10 – Current temptation, future frustration

Posted on September 12, 2021 by Jimit Zaveri under Current temptation, future frustration

The tenth part of the Series is “Current temptation, future frustration”. This series is based on the companies which are currently darling of the market and many trying to catch such opportunities but it has a probability to become a reason for future frustration. It can wipe out the majority of gains in wealth. I am trying to put some of the number-crunching facts by which we can identify ongoing issues in the companies and can be saved our wealth.

I am starting this article with one of the company which is engaged in the business of trading has a 52 weeks low price of Rs.9.60 and LTP is Rs.62.2, a 52-week high of Rs.79.2. This company has rewarded ~6.48x of return in a year.

Let’s start looking at the numbers.

We can see that the company has high volatile sales, OP Margin% and not earning profits.

We can see that higher receivable days and payable days where we can say that almost 3 years of receivables and a year of payable. Shocking…..

The major balance sheet item is advance recoverable and for that, there is no provision made by the company.

The company does not have a good return ratio.

When we look at the shareholding pattern then promoters hold only 6.89% now and the remaining hold by the public. If the promoters have trust in the performance of the company then they have to hold higher holding.

This entire series is based on past available data and ignored the future development in companies and the stock market always looks at the future.

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation.

This series contains learning from books –

Financial Shenanigans

Quality of Earnings

The Financial Numbers Game

Creative Cash Flow Reporting

09 – Current temptation, future frustration

Posted on August 15, 2021 by Jimit Zaveri under Current temptation, future frustration

The ninth part of the Series is “Current temptation, future frustration”. This series is based on the companies which are currently darling of the market and many trying to catch such opportunities but it has a probability to become a reason for future frustration. It can wipe out the majority of gains in wealth. I am trying to put some of the number-crunching facts by which we can identify ongoing issues in the companies and can be saved our wealth.

I am starting this article with one of the company which is engaged in the business of trading textiles has a 52 weeks low price of Rs.2.13 and an LTP is Rs.46.90, 52-week high price of Rs.52. This company has rewarded ~22.02x of return in a year.

Let’s start looking at the numbers.

We can see that the company has high volatile sales, OP Margin%.

We can see that higher receivable days and payable days where we can say that almost 5 years of receivables and 7 years of payable. Shocking…..

We can see that the entire receivable and payable are from a single entity.

The company does not have a good return ratio.

When we look at the shareholding pattern then promoters hold only 1.03% in March-2018 which is ZERO now and all hold by the public. If the promoters have trust in the performance of the company then they have to hold higher holding.

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation.

This series contains learning from books –

Financial Shenanigans

Quality of Earnings

The Financial Numbers Game

Creative Cash Flow Reporting

08 – Current temptation, future frustration

Posted on July 18, 2021 by Jimit Zaveri under Current temptation, future frustration

The eighth part of the Series is “Current temptation, future frustration”. This series is based on the companies which are currently darling of the market and many trying to catch such opportunities but it has a probability to become a reason for future frustration. It can wipe out the majority of gains in wealth. I am trying to put some of the number-crunching facts by which we can identify ongoing issues in the companies and can save our wealth.

I am starting this article with one of the company which is engaged in consultancy and advisory services in the field of management, IT, technical, industrial, personnel and labour, legal and taxation, financial, commercial and investment, capital market, consulting engineers, operational research consultants, computer service, and marketing services has a 52 weeks low price of Rs.5.26 and LTP is Rs.93.6, 52-week high price – Rs.99.5. This company has rewarded ~17.79x of return in a year.

Let’s start looking at the numbers.

We can see that the company has a high volatile OP Margin%, the company has achieved the highest ever profit in FY20. So this matrix seems good.

When we look at the common size balance sheet, then we come to know that the highest assets side item is other assets. Now, a consultancy company can have such an item but still, we have to do further digging.

The majority of assets account for loans and advances which nearly 85% of the total balance sheet. The company has not given any detailed breakup of loans. But when we read further notes then

The above note put seeds of doubt in our mind.

The company has major expenses are recorded as per bad debts which is 13.66x and 75.48x of net profit in FY20 and FY19 respectively. This will create trouble for the company.

The company does not have a good return ratio.

When we look at the shareholding pattern then promoters hold only 1.40% and the remaining hold by the public. If the promoters have trust in the performance of the company, then they have to hold higher holding.

Disclosure – Companies mentioned in the article are just for an example & educational purpose. It is not a buy/sell/ hold recommendation.

This series contains learning from books –

Financial Shenanigans

Quality of Earnings

The Financial Numbers Game

Creative Cash Flow Reporting

WARREN BUFFETT’S LETTER – 2011 – 2012

Posted on December 23, 2018 by Jimit Zaveri under Bibliophile

Warren Buffett’s Letter 2011

Mr.Warren Buffett has explained on the commodity to brand-

One of the plastic product manufacturing company which use crude oil & it’s derivatives as a raw material but due to selling a brand company can increase a profit higher than growth to the sales

One of the footwear manufacturing company which use rubber, plastic I.e. crude oil derivatives as a raw material but due to selling a brand company can increase a profit higher than growth to the sales

Mr.Buffett on investing-

When we make a compromise with our need and make an investment of those savings to the proper assets, we can able to receive more purchasing power in the future. We need to majorly focus on the beating inflation for the longer period of time which will provide us a more purchasing power in the future. Our minimum target to earn a return from our investment should be inflation rate + GDP growth rate. This is an appropriate return which will provide us a more purchasing power in future and also build us wealthier. During the current scenario in India, inflation rate 3.77% + GDP growth rate 8.20% = 11.97%, it should be a minimum threshold return from the investment we make.

If we look at the 10 years average inflation rate and GDP growth rate in India then it is 7.71% and 7.17% respectively. So that if we have made an investment in the year 2007-2008 than we should have minimum threshold return of 14.88%. and for the last 20 years is 14.60%.

Warren Buffett’s Letter 2012

Mr.Buffett on intrinsic value creation –

Mr.Buffett on capital-intensive business –

We can use a similar parameter for analyzing a capital-intensive business. Here, we can check that whether the company has higher interest coverage after paying current year interest cost or not. This parameter indicates that the company can pay comfortably interest cost on additional borrowing or not. Such quality will not easily available with all the capital-intensive companies so that we can able to filter out good company from the capital-intensive business segment.

One of the FMCG Company which is the manufacturing and marketing of household products and personal care products