Brexit - a great chance to purchase stocks in low price
The British voted to withdraw from the EU, which they stayed for 43 years. Each stock market around the world are super nervous, because they don't know how much this Brexit will impact the stock market. It is a natural reaction, because none of EU members has not withdrawn from the Europe community.
Do we really have to be super nervous? I don't think it's necessary. KOSPI more deeply plummeted (six times) than these days since 2010. At those moments, it retreated 2.9 - 16.9% but quickly recovered the original KOSPI.
I think, this time, the impact would be much lesser, and the market would be more quickly recovered. The reason is that South Korea exports only 1.4% of the total amount of export to the United Kingdom. England is just 16th country among the whole economic partners of South Korea in terms of the amount of trade volume. Also, if won-yen exchange rate rises the competitiveness of products, which compete to Japan products, from South Korea will be strengthened.
There is, of course, a concern that the UK funds takes around 8.5% of South Korea stock market. If the UK withdraws money from South Korea stock market, it would be severely impact the stock market again making a synergy effect with leaving other countries money. It is still, however, unlikely to happen, and it's just one of a few
Of course, there is also concern that the UK funds account for 8.5% of the domestic stock market. If the UK withdraws money from the Korean stock market, it will be able to shake the stock market again, along with the funds it follows. But this is unlikely to happen, and it's just one of a few scenarios that doesn't seem like occur.
The variability of the market caused by Brexit should be recognized as a bargain sale for blue chips, which only comes maybe once a year. We have to fully harness this moment as a chance to buy stock items that we have carefully watched at a low price.
Showing posts with label general knowledge for investing. Show all posts
Showing posts with label general knowledge for investing. Show all posts
Sunday, July 9, 2017
Find blue chips throughout financial statements (5) earnings per share (EPS)
Find blue chips throughout financial statements (5) earnings per share (EPS)
Earning per share (EPS) is the net profit of a company divided by the number of shares. We have to divide the net profit with the number of issued shares (outstanding shares not treasury stocks). The EPS of a company, which has 100 million dollars of net profit and 10 million out standing shares, will be 10 dollars. The higher EPS is, of course, better.
However, the temporarily high EPS is not that good. EPS is also required to be treated in a long-term point of view. We need to review EPS of the past 10 years and check whether it has been increasing continuously. Because these companies have enough room for operating their own business, it is more likely that they would use financial techniques such as purchasing treasury stocks, indicating that they have a potential to rise stock price over the long term.
Earning per share (EPS) is the net profit of a company divided by the number of shares. We have to divide the net profit with the number of issued shares (outstanding shares not treasury stocks). The EPS of a company, which has 100 million dollars of net profit and 10 million out standing shares, will be 10 dollars. The higher EPS is, of course, better.
However, the temporarily high EPS is not that good. EPS is also required to be treated in a long-term point of view. We need to review EPS of the past 10 years and check whether it has been increasing continuously. Because these companies have enough room for operating their own business, it is more likely that they would use financial techniques such as purchasing treasury stocks, indicating that they have a potential to rise stock price over the long term.
Friday, September 9, 2016
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.
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.
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.
Thursday, September 8, 2016
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.
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.
Wednesday, September 7, 2016
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.
Tuesday, September 6, 2016
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)
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)
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