Fundamental analysis the importance of earnings

1. Introduction to
Fundamental Analysis
The importance of Earnings

2. What we expect,
from Listed companies:
Running a
good
Business
“TOP LINE”
“Under control..”
“Business
is
growing”
Sales
-Costs, taxes
“BOTTOM LINE” = Net Profit

3. “TOP LINE”
“Under control..”
Sales
-Costs, taxes
“BOTTOM LINE” = Net Profit
Number of Shares
═ EPS

4. What is
“earnings per share”?
A. Net Profit
B. Number of Shares
C. Net Profit / Number of Shares

5. „Does the company have good prospects?‟
„Does it have a bright future…‟
„May “laman” ba yan?‟
Actual EPS over time
2011, 2012, 2013..
EPS
2008
2009
2010
2011
2012
2013

6. What company has
bright prospects?
A.High EPS growth
in the past
B.High Growth of EPS
in the future

7. What makes this, a good company ?
“TOP LINE”
Growing
Sales
-Costs, taxes
“BOTTOM LINE”
= Net Profit
Work hard to make
the SALES grow
Competitive
under control
Growing

8. Price
X
Volume
Just because you
have big sales,
doesn‟t mean,
you have big profit.
= Sales
- Costs
Raw materials
Cost of Capital
Cost of Labor
Cost of Land
Taxes
Cost of Doing Business
= Net Profit

9. 2000
Gold Price since 1995
300 to 1600
The driving
force of Price…
1600

10. Price
X
Volume
More people. More money.
Big domestic market.
= Sales
- Costs
= Net Profit
* Needs more
food, shelter,
transport, telec
om

11. “TOP LINE”
Sales
-Costs, taxes
“BOTTOM LINE”
= Net Profit
Number of Shares
═ EPS

12. Valuation
What is cheap,
what is expensive

13. 70
50
Valuation
Earnings
5
Year 1
7
Year 2

14. How to
Compare
Price / Share
Earnings / Share
Price / Earnings
Ratio
GLOBE TeL
PLDT
1,050
73
2,500
212
= 14x
= 12x
Lower “Price / Unit”
PLDT gives you more
“Earnings” for the “Price.”

15. Which is cheaper
Small Can
P50/Liter
Big Can
200/5 Ltrs
More
expensive
per Liter
Cheaper, despi
te bigger price
tag
Same FUEL

16. A market is
expensive, when the
stocks are near the UPPER
LINE
Earnings in 2013
Earnings in 2012
Earnings in 2011
2011
A market is
cheap, when the
stocks are near
the LOWER LINE.
2012 2013

17. A market is
expensive, when the
stocks are near the UPPER
LINE
Earnings in 2013
Expensive
Earnings in 2012
Expensive
Earnings in 2011
Cheap
2011
Cheap
A market is
cheap, when the
stocks are near
the LOWER LINE.
2012 2013

18. Strategy
SELL
BUY
BUY
BUY
Company
Earnings = net
profits
The upper and lower lines are determined by the PROFITS
of the company, Times the range of Price-Earnings Ratio.