times a year and you will make money.

Dear members,

I have been through this thread started by man4urheart. what an invaluable information though i could make out part of it. i really thank man4urheart for initiating such an awesome evaluation, but i have a question i am completely unable to fathom the difference between data like eps even yoy pat on different sites. if you could please let me know which site to follow for standalone data or consolidated, I would be indebted to you by heart. THAN YOU. AWAITED.

Please use Annual reports directly from Website of Company you are looking at.

Don't use money.Rediff or Money control numbers they are standalone numbers and useless!

Also, I don't use above methodology which I described in 2008 to look at companies. The method has evolved overtime following warren buffet books.

One need to learn "how to value business before investing" as Warren Buffet puts it!

Just look at the data provided to the exchanges. If the consolidated data isn't different from standalone data, you can use the standalone data.

For standalone data, I think moneycontrol.com is a good source.

As man4urheart said, it is best to download the respective annual reports and study them. Besides the consolidated data, annual reports also have other useful information like balance sheet details, notes to accounts, management's discussion and analysis etc.

__________________
Read All Rules Before Making Any Post | E-Investing on Google+

man4urheart and Alchemist thank you very very much for your response. So i would better collect data from nse consolidated as man4urheart said or from respective company sites as standalone reports are worthless. And there is one more site Way2Wealth.com which reflects both options for standalone and consolidated financial reports. May be some others too i think i had come across one. I have uselessly scanned following sites then and collected a huge data of as many as 300 companies,working day and night because of no knowledge.

And what if nse doesn't have some company's consolidated results. They have some audited or unaudited statements. Does the company's site have consolidated financial statements necessarily?

Same source for many sites:

1.FROM DION GLOBAL SOLUTION LTD (RELIGARE TECHNOVA or ASIAN CERC)
moneycontrol.com
economictimes.indiatimes.com
financialexpress.com
indsec.co.in
valuenotes.com
way2wealth.com
indiabulls.com
utvmoney.mangopeople.com (somewhat similar)
rediff.com (somewhat similar)

2.FROM ACCORD FINTECH
16anna.com (Guiness Securities)
businesstoday
money.livemint.com

I have mustered the details like ebidta,pat,npm,eps,roa,roce,p/b,debt/equity,quick ratio,reserve and surplus,book value. I have also spent a lot of time on technical analysis and am subscribed to Investar charting software.

YOU MIGHT THINK I AM CRAZY.BUT YOU GOT TO LEAD ME. AND I WOULD BE HEARTLY GRATEFUL TO YOU IF YOU COULD TELL ME OR LEAD ME TO ANY POST REGARDING IF YOU HAVE MADE HOW TO ANALYSE ANY COMPANY BECAUSE THE WAY YOU GUYS HAVE EXPLAINED,IS EASY TO FOLLOW.

THANK YOU.

Standalone data is not worthless. It is important too.

Investors use consolidated results only for simplification.

Otherwise, the more appropriate method is to value each asset of the parent company individually.

(Equity holdings in subsidiaries are assets for the parent company).

If the subsidiaries don't have any significant revenues/profits, I usually overlook them.

If you are new to equities, I suggest you look only at companies that have no major subsidiaries and use their standalone data. Start with simple things first .

__________________
Read All Rules Before Making Any Post | E-Investing on Google+

Thank you Alchemist,

How do i make sure that a particular company doesn't have major subsidiaries? Cause i already have collected standalone data from some of above mentioned sites. Should i continue to gather data from them and calculate?