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Introduction to
Fundamental Analysis

The importance of Earnings
What we expect,
from Listed companies:

Running a
good
Business

“TOP LINE”
“Under control..”

“Business
is
growing”

Sale...
“TOP LINE”
“Under control..”

Sales
-Costs, taxes

“BOTTOM LINE” = Net Profit
Number of Shares

═ EPS
What is
“earnings per share”?
A. Net Profit
B. Number of Shares
C. Net Profit / Number of Shares
„Does the company have good prospects?‟
„Does it have a bright future…‟
„May “laman” ba yan?‟

Actual EPS over time
2011, ...
What company has
bright prospects?
A.High EPS growth
in the past
B.High Growth of EPS
in the future
What makes this, a good company ?
“TOP LINE”

Growing

Sales
-Costs, taxes

“BOTTOM LINE”

= Net Profit

Work hard to make...
Price

X

Volume
Just because you
have big sales,
doesn‟t mean,
you have big profit.

= Sales
- Costs

Raw materials
Cost ...
2000

Gold Price since 1995
300 to 1600
The driving
force of Price…

1600
Price

X

Volume

More people. More money.
Big domestic market.

= Sales
- Costs

= Net Profit

* Needs more
food, shelter...
“TOP LINE”

Sales
-Costs, taxes

“BOTTOM LINE”

= Net Profit
Number of Shares

═ EPS
Valuation
What is cheap,
what is expensive
70
50
Valuation
Earnings

5
Year 1

7
Year 2
How to
Compare
Price / Share
Earnings / Share
Price / Earnings
Ratio

GLOBE TeL

PLDT

1,050
73

2,500
212

= 14x

= 12x
L...
Which is cheaper
Small Can

P50/Liter

Big Can
200/5 Ltrs

More
expensive
per Liter

Cheaper, despi
te bigger price
tag

S...
A market is
expensive, when the
stocks are near the UPPER
LINE

Earnings in 2013

Earnings in 2012

Earnings in 2011

2011...
A market is
expensive, when the
stocks are near the UPPER
LINE

Earnings in 2013

Expensive

Earnings in 2012

Expensive
E...
Strategy

SELL

BUY

BUY
BUY

Company
Earnings = net

profits
The upper and lower lines are determined by the PROFITS
of t...
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Fundamental analysis the importance of earnings (1)

Fundamental analysis the importance of earnings

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Fundamental analysis the importance of earnings (1)

  1. 1. Introduction to Fundamental Analysis The importance of Earnings
  2. 2. What we expect, from Listed companies: Running a good Business “TOP LINE” “Under control..” “Business is growing” Sales -Costs, taxes “BOTTOM LINE” = Net Profit
  3. 3. “TOP LINE” “Under control..” Sales -Costs, taxes “BOTTOM LINE” = Net Profit Number of Shares ═ EPS
  4. 4. What is “earnings per share”? A. Net Profit B. Number of Shares C. Net Profit / Number of Shares
  5. 5. „Does the company have good prospects?‟ „Does it have a bright future…‟ „May “laman” ba yan?‟ Actual EPS over time 2011, 2012, 2013.. EPS 2008 2009 2010 2011 2012 2013
  6. 6. What company has bright prospects? A.High EPS growth in the past B.High Growth of EPS in the future
  7. 7. What makes this, a good company ? “TOP LINE” Growing Sales -Costs, taxes “BOTTOM LINE” = Net Profit Work hard to make the SALES grow Competitive under control Growing
  8. 8. Price X Volume Just because you have big sales, doesn‟t mean, you have big profit. = Sales - Costs Raw materials Cost of Capital Cost of Labor Cost of Land Taxes Cost of Doing Business = Net Profit
  9. 9. 2000 Gold Price since 1995 300 to 1600 The driving force of Price… 1600
  10. 10. Price X Volume More people. More money. Big domestic market. = Sales - Costs = Net Profit * Needs more food, shelter, transport, telec om
  11. 11. “TOP LINE” Sales -Costs, taxes “BOTTOM LINE” = Net Profit Number of Shares ═ EPS
  12. 12. Valuation What is cheap, what is expensive
  13. 13. 70 50 Valuation Earnings 5 Year 1 7 Year 2
  14. 14. How to Compare Price / Share Earnings / Share Price / Earnings Ratio GLOBE TeL PLDT 1,050 73 2,500 212 = 14x = 12x Lower “Price / Unit” PLDT gives you more “Earnings” for the “Price.”
  15. 15. Which is cheaper Small Can P50/Liter Big Can 200/5 Ltrs More expensive per Liter Cheaper, despi te bigger price tag Same FUEL
  16. 16. A market is expensive, when the stocks are near the UPPER LINE Earnings in 2013 Earnings in 2012 Earnings in 2011 2011 A market is cheap, when the stocks are near the LOWER LINE. 2012 2013
  17. 17. A market is expensive, when the stocks are near the UPPER LINE Earnings in 2013 Expensive Earnings in 2012 Expensive Earnings in 2011 Cheap 2011 Cheap A market is cheap, when the stocks are near the LOWER LINE. 2012 2013
  18. 18. Strategy SELL BUY BUY BUY Company Earnings = net profits The upper and lower lines are determined by the PROFITS of the company, Times the range of Price-Earnings Ratio.

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  • MaheshGandikota

    Jul. 29, 2020

Fundamental analysis the importance of earnings

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