(Workshop 8) Introduction To Fundamental Analysis by Clement Chung, Cheng Kah Fong and Ryan Chang

Introduction to FA
28th January 2016
Introduction to
Fundamental Analysis
DISCLAIMER AND DISCLOSURES

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Clement Chung, Cheng Kah Fong, Ryan Chang
Please read the disclaimer and the disclosures which can be found
nusinvest.comFA Department
within this report
Introduction to FA
28th January 2016
What is Fundamental Analysis?
Evaluation of a companys business through

analyzing its financial statements,
management, competitors and other macro
economic factors

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Introduction to FA
28th January 2016
FA vs TA
FUNDAMENTAL ANALYSIS
Focuses company analysis

to eventually find an
intrinsic value for the
business
Analysis of financial
statements and valuation
techniques are important
Holding period is usually

mid to long term
TECHNICAL ANALYSIS
Focuses on using past

data and charts to
identify patterns and
trends
The understanding of
indicators and
movements in the
market are important
Holding period is usually

short to mid
term
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FINANCIAL RATIOS
Introduction to FA
28th January 2016
Financial Ratios
Most common and widespread tools to analyze

a companys financial position
Numbers calculated from financial statements
Allow comparison between two similar

companies
Identify strengths and weaknesses of the

companies

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Introduction to FA
28th January 2016
Financial Ratios
Liquidity Ratio
Long-term Solvency Ratio
Efficiency Ratio
Profitability Ratio
Market value Ratio

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Introduction to FA
28th January 2016
Liquidity Ratio
Measures firms ability to

pay bills in short run
E.g. current ratio, cash

ratio, quick ratio
2007-2008 Financial Crisis

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Introduction to FA
28th January 2016
Long-term Solvency Ratio
Measures firms ability to pay all its financial

obligations
E.g. Total debt ratio, interest coverage ratio, debt to

equity
Indicates financial stability of a company
Liquidity measures ability to convert assets to cash

in a short time but solvency measures the net worth
of a company after paying off all its debt

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Introduction to FA
28th January 2016
Efficiency Ratio
Measures how effectively the

firms assets are being
managed
E.g. Inventory turnover, fixed

assets turnover, cash
conversion cycle
Allows management to improve

business model

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Introduction to FA
28th January 2016
Profitability Ratio
Measures firms return on investment
E.g. Profit Margin, ROA, ROE
Higher ratio is desirable

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Introduction to FA
28th January 2016
Market Value Ratio
Measures how the market

values the share price of a
firm
E.g. P/E, P/B, dividend yield
Used by investors
Not used by management as

it does not really help to
improve business

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Clement Chung, Cheng Kah Fong, Ryan Please
Chang read the disclaimer and the disclosures which can be found
within this report
VALUING METHODS
Introduction to FA
28th January 2016
How do we know how much a company is worth?
Two main categories of valuation
Market/Relative How the company does

compared to another company/companies
Intrinsic- Trying to determine the true value

of the company

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Introduction to FA
28th January 2016
Market / Relative Valuation
Pros
Reflects Market Sentiment
Quick and Easier to apply than Intrinsic

Valuation
Cons
No Company is 100% comparable
Focus on short-term rather than long term

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Introduction to FA
28th January 2016
How to perform Market Valuation
1.Identify the comparable universe-
Industry/Country/Products/Financial Criteria
2.Spreading Comparables- Equity

Multiples/Enterprise Multiples
3.Benchmarking Companies
4.Determining Fair Value

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Introduction to FA
28th January 2016
How to perform Market Valuation
All Telcos
P/E, EV/EBITDA

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Introduction to FA
28th January 2016
Intrinsic Valuation
Pros
Independent of Market sentiment
Sanity Check
Cons
Large amount of assumptions/ Needs constant

updates
Not suited for short-term analysis

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Introduction to FA
28th January 2016
1.Project
the free cash
flows of
the firm
How
to perform
Intrinsic
Valuation
( How much cash can Singtel generate for the next 5
years?)
2.Determine the terminal value of the company

( How much is Singtel worth at the end
of 5 years ?)
3.Discount Rate- WACC

4.Present Value
5.Adjustments to get Equity Value
(How much equity of Singtel is available to us?)

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Introduction to FA
28th January 2016
Which one should we use?

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Introduction to FA
28th January 2016

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VALUE INVESTING
Introduction to FA
28th January 2016
Value
Investing
Short Term Investing
Trading vs Investing
Long Term Investing
Investing Growth or
Value

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Introduction to FA
28th January 2016
What is Value Investing?

Seeking undervalued stocks
(bargains)
Stocks as businesses, not ticker

symbols
Fundamentals Intrinsic value
Margin of Safety
The intelligent investor is

a realist who sells to
optimists and buys from
pessimists.
Benjamin Graham

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Introduction to FA
28th January 2016
Mr Market
A bipolar business man
Offers companies on a daily basis
Decisions based on mood exuberance/depression
Only do business when it suits you

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Introduction to FA
28th January 2016
Value Investing - Warren Buffett

Student of Benjamin
Graham
Purchasing wonderful
companies at a fair price
Economic Moat
Honest, capable
management
Margin of Safety
Warren Buffett

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Introduction to FA
28th January 2016
Why Value Investing?

May 1999 IPO: $20
October 1999: $84
August 2000: $0.09
Overexpansion of
warehouses
March 2001: Filed for

bankruptcy
Over expenditure on
advertising
Losing $2 for every $1
earned
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Introduction to FA
28th January 2016
Upcoming Workshops

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(Workshop 8) Introduction To Fundamental Analysis by Clement Chung, Cheng Kah Fong and Ryan Chang

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(Workshop 8) Introduction To Fundamental Analysis by Clement Chung, Cheng Kah Fong and Ryan Chang

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Introduction to FA

28th January 2016

DISCLAIMER AND DISCLOSURES

What is Fundamental Analysis?

Evaluation of a companys business through

DISCLAIMER AND DISCLOSURES

Focuses company analysis

Holding period is usually

Focuses on using past

Holding period is usually

Most common and widespread tools to analyze

Numbers calculated from financial statements

Allow comparison between two similar

Identify strengths and weaknesses of the

DISCLAIMER AND DISCLOSURES

Long-term Solvency Ratio

Market value Ratio

DISCLAIMER AND DISCLOSURES

Measures firms ability to

E.g. current ratio, cash

2007-2008 Financial Crisis

DISCLAIMER AND DISCLOSURES

Long-term Solvency Ratio

Measures firms ability to pay all its financial

E.g. Total debt ratio, interest coverage ratio, debt to

Indicates financial stability of a company

Liquidity measures ability to convert assets to cash

DISCLAIMER AND DISCLOSURES

Measures how effectively the

E.g. Inventory turnover, fixed

Allows management to improve

DISCLAIMER AND DISCLOSURES

Measures firms return on investment

E.g. Profit Margin, ROA, ROE

Higher ratio is desirable

DISCLAIMER AND DISCLOSURES

Market Value Ratio

Measures how the market

E.g. P/E, P/B, dividend yield

Not used by management as

DISCLAIMER AND DISCLOSURES

How do we know how much a company is worth?

Two main categories of valuation

Market/Relative How the company does

Intrinsic- Trying to determine the true value

DISCLAIMER AND DISCLOSURES

Market / Relative Valuation

Reflects Market Sentiment

Quick and Easier to apply than Intrinsic

No Company is 100% comparable

Focus on short-term rather than long term

DISCLAIMER AND DISCLOSURES

How to perform Market Valuation

1.Identify the comparable universe-

2.Spreading Comparables- Equity

DISCLAIMER AND DISCLOSURES

How to perform Market Valuation

DISCLAIMER AND DISCLOSURES

Independent of Market sentiment

Large amount of assumptions/ Needs constant

Not suited for short-term analysis

DISCLAIMER AND DISCLOSURES