Value Investing Program – Phase II (Financial Analysis)

Financial Analysis

“The way to make money is to buy when blood is running in the streets.” – John D. Rockefeller

Without a doubt, there is one financial characteristic of all successful corporations and small businesses, stable earnings. Financial analysis is a set of tools, methods, processes and ratios to assess an organization’s viability, stability and various profitability points along the matrix of time and production. Financial analysis provides the analyst with the confidence and security a good financial model presents. This phase of the membership program on this site gets into the nuts and bolts of company’s financial information. The goal is to identify an industry’s financial model and the three to five critical pieces of information a value investor will use to determine how the market will set a security’s price. With this information in hand, a value investor will then set an intrinsic, buy and sell value price. In effect, a range of value the market will bear for a security given the financial results of this organization, the industry standards the company adheres to and finally the impact the overall economy has on this company’s value.

Over a course of more than 80 lessons and supporting research, a member of this site’s value investment club will gain the confidence necessary to build their financial model for an industry they select as their own. There are lots of examples and illustrations included to support each of the lessons. In addition, this section of the membership program includes supporting spreadsheets, schedules and worksheets to assist the member with building their model.

Throughout this phase, a master example is provided tied to the hospitality sector of our economy, specifically hotel/motel lodging operations. This phase will build this industry pool and provide the reader with not only an excellent industry pool for the site’s value investment fund, but also for their own personal use inside their fund.

This phase of the program is divided into seven sections. The following identifies each section and provides an introduction to the student about the respective section:

Concepts –
- Economy
- Industry Standards
- Financial Models
- Stable Growing Operations
Financial Statements
- Balance Sheet
- Income Statement
- Retained Earnings Statement
- Cash Flows
- Notes to Financial Statements
Ratios
Key Performance Indicators
Calculating Intrinsic Value
Calculating Buy/Sell Points
Building an Industry Wide Model

Throughout these lessons, the student is introduced to the Hotel Industry and learns about that industry’s financial model. The key is to learn ‘What makes it tick?’ The end result is a performance matrix along with a financial matrix that ultimately provides the secret of success. Lots of new terminology is introduced including some peculiar terms only used in this industry. Each lesson builds on the prior lessons and the end result is a industry financial decision model with buy and sell points for all members of this particular pool. The members of this pool include:

Marriott Hotels
Hyatt Regency
Hilton Hotels
Wyndam Hotels
Choice Hotels
Intercontinental Hotels and Resorts

The primary business purpose is the traditional overnight lodging and extended stays. Those entities that have a strong gaming component were excluded from this particular pool in order to keep and maintain a high level of consistency related to operations and reporting.

For those of you interested in a video introduction, please click on the YouTube upload on the left to take you to my video tutorials.

The lessons, tutorials, webinars, white papers, spreadsheets on this site are designed to teach these four principles. In addition, this site has over 600 supporting articles that augment the lessons and the program. It is effectively the best resource center available to learn about and implement a personal value investment fund. The annual goal is to achieve 22% plus returns.

You must be a member of this site’s Value Investing Club to access the respective lessons in Phase II – Financial Analysis and Phase III – Sophisticated Investing. In addition, membership entitles access to the respective investment pools and their associated financial models along with emails of actual transactions for this site’s Value Investment Fund. To learn more, go to the Membership Page.

Syndication
Syndication refers to a group of individuals or business entities working together to achieve a set goal(s).
Stability of Historical Earnings
No other element of the Multiply Discretionary Income Formula has as much weighted value as the historical earnings of the company. Every knowledgeable business entrepreneur, accountant, lawyer, broker, you name them; they look for this information first. There’s a reason for this.
Penny Stocks- Introduction
Those small publicly traded businesses with share prices of less than $5 and capitalization of less than $50 million are referred to as penny stocks.
Long Term Debt – Financial Statement Presentation
Long term debt is one of the multiple forms of capitalizing a business. It includes bonds, secured notes and mortgage notes. In the world of small business, the most common form of long term debt is secured notes, most likely with recourse.
Intrinsic Value – Definition and Introduction
Intrinsic value’s definition has several different meanings when used in the business context. The word intrinsic refers to ‘innate’ or ‘inherent’.
Intrinsic Value – Balance Sheet Fundamentals
Novice and unsophisticated investors place greater reliance on net profits over the balance sheet fundamentals to determine intrinsic value.
Intrinsic Value – Application of Discounted Cash Flows
Every student of investing is taught the core principle of discounted cash flows. This business principle is also used with intrinsic value.
Insolvency and Bankruptcy – Know the Difference
Every business owner needs to know the difference between insolvency and bankruptcy. Often these two terms are misunderstood and improperly used in conversation.
Insolvency – Detection
Insolvency refers to the ability to pay bills in a timely manner. It does not mean bankruptcy but long-term insolvency is a underlying factor of bankruptcy.
How to Read a Balance Sheet – Simple Format
Reading a balance sheet is instrumental in understanding the business’s financial position. This particular financial report is a snapshot of a moment in time.