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.

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

PARKSON (5657) Annual Report

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

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

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

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:-

1. Current EPS
2. Estimated EPS growth rate
3. Future PE
4. 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:

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!

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.

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

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.

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