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We at Intrinsic-Valuation.com offer our Subscribers a range of tools and services aimed at the do-it-yourself Value Investor. The below provides a snapshot of our offerings to subscribers. Click on any of the links or more information.
Intrinsic-Valuation.com contains Company Analysis on approximately 900 of the best performing businesses listed on any of the following stockmarkets:
The Company Analysis contains a summary of the important figures found in the financial statements of the listed companies, along with some key ratios. The purpose of the Company Analysis is to give an impression of the past recent economic performance of the underlying company. The Company Analysis page also includes the Quality Rating (see below) and the Valuation (see below) for the company in question.
To view an example of a Company Analysis page, click here.
To view an example of a company's Quality Rating, click here.
The Quality Rating for each company is derived by providing a score on each of 10 important financial measures from data contained within the company’s annual financial accounts. The 10 criteria we use vary slightly from company to company depending on which industry the company resides. The various criteria we use include:
Normalized Return on Equity (NROE) is the normalized earnings / average equity for a 12 month period. NROE is the most important figure used by Value Investors as it is the primary measure of profitability.
The average NROE measures the profitability achieved by the company over a period of time – usually 10 years or for as many years as we have financial data on the company. Great companies achieve a high NROE over a sustained period of time.
A company with a diminishing NROE means its performance as a business is declining. A declining NROE likely means retained earnings are not being used as effectively as the equity in the business has been used in the past. We want to see a NROE that is preferably maintained over time.
Cash is the lifeblood of an organization – cash allows a company to pay dividends to shareholders, expand into new markets, buy newer technology equipment, or buy back its own shares. Earnings are an accounting number, and can be manipulated somewhat to make a company’s finances look better than they are. History is littered with companies who reported an “accounting profit” then promptly went bankrupt. A company who enjoys cash profits will almost certainly not go bankrupt.
Return on Average Assets (ROAA) is another measure of the effectiveness of management in making a return, this time on average assets employed during the year. ROAA is particularly useful when comparing the performance of financial institutions. ROAA is to be looked at in conjunction with NROE, and we are looking for both to be healthy.
Is a measure of how leveraged a company is. The lower the number the better. The Net Debt to Equity ratio is calculated by subtracting cash from debt and dividing by the shareholders equity. Net Debt to Equity and Debt to Equity differ only in the consideration of cash in the calculation. We prefer the Net Debt to Equity calculation.
The gross profit margin looks at the amount of revenue left after accounting for the cost of goods sold. Companies with consistently high gross profit margins typically exhibit a competitive advantage over their competition. A new company in a new industry for example would only achieve high gross profit margins for a few years before the competition comes in. Only exceptional companies can display high gross profit margins over many years.
We want to see decent growth in net earnings from one year to the next, with the earnings growing at a reasonably constant rate over time. A company that has demonstrated high earnings per share growth over a period of time will achieve a high quality rating score in this criterion.
Companies in difficult and competitive industries such as the auto industry and the aviation industry need to spend a significant amount on capital expenditures to maintain existing equipment or purchase new equipment. High capital expenditures significantly affect the bottom line of a company’s income statement. The best companies have lower capital expenditure requirements.
RORE is a measure of how effectively a company utilizes retained earnings. If management cannot make a decent return on retained earnings, they should distribute more of those earnings to shareholders in the form of dividends. The best companies retain earnings and make further profits on those earnings thereby compounding the wealth of the company, hugely benefiting the shareholders. See the following articles for more information: Earnings per Share & Return on Equity, and The Fallacy of the PE Ratio as a Measure of Value
Equity to Assets is a measure used when analyzing banks. Banks take on large amounts of debt as part of their business, but we like to see banks maintaining a healthy shareholder equity to assets ratio.
Financial Institutions like to take on large amounts of debt as part of their business, but they can get themselves in a lot of trouble when taking on large amounts of short term debt. We like to see these Institutions take on less short term debt than they do long term debt, preferably considerably less.
This is Earnings before tax divided by Total Revenue and it is a common metric used for analyzing banks. It is akin to Gross Profit Margin, and the higher the better.
The Net Interest Margin looks at how well the company is using its Assets in producing Net Interest Income. It is derived by dividing the Net Interest Income by Total Assets, and we like to see a result of over 3%.
The Expense Ratio is unique to Insurance Companies and it looks at non-claims expenses divided by total revenue. This should typically be low for good insurance companies. When an Insurance Company makes poor investment returns, they will end up with a poor Expense Ratio.
Is also unique to analyzing Insurance Companies and it is simply the Total Claims made by policyholders divided by Total Premiums received from policyholders. The best insurance companies get much more money from premiums than they do giving money back in claims, so the lower the number the better.
Equity Growth is a useful metric when analyzing Insurance Companies. Insurance Companies make money 2 ways – 1 is from the premiums they receive, and the other is from investing those premiums prior to having to pay claims. Good Insurance companies grow their equity at a handy rate, compounding shareholder wealth through intelligent investment decisions.
The end result is a Quality Rating out of 100 and, importantly, a Required Return. The Required Return is used in the Intrinsic Value calculation in a similar way as a Rate of Return is used in a Net Present Value calculation.
The Required Return is the return an investor requires considering the risks involved with investing in the particular business. If the economic performance of the company in question recently and over a number of years is not great, then a higher RR must used to compensate for the extra risk, whereas a company that has performed very well over a period of time warrants a lower RR.
To view an example of a company's Intrinsic Value, click here.
The Valuation of each company is a function of (FAve)NROE, Payout Ratio, Shareholder Equity and Required Return. The calculation provides a multiplier to the Equity for both the Retained Earnings and Distributed Earnings. It essentially considers the value of the equity in the business along with return that the equity is generating. The valuation formula is not something you will find easily in books. It is the intellectual property of Intrinsic-Valuation.com and is derived with the help of information found in such literature as Berkshire Hathaway’s Letters to Shareholders, Finance Journals, along with certain books written on Warren Buffett and/or Value Investing.
The Valuation formula considers a number of factors in calculating the Intrinsic Value of a company. For example, the formula does not look favorably on a company who has a recent history of capital raisings, and conversely the formula indeed does look favorably on a company who has a recent history of stock repurchases. The formula also looks favorably on a company whose financial figures correlate well between the financial statements (Income Statement, Balance Sheet, and Cash Flow Statement), and penalises a company whose financial figures do not correlate well.
(FAve)NROE is the forecast average normalized return on equity for the current year and 2 years ahead. Of particular importance is the amount of (FAve)NROE the company is expected to pay out to shareholders as dividends, and the amount expected to be retained to grow the business.
The Margin of Safety shown in the Valuation box is calculated using the following formula:
Margin of Safety = (Intrinsic Value - Shareprice) / Intinsic Value
We believe any calculation of value using the price/earnings ratio is flawed, and we explain in detail here: The Fallacy of the PE Ratio as a Measure of Value.
The Investment Grade Table is released once per month and provides information up to date as of market close each Friday. The Investment Grade Score is calculated by multiplying the Margin of Safety by the Quality Rating and dividing the result by 100. It allows for only those companies with a strong combination of value and quality to make the grade.
A company with a high Quality Rating but a low Margin of Safety would result in a moderate Investment Grade figure, similar to a company with a relatively low Quality Rating but a high Margin of Safety. The best opportunities of course are those where both the Quality Rating and Margin of Safety figures are high, resulting in a high Investment Grade score.
The purpose of the Investment Grade Table is to give us a snapshot on which companies might be deserving of detailed qualitative analysis. It is not intended that every company in the table be worthy of investment - it is more of a starting point in the investigation process.
To view an example of an Investment Grade Table, click here.
The Monthly Wrap, is an editorial providing commentary on the week gone by. Among other things, it touches on relevant macro-economic activity and discusses the constituents of the Investment Grade Table, as well as looks at the Company Report conducted during the month and the current performance of the portfolio.
To view an example of a Monthly Wrap, click here.
One Company Report is published monthly for subscribers, and is generally completed on a company positioned high in the Investment Grade Table. The Company Reports focus on qualitative analysis in particular in regards to the likely future prospects of the Company. Other qualitative aspects looked at are Management’s trustworthiness, Management’s capital management performance, the company’s competitive position, macroeconomic forces, and drivers for future growth. Company Reports also include quantitative analysis – discussion on the Quality Rating, and discussion and graphs on the Intrinsic Value, along with analysis and discussion on various possible future capital allocation scenarios. A second Company Report may be completed some weeks which will be posted in the Free Blog and will be available for anyone to view.
To view an example of a Company Report, click here.
The stock screener allows the user to screen for companies based on a particular set of criteria. For example the user may want to see all the companies who has a Quality Rating above 80/100 and a Margin of Safety above 50%. The stock screener is very user friendly and it allows the user to filter for companies quickly and easily. To see how the Stock Screener looks, click here.
The forum is a great way for the Intrinsic-Valuation.com community to share investment ideas, philosophies, opportunities, and to discuss how to get the most out of Intrinsic-Valuation.com. To see how the forum looks, click here.
Each subscriber has his/her own Watchlist and companies can be added or removed by the Subscriber as she/he sees fit. It allows the user to list the companies they are interested in and monitor the Margin of Safety until it is at an attractive level. To see how the watchlist looks, click here.