Find blue chips throughout financial statements (4) income statement - net profit

Find blue chips throughout financial statements (4) income statement - net profit

Finally, net profit shows that if a company really had a profitable business or not. It is almost always great when a company continuously operates in the black and increases net profit steadily.

1. Corporate income tax: This is a tax, which every company should pay to the government as much as the business profit earned. US companies need to pay 35% of their business profit and Korea companies need to pay 22% as corporate income tax.

2. Net profit: The amount of sales subtracted by all costs and taxes.

Companies that are great to invest are in the steady and increasing state of net profit. And we have to look if the company has high portion of net profit for sales.

Coca-Cola that Warren Buffett likes has 21% of net profit rate and a credit-rating agency Moody has 31%. Companies with more than 20% of net profit rate much likely have a long-term competitive advantage. However, we have to be very suspicious doubting the competitiveness and outlook of a company when the interested company has less than 10% of net profit rate.

Find blue chips throughout financial statements (3) income statement - interest expense

Find blue chips throughout financial statements (3) income statement - interest expense

It is not an often case that interest expenses are expenses that have to be subtracted from sales, but we have to be careful with a company, which has a lot of interest expenses, because the more debt makes the company spend more money for interest expenses.

Bear Stearns, the main cause for the subprime mortgage crisis in the US, had 70% of the ratio of interest expenses to operating profit. However, the ratio of interest expenses skyrocketed up to 270% at the end of 2007, and Bear Stearns was taken by JP Morgan at a giveaway price.

1. Interest expense: Interest paid in the fiscal quarter or year.

2. Gain on disposition of assets (or loss): Money obtained by selling assets (excluding inventories). If a company sells at a cheaper price than depreciation, it will be lost.

3. Other non-operating income (or loss): Includes profit on exchange, profit on derivatives trading, and profit on disposing stocks.

4 Incomes and loss before incomes tax: Net income before subtracting corporation tax.

Among four things that we covered today, the most important thing is interest expense. For that reason, we therefore have to choose companies having a low interest expenses ratio to operating profit. There are, of course, rare exceptions though, companies with a long-term competitive advantage usually have a lower interest expenses ratio of less than 15%.

Gain on disposal of assets and other non-operating incomes are one-off, so we don't need to care about it deeply. Incomes and loss before incomes tax can be used to compare the investing in one company with another investing in another company by considering the net income of the company on a pretax basis. This consideration is useful when comparing stocks of companies with a long-term competitive advantages.

Find blue chips throughout financial statements (2) income statement - business expense

Find blue chips throughout financial statements (2) income statement - business expense

Gross profit is not profit that a company can take all. We still have some expenses that have to be subtracted from. One of them is business expense. Business expense comprises of selling and administrative expenses, research expenses, and depreciation expenses. Let's see a picture below.

1. Selling and administrative expenses: Direct·indirect selling expenses, wages for executives and staff members, advertising expenses, traveling and transportation expenses, and legal expenses are included. Comparing to gross profit, blue chips have a low selling and administrative expenses ratio. And it would be really great if this low rate will be consistent not fluctuated. Warren Buffett recognizes a company as a good company when this ratio is less than 30%.

2. Research expenses: For develop new products. It is usually called R&D. I've thought that spending much money into R&D, but Warren Buffett doesn't like using much money for R&D. It's because that spending a lot amount of money for R&D means that a company has to develop new products always, and it also means that the company may lose the competitive advantage when the competitiveness of the new products is about to be gone.

3. Depreciation expenses: Decreasing value altogether with machines or building of a company get aged. If a company purchases an equipment with a lifespan of 10 years for 10 million dollars, it will not be treated as an expense for the year in which the equipment is purchased but will be depreciated at a cost of 1 million dollars per year over the life of the equipment.

4. Business profit: You can get it when you subtract the cost of goods sold and the above three operating expenses from sales.

We can get business profit rate with gross profit and sales (business profit rate = business profit/sales * 100), and the company above has 40% of gross profit rate.

To sum up, business expense comprises of selling and administrative expenses, research expenses, and depreciation expenses are always good as long as they are low. Having my own personality, however, I think some high level of R&D expenses are rather better.

Seeking a company with low R&D expenses will be right and more efficient way, if I want to find a company with a very solid competitive advantage like Warren Buffett does, but I would prefer to invest my money into companies developing useful technologies or products for human race even if those companies have high R&D expenses.

And I don't think my investing mindset would be disadvantageous for choosing a company that will grow well and long. As we can see Hanmi Pharm, Samsung, and other  tech stocks overseas, those promising companies are going to be great somehow, and we just need to develop an appreciation for selecting good companies.

Find blue chips throughout financial statements (1) income statement - sales

Find blue chips throughout financial statements (1) income statement - sales

It is very essential to analyse when we invest invest our money in stocks. Today, it would be basic, because I want to start with easy stuff for starters like me. Financial statement roughly comprises of income statement, balance sheet, and cash flow. I'm going to deal with income statement throughout several chapters.

Income statement shows how much money a company earned within a designated time period. A company generally report their quarter, half, and annual income statement to stockholders. Having this report, we must know profit rate, return on equity (ROE), the tendency of the profit, and whether the profit lasts or not. Refer a photo below.

1. Sales: Quarter or annual sales of a company will be written here (should be shown at the top of the financial statements). We now know that this company achieved 2,000 million dollars of sales by looking at the table above. So we rapidly have to look into sales cost and gross profit.

2. Sales cost: The cost of raw materials + labor cost of products from a company will be shown here.

3. Gross profit: We can get this amount of money when we subtract sales cost from sales.

We can get gross profit rate from gross profit and sales (gross profit rate = gross profit/sales X 100). Then this company's gross profit rate is 80%. We can recognize this company as a promising company that has a long-term competitive advantage.

The gross profit rate of Coca-Cola, which is one of Warren Buffett's favorite companies, was over 60%, and it's generally defined that companies with a long-term competitive advantage have 40% of gross profit rate or more. Also, we estimate the future of the company by covering up the gross profit rate for the last 10 years.

Today, we covered what is sales, so what I want to know next is about business expenses, which have to be subtracted from gross profit.

Referred book - Warren Buffett and the Interpretation of Financial Statements (by Mary Buffett and David Clark)

Semes - a company for semiconductors and display-manufacturing-machines

Semes - a company for semiconductors and display-manufacturing-machines
https://www.semes.com

Semes manufactures and supplies various machines that are required to make display panels and semiconductors. They have a goal to get in world's top 5 equipments manufacturers with proprietary technology and manufacturing competitiveness. I hope the company can achieve this dream.


1. Semiconductor manufacturing equipment

Photo process track equipment (LOZIX) that is a kind of pre-process machine, washing equipment (BLUEICE, IRIS), etching equipment (MICHELAN OX), Die Bonder, Probe Station, Saw & Sorter, Test Handler that are post-process machine. Moreover, they have been designing wafer fault detectors and automated distribution system.


2. Display panel manufacturing equipment

Coater Full Line is a facility for drying, coating, and developing when producing TFT-LCD, and it is great at drying, coating, and transferring LCD panels. Z Printing is one of Ink-jet Printing System that are used to make LCD panels at C/F and Cell & Module process. And when they make OLED panel, it is used for pattern formation and sealing process. I should find more about Z Printing, however, it is interesting, because this equipment can be applied to make OLED, which is recognized as a next generation display.


Semes is the number one semiconductor equipment manufacturer in South Korea and has achieved annual sales of 1.1 trillion won in 2015.
I think that it is an achievable goal that this company can be one of top 5 equipment companies in the world.

OrientBio - provides experimental animials and developes hair growth solution

OrientBio - provides experimental animials and developes hair growth solution
(Stock code: 002630)
http://www.orient.co.kr
http://dart.fss.or.kr/dsaf001/main.do?rcpNo=20160215000464

This company provides many experimental animals to pharmaceutical companies and life science institutes. Also, this company is in Phase 1 clinical trial to develop a hair growth solution, which is named OND-1.


1. Providing experimental animals

OrientBio produces and provides rodents for making vaccine and mid or large-sized experimental animals like beagles. Rodents are derived from one of big experimental animal producer, Charles River Laboratories, in USA, and beagles have been produced and provided based on a partnership with a company Covance.

OrientBio also has a plan to provide experimental primates, cuz the demand primates has been increasing in South Korea, and there is no domestic primates provider. In addition, experimental primates would be essential for the process of bio-similar developments so that the plan to produce and provide high quality of experimental primate is a good try.


2. Development of hair growth solution

There are only two FDA-approved hair growth medicines in the market. Rogaine (5% Minoxidil, percutaneous medication) and Propecia (1 mg Finasteride, oral medication) are those medicine.

The size of hair related market is literally huge as you know. It is estimated that the world size of hair market is around 83.1 billion dollars in 2016.
http://www.statista.com/statistics/254608/global-hair-care-market-size

The effectiveness of a hair growth solution from OrientBio, OND-1, is better than Rogaine. I would say that when Phase I clinical trial can be finished with the final and successful product launch, Profecia may be replaced with OND-1 in the market.

Here are a time table for clinical trial below.
   <Domestic Phase 1 clinical trial>
2014 Dec: Try with 20% Velesco solution and test method
2015 Mar: Submit new clinical test report
2015 May: Expected clinical license in South Korea
2015 Nov: Clinical Phase 1 (Clinical IRB in Bundang Hospital, Seoul, South Korea)
2016 the first half: Complete Phase 1 clinical trial in Korea
   <Domestic Phase 2a clinical trial>
2016 Jun - 2016 Dec: Accepted 2 clinical trials in Korea
   <USA Phase 2b clinical trial>
2017 Feb - : Conversion and optimization with MN (animal experiment, 4 weeks application observation)
- 2018 Feb: Target goal of medication efficiency (compare with minoxidil), clinical trial for patients with hair losing patients.

I hope that the development of hair growth solution OND-1 from OrientBio would be successful so that thin hair people could have dense hair cuz the effectiveness of Rogaine is not that good, and they could ease the financial burden to buy Profecia (2 dollars per a tablet) soon. Lol

Entertainment - next-generation growth power

Entertainment - next-generation growth power

As fields of industries are well matured and developing countries joined the ranks of advanced nations, the economic growth rate of those countries will be slowed and tech companies will be hurried to make a breakthrough. I think entertainment industry is a spotlighted industry in well-developed countries.

This argument is tightly related to human's instinct behavioral patterns. After human satisfied their urges (desire to sleep, appetite, and sexual desire), they would want to do other behaviors that are at a higher level, such as art, music, sports, games, and movies, including that all the other creative activities.

South Korea is not recognized as a developed country, but in my opinion, South Korea is already has become a developed country. Japan is, of course, a developed country and China will be one of well-developed countries sooner or later. For that reason, I expect that the role of entertainment companies that produce music, movie, drama, and broadcasting contents would be more important as time goes by.

The population in Far East Asia is 1.6 billion. Since South Korea is located in the center of that area and known to have cultural similarity for surrounding nations, South Korea is good to export contents, human source, and production technique to those nations.

Southeast Asia also has a big market capacity and, in long-term point of view, if we set a proper plan to also go to Europe, South America, and North America, entertainment companies would have a great chance to scale up their business.

A clip below is Beautiful Mind, which is going to be broadcast on KBS, from a producer Raemongraein. This company is not a listed stock, but we need to keep an eye on like this contents producer.

https://www.youtube.com/watch?v=t1zMmVVfJgQ

Entertainment-related stocks are Loen, SM, YG Ent, FNC Ent, Pan Ent, JYP Ent, Imagine Asia, Chorokbaem Media, Keyeast, SM C&C, IHQ, Fantagio, iokcompany, and Redrover.

Why don't you find other promising companies throughout financial statements of companies above and also including that has not mentioned in today's my post :)

G-SMATT - produces unique smart glasses in the world.

G-SMATT - produces unique smart glasses in the world.
http://www.g-smatt.com

This company is a mother company of G-SMATT GLOBAL that was introduced yesterday.
Smart glasses produced from this company will be added on the inside of the pre-installed glasses.

For that reason, we can get several subsidiary but crucial advantages from the smart glasses allowing us to display and watch digital contents from the inside or outside of the building that is one of major goals.

Smart glasses from G-SMATT
1. leave the transparency of glasses high
2. don't require a lot of installment space
3. increase endurance of the original glasses
4. prevent ultra violet (UV) rays, block noisy sound, and insulate heat

The representative advantages are listed. Search around the other advantages (such as more colorful than other digital signage products or more available contents) on the Internet :)

I think smart glasses from G-SMATT is the real best among any other LED for digital signage.
Competitors of G-SMATT use other types of digital signage like LET Panel Type, Linear Type, or Metal Fabric Type, so that you guys would admit that G-SMATT is very competitive, if you notice what the other types are.

The next clip is a demonstration video.

https://www.youtube.com/watch?v=B9Upq4gj_Cw

I don't know how can I trade unlisted stocks.
I have no idea how the price would be decided.
I've heard that the price would be made by what people roughly call in the market. That is why negotiation is important to trade unlisted stocks.
The current price of G-SMATT is around 300 dollars, maybe.

This company would be listed in the end of 2016. If I would buy stock of G-SMATT, I would buy it after the listing, cuz I barely know about unlisted stocks.

Anyway, if I keep interacting with unlisted stocks like in this way, I wouldn't miss a great chance to make advanced purchasing in the future :)

G-SMATT GLOBAL - installs smart glasses lighting cities.

G-SMATT GLOBAL - installs smart glasses lighting cities.
(Stock code: 114570)
http://www.g-smattglobal.com/home/?lang=en
http://dart.fss.or.kr/dsaf001/main.do?rcpNo=20160512003957

This company constructs smart glasses on the inside of large glass surface of buildings.

Smart glasses, here, mean that a product visualizing digital images or texts into LED signal.

Korea government will revise the Outdoor Advertisement Act to allow like this smart glass on the surface of buildings within 2016, indicating that G-SMATT GLOBAL could get a benefit from the revised act.

Also, the smart glasses are exclusively produced by G-SMATT GLOBAL's parent company, G-SMATT, so that G-SMATT GLOBAL will be more predominance in competition in the market achieving a constant and high business profit rate for long.

https://www.youtube.com/watch?v=OpsOLMDZ3BA