MCap is a function of market sentiments. Balance sheet, cash flows, R&D execution, talent acquisition, regulatory compliance, M&As and so on....are a function of management/governance. Never mix the business with the stock. Stock is not the business. Business is not the stock :)

Not all chemicals companies are expensive today. I’d screen those where current EV/Sales is in 3-5x range and more importantly where the capex is set to unfold that should improve ROE, ROCE and EV/Sales. It’s more about the individual business cycle leading to earnings growth …

From failing to qualify for a major world event to winning a major world event. Unseen transformation in just 3Y 🇮🇹 ⚽️

From an unseen retail owned micro/small cap to institutional darling large cap. Magical transformation unfolding in just 3Y from late 2019 to late 2022 🇮🇳 ⭕️

@Jeevan_rjv @soicfinance @itsTarH No. Not those ones. Editas, Intellia etc are more on the CRISPR patents and royalty play.

Thread 🧵explaining #ROE & #ROCE and its use in #FundamentalAnalysis

(Must read for #FA learners)

🙏Like & RT to spread learning with all 🙏

Views Welcome 👉 @dmuthuk @Vivek_Investor @datta_arvind @caniravkaria @FI_InvestIndia @AdityaD_Shah

#FundamentalAnalysis #StockMarket

1⃣

Return on Equity (#ROE) and Return on Capital Employed (#ROCE) are two important Financial Ratios used in #FundamentalAnalysis of Stocks.

#StockMarket #Investing

2⃣

Return on Equity (ROE) is the ratio of Net Income (Net Profit) of a company and it’s Total Equity (Shareholder's Equity).

Here - Shareholders Equity = Share Capital + Reserves & Surplus.

#StockMarket #Investing #FundamentalAnalysis

3⃣

#ROE is a measure of how much net profit a company is making for every rupee invested by its shareholders in the company.

It can be said that higher the ROE, better it is for the equity shareholders. It tells shareholders about how effectively their money is being used.

4⃣

However, you should not trust high ROE blindly. Biggest drawbacks or weaknesses of ROE is that it completely ignores debt.

Hence for companies having high levels of debt, ROE will give a higher but misleading value & therefore we need to look at #ROCE along with #ROE.

STOP focusing on Profit

START focusing on Cash Flow

Cash Flow Statement 101:

Every company has 3 reports in its financial statements

1. Balance sheet
2. Income statement
3. Cash flow statement

Most people focus on the Income Statement to look at PROFIT

There is nothing wrong with this…

But profit, isn’t CASH FLOW

Profit is an accounting measure

It doesn’t tell you how much MONEY actually came into the business

Sounds confusing?

Let’s look at an example:

In 2021 Google’s profit was: $76 billion

Accounting is the language of business.

If you buy stocks, you MUST learn how to read a Cash Flow Statement.

Here’s everything you need to know:

The cash flow statement shows how cash moves in and out of a company over a period of time.

The most common time periods are:
▪️1 Quarter
▪️1 Year
▪️Year-to-date (usually 6 or 9 months)

The time period is at the top. Here's $NFLX recent cash flow statement time period.

Some companies show the cash flow statement in their earnings press release, but many don’t.

You can find the cash flow statement by looking at:
▪️10-Q (Quarterly Report)
▪️10-K (Annual Report)
▪️Fnancial aggregators such as @theTIKR,
@CMLviz, @themotleyfool, @YahooFinance

There are three main segments to a cash flow statement.

1. Operating Activities
2. Investing Activities
3. Financing Activities

Companies get some leeway with how they breakout each segment, but they all follow this basic structure.

Let’s start with Operating Activities.

This segment STARTS with net income (the bottom number of the Income Statement).

It shows cash movements from all normal operational business activities.

The #1 reason a company fails:

Cash flow issues.

Track this metric to thrive:🧵

There are 2 types of operators:

Those who...

1. Track everything
2. Track nothing

Whether ignorance or information overload - neither is ideal.

Instead, choose fewer, but more meaningful KPIs.

Cash Conversion Cycle (CCC) is simple, but has far reaching application - that's why I like it.

The info can be applied to:

1. Finance
2. Operations
3. Customer Management

One centralized KPI keeps departments working together.

The best part?

It's centered around cash.

What is CCC?

The time (in days) it takes a dollar to go from product or service to cash in the bank.

Note: CCC is used for inventory investments, but the service equivalent is called:

Service-to-Cash Cycle.

Same principles, so we'll use CCC for simplicity.

How is it measured?

In days, and...

Above 0 = longer to sell & collect cash than to pay vendors.

Below 0 = faster to sell & collect cash than to pay vendors.

The lower, the better.

Higher numbers indicate current or future cash flow issues.

Excellent resource for Individual investors who want to learn about Accounting and Financial Statements.📊

The concepts are really well explained in a simple, understandable manner for beginners.

cc: @dmuthuk @Gautam__Baid

Content available 👇

Some of my fav sections.

1⃣ The Financial

2⃣ Fundamental Accounting

3⃣ Financial Ratio