Business Guidance and Knowledge for the Small Business Entrepreneur
Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.
The primary tenet of value investing is to to buy low and then sell high. If done properly, average annual returns on an investment fund will exceed 30%. Value investing requires the investor spend some time creating a decision matrix for each pool of similar companies. This model is then implemented and updated on an annual basis. Value investing is in effect the exact opposite of day trading. Value investing takes advantage of time and this reduces the overall stress for a fund manager.
Value investing relies on four principles to ensure success. The first is risk reduction by only working with high quality stocks; in general, work with the top 500 companies worldwide. Absolutely avoid penny and small cap financial instruments. Secondly, value investors rely on intrinsic value to set the buy/sell range of market price for the respective stock. In addition, value investors use financial analytics to validate operational and financial performance. Finally, patience is required. Time is on the value investor’s side.
Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each week, you receive an e-mail with a full update on the pools. Follow along as the Investment Fund grows. Start investing with confidence from what you learn. Create your own fund and over time, accumulate wealth. Joining entitles you to the following:
Lessons about value investing and the principles involved;
Free webinars from the author following up the lessons;
Charts, graphs and resources to use when you create your own pool;
Access to the existing pools and their respective data models along with buy/sell triggers;
Follow along with the investment fund and its weekly updates;
White papers addressing financial principles and proper interpretation methods; AND
The majority of activity ratios measure the ability of the company to turn assets into earnings. All businesses utilize a simple principle, buy an asset at a low price and sell it at a higher price. Even service based businesses do this. Labor is purchased for a certain value and then sold for a much higher price. Retail ...
Liquidity ratios are a group of ratios used to measure the ability of a business operation to meets its current obligations. Liquidity ratios are similar to the initial medical tests a patient receives at a doctor’s visit. Doctors take blood pressure, temperature, and pulse rate. The doctor wants assurance that the primary indicators of health are good. Liquidity ratios ...
Far and above the most valuable liquidity ratio is the operating cash ratio. Unlike the other liquidity ratios that are balance sheet derived, the operating cash ratio is more closely connected to activity (income statement based) ratios than the balance sheet.
Operating profit margin refers to the value earned as a percentage of net sales. The operating profit is often referred to as earnings before interest, taxes, depreciation and amortization, (EBITDA). This is a misleading reference as operating profit is actually defined differently by industry sector. EBITDA is used primarily in valuing businesses.
Within the group of activity ratios, the total assets turnover rate is the broadest in scope. Similar to other activity ratios, it utilizes net sales as the numerator. However the denominator doesn’t focus in on a single balance sheet asset group like the working capital turnover or fixed assets turnover rates, it includes all assets.
Every business buys on account whether it is a traditional vendor account like that found in retail or simply using a credit card. A third party provides credit which creates debt for the business. The debt ratio reflects the percentage of assets covered by debt.
The fixed assets turnover rate is another activity ratio whereby an income statement financial characteristic is compared to a balance sheet asset section. In this case, comparing adjusted sales against historical cost of fixed assets. This financial business ratio is only effective for business operations that are fixed asset intensive. With service based industries like carpet cleaning, professional firms ...
The activity ratios measure performance of a current asset on the balance sheet against a corresponding area of the income statement. The working capital turnover is the most encompassing of all the activity ratios; in effect, it is the most general of the activity ratios. This particular ratio measures the ability of management to efficiently utilize ...
One of the liquidity ratios used in business is the cash ratio. It is a much more effective tool for small business than the traditional current or quick ratio. Although the cash ratio is more difficult to manipulate in small business, most entrepreneurs miscalculate the result