👍 What is basic analysis?
The analysis of securities is largely divided into basic analysis and technical analysis.
Basic analysis: which stock to buy
Technical analysis: when to buy/sell
In this post, let's look at the basic analysis.
👊 Basic analysis-top-down vs bottom-up analysis
🙌 Top-down analysis-"Once the economy is good, companies will also be profitable! Let's start with macro analysis"
Economic situation analysis -> industry selection -> company selection
Top-down analysis shows that investing in stocks of weak companies during a boom is better than investing in good stocks during a downturn.
🙌 Bottom-up analysis-"How to do economic analysis and properly analyze a company"
Company selection -> Industry selection -> Economic situation analysis
So how do you analyze the economic situation, industry group, and company?
👊 Analysis of economic conditions
This is the process by which expert analysts analyze heavy topics such as GDP, unemployment, monetary policy, interest rates, and politics.
For example, if the GDP growth rate is higher than the average figure, the economy is in an expansion phase, and the GDP growth rate tends to move in the same direction as the index return.
👊 Industry analysis
Dividend growth rate and net profit also play a big role in rising stock prices, but the fact that the company has a high growth rate means that the industry had many opportunities to grow.
An industry's growth opportunities depend on its position in the entire industrial life cycle.
🙌 Introduction period-possible deficit
It is a period of high risk to success in the market, sales growth is slow, and development costs cause losses or small profits.
🙌 Rapid Growth Period-Break-even point achieved
If the market response is good, new demand will be created and technology development will proceed.
A small number of competitors start to enter, but since it is in a low competition stage, profit margins are high, and demand is rapidly increasing, recording high growth across the industry.
Profit growth can exceed 100% due to rapid sales growth and high margins.
🙌 Long-term stability-intensifying competition
Although not rapid, it is still surpassing the economic growth rate.
High returns continue to attract competitors, intensifying competition.
🙌 Maturity-Profit declines and price competition is intense
As the longest step, the sales growth rate becomes similar to the economic growth rate, and the profit growth rate may vary due to differences in cost management by company.
🙌 Decline
With the advent of substitutes or reduced demand, there are companies that gradually decrease sales and lose profits or lose profits.
👊 Company Analysis-Financial Ratio Analysis
Company analysis is a method of analyzing the financial position and business performance by calculating the ratio between the items in the financial statements of the relevant company and comparing it with other companies or compared with the average ratio.
Financial ratio analysis is divided into six topics.
🙌 Liquidity ratio
Determine if you can pay short term debt (1 year)
Analyze how many times a company's current assets can cover its current liabilities.
Current ratio = Current assets / Current liabilities X 100
🙌 Activity ratio
Identify the physical utilization (turnover) of the asset
Accounts receivable turnover = sales / average receivables (times)
Inventory turnover = sales / average inventory (times)
Total Asset Turnover = Sales / Average Total Assets (times)
🙌 leverage ratio
The ability to pay long-term debt is measured by determining the degree of dependence on debt (different capital ratio).
Debt ratio = debt ratio / total equity X 100
🙌 Growth ratio
Understanding the growth of profitability (increase or decrease in sales, total assets, and net profit compared to the previous year)
Sales growth rate = (current sales/electricity sales-1) X 100
Total asset growth rate = (Total current assets/Total assets prior to the year-1) X 100
Net profit growth rate = (Net profit for the current term/Net profit for the previous year-1) X 100
Earnings per share growth rate = (earnings per share/earnings per year-1) X 100
🙌 Profitability ratio
In order to evaluate the company's overall management performance, profit-related items are expressed as investment capital or profit on sales.
The profitability ratio is usually determined by return on equity (ROE).
ROE is an important indicator of how well an investor's funds are running.
ROE = net income/average equity
= (Net Profit/Sales) X (Sales/Average Total Assets) X (Average Total Assets/Average Equity)
= Net margin of sales X Total asset turnover X Financial leverage
The component that has the greatest impact on ROE is "How much does the financial structure financed by liabilities affect operating performance?"
🙌 Market value ratio
By understanding how a company's value in the stock market is being valued, it alerts investors to an increase or decrease in profits.
The higher the future growth is expected, the higher the PER value, and the brighter the future earnings outlook, the larger the difference between the book value and the market value, resulting in a higher PBR value.
Price to Earnings Ratio (PER) = Share Price / Earnings Per Share (EPS)
Net asset ratio (PBR) = share price / book value per share (BPS)
Sales per share ratio (PSR) = Share price / Sales per share
EV/EBITDA = Business asset value / EBITDA