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.

  • Tangible and Intangible – Business Definitions and Use

    Tangible and Intangible – Business Definitions and Use
    Tangible and intangible are terms with several different meanings. A lot of well educated folks have a difficult time providing an all inclusive definition. Someone once described tangible as ‘something that can be burned’. Well, land is tangible and yet, you can’t burn it.  Actually, in Boy Scouts, we teach the boys to use dirt to put ...
  • Syndication

    Syndication
    Syndication refers to a group of individuals or business entities working together to achieve a set goal(s). In business, the goals vary. The most common goal is to acquire capital and use the combined power of the group in exercising that capital for a better than average rate of return. 
  • Retained Earnings – How it Works

    Retained Earnings – How it Works
    In the equity section of the balance sheet there is an account that tallies the lifetime earnings net of dividends for the company. The value identifies the total amount retained by the company for operational purposes. This account is referred to as the Retained Earnings of the business.
  • Penny Stocks- Introduction

    Penny Stocks- Introduction
    Those small publicly traded businesses with share prices of less than $5 and capitalization of less than $50 million are referred to as penny stocks. Penny stocks may trade on any of the major stock exchanges. For investors the risk is generally greater and the chance of instant success is remote at best. To counter ...
  • Long Term Debt – Financial Statement Presentation

    Long Term Debt – Financial Statement Presentation
    Long Term Debt is one of the multiple forms of capitalizing a business. It includes bonds, secured notes and mortgage notes. In the world of small business, the most common form of long term debt is secured notes, most likely with recourse. As an owner of a business you need to understand how this information is presented ...
  • Intrinsic Value – Definition and Introduction

    Intrinsic Value - Definition and Introduction
    Intrinsic value has several different definitions when used in the business context. The word intrinsic refers to ‘innate’ or ‘inherent’. Whereas value refers to the exchange mindset between two or more parties. Thus, intrinsic value refers to the core understanding between parties of the worth of something. When looking at the market price for a ...
  • Intrinsic Value – Balance Sheet Fundamentals

    Intrinsic Value - Balance Sheet Fundamentals
    Novice and unsophisticated investors place greater reliance on net profits over the balance sheet to determine intrinsic value. However, most so-called experts forget what intrinsic value means; intrinsic value refers to the universally accepted core value of a company. In many cases, this can be easily derived from the balance sheet. If not derived from ...
  • Intrinsic Value – Application of Discounted Cash Flows

    Intrinsic Value - Application of Discounted Cash Flows
    Every student of investing is taught the core principle of discounted cash flows. This business principle is also used with intrinsic value. Application of discounted cash flows assists value investors in determining intrinsic value. Academia, major investment brokerages and the majority of investment websites place unquestionable belief in this single formula to equate value for ...
  • Insolvency – Detection

    Insolvency - Detection
    Insolvency refers to the ability to pay bills in a timely manner. It does not mean bankruptcy but long-term insolvency is a underlying factor of bankruptcy. Many owners and/or managers of small business have no idea of how to determine if the company is insolvent or headed towards the inability to meet their day to day obligations.
  • How to Read a Balance Sheet – Equity Section (Simple Format)

    How to Read a Balance Sheet – Equity Section (Simple Format)
    The equity section of the balance sheet equals assets minus liabilities. Traditionally the equity section is referred to as the net worth of the company. If you were to dispose of all the assets through a sale and pay off liabilities, the money left over would be available for distribution to the shareholders. The shareholders basically ...

error: Content is protected !!