The net worth (which is were reserve gets is added) is accrual base concept while cashflow is determine based on actual cash inflow/outflow. While the company has sold goods in March quarter, typically it gives credit of 30-90 days depending on sector/trade practices. Hence, while sales would be booked, there would cash out flow due to increase in working capital by receivable.
With sales booked on accruals basis, cost on accrual basis charged to P&L and what is left over is Net profit (adjusted for dividend) gets added to net worth. Hence, profit and loss would be postive, but due to receivable day, cashflow would be negative. Generally, positive cashflow from operations gives indication of bargaining power of the company with suppliers and customers. I personally like to invest in the companies where cash flow from operation is positive. However, there could be exception and many companies in growth phase may have negative operating cashflow.
Having said, consistent negative cash flow from operations over say 5 years periods, is not at all encouraging sign and in fact an earlywarning signal. The business is actually sucking cash then generating it to be returned to stake holders.
It means that looking at cashflow for only one year wont lead to any conclusion.
For example because it might be possible that company might receive the cash for it sales in next financial year.Thus based on sales booked it might be showing profit but negative cashflow for this year.
For example below is the case for PC Jewellers: Last four years Cashflow statement
2011 2012 2013 2014
Cash from Operating Activity -29.33 337.71 519.60 -809.66
Cash from Investing Activity -11.63 -37.90 -583.02 246.19
Cash from Financing Activity 19.24 367.84 131.95 594.79
Net Cash Flow -21.72 -7.76 68.53 31.31
Now I see that in 2014 the company is showing negative cash from operating activity that might be because they had to pay for the gold upfront due to government regulations and will be receiving cash only after sales of items using this gold.
Now in this case should this negative Cashflow act as deterrent??
My answer based on above assumption should be NO.
As I said, it would depend on your confidence in business and management. The best is to have positive cashflow which indicate good bargaining power with supplier and customer. Having said that one of year negative cashflow shall not mater much. However, I would suggest you compare it with sale. Ina bove example, 519.6 got converted in negative 809 operating cashflow in FY14. That means, in FY13, the company generated operating cashflow of Rs 520, which not only declined but also utillised Rs 809 in business. The scale when seen in context of sales would give more idea. If sales has increased, it may due to push from the company (by extending higher debtros days etc). If sales decline and cashflow from operation is negative, the company is worse situation on collection of receivable. In either case, it need more investigation.
In nutshell, one year would not concern, but scale of change is volatile in your example which required further understanding
Start with a good easy to read book : One Up on Wall Street Peter Lynch
Start simultaeously reading a few Annual Reports of Businesses you admire. Pick up something discussed at the Forum by lots of people - say like Ambica Cotton, or Premco Global - try and understand the Business
Try to understand what makes the business unique, special - why is it difficult to dislodge
Read the entire Hall of Fame threads and Learning threads
Cmpare theory (what you earn from Books or VP Gyan) with practicals all the time - by reading up on Showcase discussions - like Mayur, Astral, Ajanta, Kaveri, Ambica
Hi every one, I am new in investing into stocks, as well as in this forum. I am trying to follow value investing based on my limited knowledge and also trying to learn each and every day from various sources. One major issue I am facing since last 1 month, is I have identified couple of blue chip stocks, but I feel, this stocks are not giving me a position to enter, they prices have gone up too high, in recent years, so, what should be done in this scenario. I am sure, some of the seniors have also faced similar situations in your life, please advice on this.
example of those stocks CMP:
HDFC bank, 160 in 2008 vs 1200 in 2017 jan/feb.
maruti suzuki 1800 in march 2014 vs current 6100 in last 2 months…
TCS: 255 in 2008 at some point vs todays 2120 in 2017…
there are so many example that you also know like eicher motors…
So, my concern is, for people like me, who are starting their stock market journey in 2017, all these blue chips are trading at a very high level, how do I enter??
Only times like budget day/demonitization/sugical strike day etc??
Capitalisation of interest cost happen during new project implemention phase. Typically a borwnfield or greenfield expansion take around 12 months to 48 months depending on nature of industry/size of project. The funds are required for land purchase, machinery purchase and installation which are spent before project is ready for commencement of production. The cost of borrowed fund during the implementation phase is not charged to P&L and get capitalised in total cost of project in fixed assets.
However, many times, bad management continue to show not prgoressed project as under implementation and charge interest cost to Fixed assets instead of P&L. You can go though dirty Twele referrred under Insolvancy by RBI. Most of cases, like Bhushan, Electrosteel, Monnet would have large interest compenent being capitalised.
Is Interest Paid and Interest Outgo/Outflow are same? it does not look like though.
As i was reading Dr VijayMalik report on Garware wallropes, i found these 2 different items. Tried to find on google but no use.
Here is the the screenshot.
I am new to stock market and learning the basics. Can any one please help me to calculate TTM BOOK VALUE, TTM ROE and TTM ROCE of any company.
I searched a lot to find out how to calculate these TTM ration in google and also in this forum but yet to get success. If it is already given in this forum then please give me link of such post.