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.

  • How to Read a Balance Sheet – Simple Format

    How to Read a Balance Sheet - Simple Format
    Reading a balance sheet is instrumental in understanding the business’s financial position. This particular financial report is a snapshot of a moment in time. It can change dramatically in a minute so understanding the perspective of the report and its respective sections will help you to be better informed.
  • Gross and Net Sales

    Gross and Net Sales
    Many of the business performance standards are measured against a baseline. For the bulk of production and operation performance tools the baseline is net sales. The key to an accurate performance standard is having an exact sales figure.
  • Definition of Contribution Margin

    Definition of Contribution Margin
    Contribution margin is a core business concept and is often used in cost accounting to identify the amount of financial contribution a sold product provides to the company.  Simply put, contribution margin is the sales price less the direct costs (sometimes referred to as variable costs). 
  • Current Liabilities Section of the Balance Sheet

    Current Liabilities Section of the Balance Sheet
    The current liabilities section of the balance sheet identifies those amounts due to third parties within the current year. These include accounts payable, credit card accounts, accrued payroll, taxes, unearned revenue, deposits and those amounts due within one year related to debt instruments.
  • Common Stock – Definition

    Common Stock – Definition
    A document indicating ownership in a corporation is often referred to as common stock. It identifies an equity position in a business. The document or certificate is commonly referred to as a security and provides certain rights to the holder (owner). These rights include voting and residual value upon liquidation of the company.
  • Cash Flow From Operations – Understanding Cash Flow (Part II)

    Cash Flow From Operations - Understanding Cash Flow (Part II)
    To understand the cash situation, the cash flows statement is an additional report included in financial statements to basically convert the accrual basis balance sheet and income statement into a cash basis report. This way, management gets the best attributes of both accrual and cash basis accounting.
  • Cash Flow From Operations – Basic Formula

    Cash Flow From Operations - Basic Formula
    n a pure cash only operation, the profit as reported on the income statement would also be cash flow from operations. But modern-day business is not pure in how it is conducted. Companies agree to pay suppliers at a later time, payroll is weekly or monthly, benefits that are paid in the future are offered to ...
  • Break-Even Analysis – Fundamentals

    Break-Even Analysis - Fundamentals
    Breakeven analysis is a managerial (cost) accounting tool used to examine the relationship of price to cost of a product. It also considers various sales volumes and the effect on profit given the different relationships of price to cost. The breakeven analysis is an essential tool in maximizing profit with the least amount of resources.
  • Book Value – Definition and Usage

    Book Value – Definition and Usage
    There are several definitions associated with the term ‘Book Value’ and depending on the context of its use, determines the correct definition and proper use.
  • An Explanation of Goodwill – Part I – Generating Goodwill

    An Explanation of Goodwill – Part I – Generating Goodwill
    The closest definition of Goodwill is devotion. Customers become devoted due to the way the small business treated them. It was worth paying a little more or going out of your way to go to the business that treated you well. How does a business generate goodwill?  What is it worth? 

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