Finance Notes

Reading Balance Sheet: 16 May 2023

It tells structurally strong or not

Profit and Loss statement is 1yr snapshot of the company.

Look at Debt Equity Ratio. Market Cap is 200 Cr. Debt is 800 Cr. How will the company finance it's debts? Debt/Share holders Equity capital

Greater than 2 is risky

In IT generates cash, so debt will always low.

Manufacturing like steel and aluminum is vice versa.

See industry average. Any company scares if greater than 3

Interest coverage ratio EBIT/Interest burden

If ICR is less than 1, it puts company on defaulting.

Asset turnover ratio: annual sales/total assets

It is monitising the assets successfully if higher.

RoE > 16 over last 5 years, if 20 is best. Check PE ratios

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MP Summary (14th May 2023):

Advice given by Warren Buffett:

Start saving wealth as early as possible.

Accounting is the language of business.

But it can be fraud also, so be sceptical

Snowball effect - Compound Interest

Know your Circle of Competence: what we know of the business

Surround yourself with winners and people who are more successful than you.

Side note:

Buyback : If market is not offering correct value, promotors can buy back the shares i.e extinguish the shares. Ex: Natco, Wipro

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MP Summary (13th May 2023):

For every Rs100 Deposit Rs4.5 CRR (Cash Reserve Ratio) and Rs 18 to be maintained as Statutory Liquidity Ratio (SLR) with RBI
The rest of Rs 77.5 is only available for giving credit
Net Interest margin = Revenue from Interest - Interest to deposit.
The above parameter is falling slowing for Federal Bank inspite of 64% gross increase in net profit. So Federal Bank shares have plummeted.
Federal Bank Book Value is Rs 126 and current valuations are good (1.26)
If price falls 120, 100 and 95 then good time to deposit.
Same is the case for Karnataka Bank. Check its Price to Book Value.

Food for thought:

Blackberry, Nokia perished when they were adament in embracing change. Intel has also joined the list.

10th Sep 2023

Business Terminology:

Exposure: This gives an idea of a company's probability of financial damage it can undergo in bad situations. Investors seek to avoid if this is very high. But when carefully seen it can also bring lot of gains.

Capital: Assets which are readly available for investments.

Rearage: Missed payment for mortgage or loan. It is seen as significant weakness.

Sand bagging: Gaining an advantage by making it seem more difficult/expensive than it is.

Overhead: Cost of operating business. If the salary or rent of real estate rises then overhead of the hotel business increases.

Accounts receivable: Funds owed to a business by other businesses or individuals. They are legally enforceable and collectible. It can take a form of unpaid invoices, promissory notes and sometimes orally.

Accounts Payable: They are liabilities for the companies. It can be inform of unpaid bills, payroll, taxes

Phoning it: It is IDIOM. It is usually intended as a criticism. It means doing the job with minimal effort. It means doing the job in a perfunctory or careless manner. It also means doing the job with half-hearted effort. It is also a characteristic of laziness. It is also taking an easy way out. It is cutting corners rather than fully meeting the demands of responsibilities. After a while you tell the difference between a rep who really wants to make a sale or rep who is phoning it in.

Subsidiary: The company that is controlled by another parent company who holds more than 50% shares in it.

Bean Counting: Mostly used in a slightly derogatory tone, but is considered important in financial transactions. It is very much required for a successful business. A person who has an eye for great detail in accounting details during decision-making is called bean counting.