Value Investing Program – Phase II (Financial Analysis)

Financial Analysis

“The way to make money is to buy when blood is running in the streets.” – John D. Rockefeller

Without a doubt, there is one financial characteristic of all successful corporations and small businesses, stable earnings. Financial analysis is a set of tools, methods, processes and ratios to assess an organization’s viability, stability and various profitability points along the matrix of time and production. Financial analysis provides the analyst with the confidence and security a good financial model presents. This phase of the membership program on this site gets into the nuts and bolts of company’s financial information. The goal is to identify an industry’s financial model and the three to five critical pieces of information a value investor will use to determine how the market will set a security’s price. With this information in hand, a value investor will then set an intrinsic, buy and sell value price. In effect, a range of value the market will bear for a security given the financial results of this organization, the industry standards the company adheres to and finally the impact the overall economy has on this company’s value.

Over a course of more than 80 lessons and supporting research, a member of this site’s value investment club will gain the confidence necessary to build their financial model for an industry they select as their own. There are lots of examples and illustrations included to support each of the lessons. In addition, this section of the membership program includes suppporting spreadsheets, schedules and worksheets to assist the member with building their model.

Throughout this phase, a master example is provided tied to the hospitality sector of our economy, specifically hotel/motel lodging operations. This phase will build this industry pool and provide the reader with not only an excellent industry pool for the site’s value investment fund, but also for their own personal use inside their fund.

This phase of the program is divided into seven sections. The following identifies each section and provides an introduction to the student about the respective section:

  1. Concepts – 
    • Economy
    • Industry Standards
    • Financial Models
    • Stable Growing Operations
  2. Financial Statements
    • Balance Sheet
    • Income Statement
    • Retained Earnings Statement
    • Cash Flows
    • Notes to Financial Statements
  3. Ratios
  4. Key Performance Indicators
  5. Calculating Intrinsic Value
  6. Calculating Buy/Sell Points
  7. Building an Industry Wide Model

Throughout these lessons, the student is introduced to the Hotel Industry and learns about that industry’s financial model. The key is to learn ‘What makes it tick?’ The end result is a performance matrix along with a financial matrix that ultimately provides the secret of success. Lots of new terminology is introduced including some peculiar terms only used in this industry. Each lesson builds on the prior lessons and the end result is a industry financial decision model with buy and sell points for all members of this particular pool. The members of this pool include:

The primary business purpose is the traditional overnight lodging and extended stays. Those entities that have a strong gaming component were excluded from this particular pool in order to keep and maintain a high level of consistency related to operations and reporting.

 

Value Investing - IntroductionFor those of you interested in a video introduction, please click on the YouTube upload on the left to take you to my video tutorials.

The lessons, tutorials, webinars, white papers, spreadsheets on this site are designed to teach these four principles. In addition, this site has over 600 supporting articles that augment the lessons and the program. It is effectively the best resource center available to learn about and implement a personal value investment fund. The annual goal is to achieve 30% plus returns.

You must be a member of this site’s Value Investing Club to access the respective lessons in Phase II – Financial Analysis and Phase III – Sophisticated Investing. In addition, membership entitles access to the respective investment pools and their associated financial models along with emails of actual transactions for this site’s Value Investment Fund. To learn more, go to the Membership Page.

  • Value Investing – The Federal Reserve System (Lesson 20)

    Value Investing - The Federal Reserve System (Lesson 20)
    No other federal government creation is more misunderstood than the Federal Reserve System. The Federal Reserve’s primary purpose is to act as the central banking system for the United States. Formed in 1913, the Federal Reserve was tasked by Congress with three primary functions. One – maximize employment in the United States. Two – stabilize prices (control ...
  • Value Investing – Industry Principles and Standards (Lesson 25)

    Value Investing - Industry Principles and Standards (Lesson 25)
    Shifting from economic wide factors that impact market price to industry wide standards is essential with understanding and creating decision models for investment with a pool of similar companies. Industry standards are a part of the spectrum of business principles. This spectrum starts with tenets, universal rules that can not be broken by anyone in ...
  • Value Investing – Gross Domestic Product (Lesson 21)

    Value Investing - Gross Domestic Product (Lesson 21)
    Gross Domestic Product is defined as the total production for the country. It is measured by including all the dollars spent to purchase products/services from all the various sellers of goods. The largest purchaser of products/services is consumers. Coming in behind consumers are businesses, remember they are buying goods too. This includes everything from office supplies to ...
  • Value Investing – Elasticity in Economics (Lesson 22)

    Value Investing - Elasticity in Economics (Lesson 22)
    One of the terms synonymous with the field of economics is ‘Elasticity’. The term refers to the change in either the demand or supply (the other terms synonymous with economics) curve when there is a change in the price. In general, if the price increases a little for consumer goods and the consumers decrease their consumption in ...
  • Value Investing – Economies of Scale (Lesson 24)

    Value Investing - Economies of Scale (Lesson 24)
    Of the basic business principles, economies of scale has the greatest impact on profitability over any other business principle. As an enterprise’s investment is spread over higher volume the cost per unit of production decreases. The differential between sales price and cost changes add to the overall profitability for the company. Economies of scale exists in ...
  • Value Investing – Economic Uncertainty (Lesson 23)

    Value Investing - Economic Uncertainty (Lesson 23)
    If you think of the economy as a train pulling a load on the track, you would base its near future position on its current and historical trend. It is unlikely its current speed will change; thus, we can predict its future position with some degree of confidence. The short-term position is easier to determine ...
  • Value Investing – Concepts of Economics and Business Models (Lesson 19)

    Value Investing - Concepts of Economics and Business Models (Lesson 19)
    There is no single statement or overriding concept that equates to defining economics. There are about a half dozen or so concepts that the average person would state as a definition of economics. The most commonly accepted definition of economics is the balance of supply and demand. In effect, it refers to determining the relationship ...
  • Treasury Stock – Fundamentals of Stock

    Treasury Stock - Fundamentals of Stock
    Those corporations doing well and flush with cash sometimes buy back stock from their investors. Once purchased back by the company the stock is called treasury stock. However, in small business, buying back stock can significantly alter the entire corporate control ownership and impact the long term outcome and direction of the company.
  • The Fixed Assets Section of the Balance Sheet

    The Fixed Assets Section of the Balance Sheet
    The fixed assets section of the balance sheet is one of the easiest sections to read and understand. This article is written to describe and illustrate some simple examples of the fixed assets section. 
  • The Definition of Fixed Assets

    The Definition of Fixed Assets
    Any tangible item not consumed within one accounting cycle (typically a year) and providing long term utility is referred to as a Fixed Asset. Traditional images include manufacturing equipment, tools, transportation vehicles, buildings and utility related systems (sewage systems, power grids, power plants and dams). In accounting, these assets are recorded to the balance sheet as ‘Fixed ...

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