What is Current Ratio? How to calculate?

Posted on October 5, 2009
Category : Stock Basic | 1 Comment

What is Current Ratio?

The current ratio is a method to measure about the current company short term financial strength. It’s most popular gauge of a company’s ability to pay its short-term bills. A company’s current ration of 2:1 or exceeds 1 is able to deal with some unexpected expenses, opportunities and short term obligation.

For Example,
A company called COMP-A, with current assets of $200,000 and current liabilities of $100,000. The COMP-A company’s current ratio is 2:1 or 2 , with current assets / current liabilities.

Current Ratio = Current Assets ($200,000) / Current Liabilities ($100,000)

How to Calculate Current Ratio ?

Current Ratio = Current Assets / Current Liabilities

Current Assets = Things that used up usually within one year, and replenished frequently, such as : cash, inventory and so on.

Current Liabilities = Things that usually due within one year, such as goods , services or supplies that were purchased for use within a short period.

High Current Ratio?

A company has a high current ratio like 3 or 4, usually means that management has much cash on hand, and not doing much in investment. With so much cash on hand, high chance this company will issue dividend to it’s shareholders.

Low Current Ratio?

A company has a low current ratio like 0.5 or less than 1. It may have some difficulties meeting the current obligations, however this is not indicate a critical problem, if a company has a very long-term prospects. Just be careful and take a close look at the company financial report to make sure there are no liquidity issues.

So…What is the reasonable current ratio?

Acceptable current ratio varies by industry, but the reasonable current ratio is usually between 1.5 and 2.5. Just take this as measurement for the company short term financial strength.

What is Cash Flow Per Share? How to calculate?

Posted on September 3, 2009
Category : Stock Basic | Leave a Comment

What is Cash Flow Per Share

It means current company’s cash flow on hand. It’s always use to measure of a company’s financial strength. However, some profitable companies may not have strong cash flow, it’s because the business is sell their goods on credit.

For Example,

The COMP-A company has $3,000,000 cash flow and total shares issued to public is 10,000,000,000. The Cash Flow Per Share will be $3,000,000 / 10,000,000,000 = $0.0003.

P.S We can have both company’s cash flow and total shares issued figure in the company annual report

How to Calculate Cash Flow Per Share

Cash Flow Per Share = Company’s Cash Flow / Number of shares outstanding

Company’s Cash Flow = Current company’s cash on hand

Number of shares outstanding = Total shares issued to public

Where to find PARKSON (5657) annual report?

Posted on August 12, 2009
Category : PARKSON (5657) | 1 Comment

The PARKSON (5657) is under LION Group, so the annual report can be find at Lion’s website. Here it is,

PARKSON (5657) Annual Report

http://www.lion.com.my/WebCorp/Homepage.nsf/ListedCoParkson(M)6

What is Return On Investment Capital (ROIC)? How to Calculate?

Posted on July 2, 2009
Category : Stock Basic | Leave a Comment

What is ROIC ?

ROIC is stand for Return On Invested Capital. It’s always used to calculate how well a company efficiency at utilizing or allocating company capital to gain profit or generate returns.

Return on Investment (ROI), Return on Capital (ROC) and Return on Invested Capital (ROIC) are used interchangeably.

For Example,
I opened a company call COMP-PC, which is selling computer. I started this business with $1000 (investment capital), including rent a shop lot, recruit staff who help to sell and etc. After one month, the COMP-PC generate returns of $2000. I spent $1500 for my company expenses like supplies and salaries. The COMP-PC gain profit of $500. The COMP-PC Return On Invested Capital (ROIC) is company profit divide by the total “investment capital”. Which is ($500/$1000) * 100 = 50%. The ROIC is always calculated as a percentage and the COMP-PC ROIC is 50%.

ROIC = (Company Profit $500 / Investment Capital $1000) * 100

How to Calculate ROIC ?

ROIC = (Net Operating Profit After Tax / Invested Capital) * 100

Net Operating Profit After Tax (NOPAT) = Total Operating Profit – Tax
Invested Capital = Total Equity + Total Debt

Where to find Asia Region Stock Index ?

Posted on June 30, 2009
Category : Stock Basic | 1 Comment

Is there a place to visit all the Asia Region stock index together, which include Hong Kong’s HANG SENG INDEX, China’s SHANGHAI SE COMPOSITE IX, Malaysia’s KUALA LUMPUR COMP INDEX and so on?

Bloomberg provided a very good platform for the investors who want to have all the Asia Region stock index in a single place. Please check the following website.

http://www.bloomberg.com/markets/stocks/wei_region3.html

Data is at least 15 minutes delayed. Investor can check Asia region like Japan, Hong Kong, China, Taiwan, South Korea, Australia, New Zealand, Pakistan , Sri Lanka, Thailand, Indonesia, India , Singapore , Malaysia, Philippines , Vitnam , Bangladesh and Mongolia stock index in a single place.

If you have others place to check it? Please share with me know

What is Value Investing?

Posted on December 22, 2008
Category : Stock Basic | 2 Comments

Everything has its value. For instance, you would not want to buy a brand new iPhone 8G which is selling with price of $10000 as most likely the gadget is overpriced. You may think an iPhone 8G may cost only $1000. That’s the VALUE you put on it. One month later, the shop is on Mega Sales, and now the same iPhone 8G is selling with super discount price of $500. Are you going to buy it? Of course the answer is yes! That’s definitely a value buy.

Same goes to stocks, they are companies, and they are businesses. Each company has its own market value too. Recently I read a book about value investing written by Phil Town. The author claimed that value investing is all about buying businesses with discount price. The book teaches us ways to evaluate a company by calculation. From the calculation, we get to know the value of a company and thus helping us to avoid buying overpriced stocks. Isn’t it great when we do not have to worry of buying something with high price and selling with low price?

In order to calculate the value (or we call it “Sticker Price” as suggested by Phil Town) of a company, we need to know the current EPS of that particular company, estimated of 10 years EPS growth rate as well as company’s future PE. We perform the calculation based on an assumption of 15% minimum acceptable rate of return.

To calculate Sticker Price, we need:-

Current EPS
Estimated EPS growth rate
Future PE
Minimum acceptable rate of return

Current EPS is quite straight forward, it can be found in most of the share broking site. As for future EPS growth, it is either derived from historical equity growth rate or analyst growth rate. Pick whichever that appears to be lower. Whereas for future PE, it is either default PE, which is EPS growth x 2 or historical PE. Pick whichever that is lower. Again, minimum acceptable rate of return should be 15%, nothing less than that.

A : time (year) to double current EPS = 72 / EPS growth

B : EPS 10 years later = current EPS x 2^A

Future Price = PE x B

Sticker Price = Future Price / 4

Here we go, after we get sticker price, we need to calculate margin of safety (MOS) so that we bear as minimal risk as possible.

Margin of Safety = Sticker Price / 2

Example :

Below is Maybank data:

Current EPS	0.60
EPS growth	25.91
Future PE	8.33
Min return	15

A = 72 / 25.91 = 2.78 (round to 3)

B = 0.6 x 2³= 4.8

Future Price = 8.33 x 4.8 = 39.984 (round to 40)

Sticker Price = 40 / 4 = 10

MOS = 10 / 2 = 5

As at date of writing, Maybank is priced 5.1, it is very near to MOS.

For more details of sticker price and MOS, Rule#1 written by Phil Town or his blog are highly recommended. There is online calculator provided in his blog which facilitates the calculation of sticker price and other growth rates data. All you need to do is just putting in the relevant data and the calculator will do the job for you!

What is weight average shares outstanding? How do calculate?

Posted on December 17, 2008
Category : Stock Basic | 2 Comments

What is Weight Average Shares Outstanding?

It’s mean average shares company outstanding within certain period.

How to Calculate Weight Average Shares Outstanding?

It’s a little bit difficult to express in a single formula. however i will give an example to demonstrate how to calculate it.

Case Study 1
Q : “Company A” has 10 million shares outstanding at Janunary 2007 and issued 5 million shares on June 30, 2007. What is the “company A” weight average shares outstanding at year 2007?

A : Company A has 12.5 million weight average shares outstanding at year 2007.
Here is the formula.

Company A
1) 10 million * (January to June (6 months) / (12 months)) = average is 5 million shares
2) (10+5)15 million * (June to December (6 months) / (12 months)) = average is 7.5 million shares

Total “company A” weight average shares outstanding at year 2007 is 5 million shares + 7.5 million shares = 12.5 million shares.

Case Study 2
Q : “Company B” has 100 shares outstanding at January 2007 and issued 50 shares on June 30, 100 on September 30. What is the “company B” weight average shares outstanding at year 2007?

A : Company B has 150 weight average shares outstanding at year 2007.
Here is the formula.

Company B
1) 100 * (January to June (6 months) / (12 months)) = average is 50 shares
2) (100+50) 150 * (June to September (3 months) / (12 months)) = average is 37.5 shares
3) (150+100) 250 * (September to December(3 months) / (12 months)) = average is 62.5 shares

Total “company B” weight average shares outstanding at year 2007 is 50 shares + 37.5 shares + 62.5 shares = 150 shares.

Where to find Maybank Annual Report?

Posted on December 16, 2008
Category : MAYBANK (1155) | 1 Comment

Maybank’s provides 10 years annual report at the maybank2u website. we can get the report at the following address.

Maybank’s Annual Report from year 2007 to 2008
http://www.maybank2u.com.my/corporate/financial_info.shtml

Maybank’s Annual Report from year 1999 to 2006
http://www.maybank2u.com.my/corporate/financial_info_archives.shtml

TA Enterprise acquiring the Westin Melbourne five-star hotel

Posted on December 16, 2008
Category : TA (4898) | Leave a Comment

Stockbroker and property developer TA Enterprise Bhd (4898) is acquiring a five-stars hotel , The Westin Melbourne in Australia for RM389.12mil from RPHT Pty Ltd and RPHT Operations Pty Ltd.The book value of The Westin Melbourne in Australia was estimated A$137.41mil as at June 30, 2008.

I believed below is the The Westin Melbourne in Australia’s website
http://www.westin.com.au/melbourne/

TA Enterprise Bhd (4898) decision is really impress me, how can a company spent so much money to buy a new company during this critical time (Global recession). It’s seem TA Enterprise Bhd (4898) has very strong cashflow and great vision. I will keep this stock in my stock watchlist for future investment.

Different between Direct account and Nominee account

Posted on December 4, 2008
Category : Stock Basic | 1 Comment

Stock account divide into two types – CASH/DIRECT ACCOUNT and CLIENTS COLLATERAL TRADING Account (Nominee account). When we want to open an account in any stock brokerage firm, we have to know which type of account we want to apply. I will suggest always go for direct account.

Here is the different between “cash / direct account” and “clients collateral trading account (Nominee account)”.

CASH / DIRECT ACCOUNT

1) Direct individual account
2) CDS (stock) is held under client’s name
3) Entitle apply for IPO
4) Entitle for dividend and any voucher issue by company
5) Annual Report received

CLIENTS COLLATERAL TRADING – NOMINEE nominee account

1) CDS (stock) is held under company’s name
2) Not entitle to apply for IPO
3) Entitle for dividend but not any voucher issue by company
4) No Annual Report received

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What is Current Ratio? How to calculate?