Yes. The same treatment will be followed for associate companies as well. Percentage of holding doesn’t matter.
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Can anyone explain the term Avergae daily turn over (ADTO) with respect to broking industry. What does it specifically mean in F&O, Cash, Commodity and currency segments.
No need to call me sir, we are all learners here 
There are many books/ resources that you can read to learn about investing, listing below some of them.
On Indian markets: (Books)
- VALUE INVESTING AND BEHAVIORAL FINANCE: INSIGHTS INTO INDIAN STOCK MARKET REALITIES & Stocks to Riches: Insights on Investor Behaviour by Parag Parikh (Also Youtube channel of PPFAS)
- Gurus of Chaos, Unusual Billionaires, Coffee Can Investing ( All the books of Saurabh Mukherjea, also their Marcellus Blog)
- Masterclass With Super-Investors
- Of Long Term Value And Wealth Creation by Bharat Shah
- India’s Money Monarchs
- Dr. Vijay Malliks Blog (All Articles - Dr Vijay Malik)
One you read them, also go through their bibliography to get more ideas and recommendations)
International:
Intelligent Investor - Benjamin Graham
Random Walk down wall street - Burton Malikel
Common Sense Uncommon Profits - Philip Fisher
One Up on Wall Street - Peter Lynch
All the books of Joel Greenblat
Not strictly investments books but I think are important to read
All books of NN Taleb
Value Migration by Adrian Slywotzky
Competitive Advantage Michael Porter
Technicals
The Next Apple: How to Own the Best Performing Stocks by Howard Lindzon and Ivaylo Ivanov
All books by Mark Minervini
There are many more, but for starters I think this should help
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Fellow pickrs - expert & novices - Want to understand how do u approach capital allocation to a particular stock : -
(a) Will u cap profits to protect losses - i.e. buy a certain % of pf only for any particular stock no matter how strong the conviction Or
(b) Allocate a good chunk of portfolio to high conviction picks with the understanding to cut losses & move on if it doesn’t go right ?
How to assess realated party transactions? How it is helpful in understanding corporate governance? Is there any good writeup on this or can someone explain this with an example?
RT was discussed in most company analyses by Dr Vijay Malik. That may give you some idea. https://www.drvijaymalik.com.
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I am a concentrated investor myself and have tasted success with concentrating up to 20-25% of my portfolio into a single stock, thrice in the last decade.
And hence I would stick to option (b)
The idea behind doing such large % allocations is that if a stock is expected to be a big winner, why would I allocate a small sum? Big winners are rare and when I find them, I would want to maximize the potential gain coming out of such winners. These big winners tend to take care of lot of losers/non-performers in our portfolios + take care of CAGR returns over time.
Besides what are the odds that I would find ten 10 baggers over my investing life time? If the odds are stacked against me, then I should be allocating a lot more to these big winners, to maximize my chances of making something meaningful out of my investible funds.
Conversely, I also need to protect my capital from huge drawdowns, in order to preserve capital for the next set of big winners. One can do a mix of gradual averaging up into a stock, over a period of several quarters (in order to make sure they are concentrating into the correct stock) + cutting losses quickly when the time comes (thereby attempting to protect one’s hard earned capital).
To summarize, while concentrating, I would
- Average up gradually, and
- Cut losses quickly when the time comes.
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How to identify Inventory Gains or Write-downs in any company’s financials? I infer that it’s not explicitly recorded in the P&L as Other Income or Other Expense.
How to understand the below two metrics when analyzing a company @Chandragupta @Worldlywiseinvestors @barathmukhi
EBIDTA / CFO
PAT / CFO
Please correct me if my formula is wrong. Here is the example I am using.
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Hi Rafi
As far as I understand others feel free to correct me if wrong the CFO/EBITDA and CFO/PAT tells you that whether a company is able to convert its profit into cash. It tells that how much % of operating and PAT is realized as cash. Due to the accrual based accounting practice when a company makes a sale it records it as a revenue on the income statement irrespective of the fact whether the cash resulting from sale is received or not and cash is stuck in trade receivables. That is why it is important to check if % of CFO in relation to PAT as PAT could be misleading. I hope it helps.
Rajesh
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Hi @Rafi_Syed ,
The key difference between EBIDTA and CFO is working capital*. Every business has some money locked up in working capital, and so a normalized EBIDTA would typically be higher than the normalized CFO. The difference shows how much money goes into working capital. The ratio will typically give a value greater than 1. Higher the value, more is the working capital requirement. Obviously, lower is better and a ratio less than 1 would indicate negative working capital, which is most desirable.
PAT / CFO essentially tells the same thing – the extent of cash generation in relation to accounting earnings. The utility of PAT / CFO arises because P/E ratio is the most common metric people use to judge over- or under-valuation. So, for two companies trading at the same P/E, PAT / CFO can indicate which one is better (lower is better). In isolation, I would prefer to use EBIDTA / CFO over PAT / CFO.
In your example, you have used CFO in numerator at one place and in denominator at another which at first sight looks confusing! But ignoring that, CFO to EBIDTA has improved in the last two years, which is a good thing. PAT to CFO also shows the same thing.
Hope this helps.
(* Considering tax also in the nature of working capital – recurring outflow in the normal course of business)
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B
capex is my reason for choosing so
Here is my understanding:
Interpretation:
From a business owner’s perspective, sales shall generate maximum cash inflow to sustain the operations. Ratios you highlighted are used to infer the ability of a business to generate cash (CFO aka ‘Net cash generated from operating activities’) relative to declared net operating income or net Income.
// EBITDA is the Operating Income [Sales minus Operating costs] & PAT is the Net Income [Sales minus Operating costs and Non-Operating costs plus other income].
Background:
What results in cash inflow? Sales, Supplier’s money [Payables- Goods bought on credit], Deferred Taxes.
[A] Every sales transaction does not lead to immediate cash inflow. However, every transaction is recorded as sales. In short, sales happen on accrual basis ( recorded immediately even if cash will be received later).
// Sales for which cash is yet to be received is tracked under receivables on the Balance Sheet.
What results in cash outflow? Operating costs including change in inventory, receivables, Interest, and Taxes
// [B] Operating costs include Material Costs (Raw Material, Traded Goods, Change in inventory), Employee expenses, and other expenses (say advertising). Among the Material Costs, Change in inventory needs discussion in particular. If closing inventory of the current reporting period is higher than closing inventory of the previous reporting period , the additional amount of inventory will be recorded as a negative expense in the operating costs. Due to above way of accounting, the operating results/margins will appear better due to reduction in the overall Material Costs although cash went out to buy that additional inventory.
Difference of [A] and [B] gives the Operating Income (EBITDA).
[C] Non-Operating costs are Interest, Taxes and DA (Depreciation & Amortization). Both Interest, and Taxes lead to cash outflow but amount may differ from the one shown on a Income statement. But, DA (Depreciation & Amortization) does not require any real-time cash outflow. Why so? To buy plant and equipment (PPE), business does lump-sum capex. Such an investment benefits the business for multiple years and cannot be recorded as a one-time expense. Accounting approach dictates to spread the PPE expense across multiple years as per depreciation schedule. The same is recorded under DA category on the Income statement.
Working capital [mainly Payables, Receivables, and Inventory] blocks cash for businesses that sell commodity/push product, try to push sales aggressively with loose credit terms or grow sales at a faster pace.
In order to arrive at the ‘Net cash generated from operating activities’, Net Profit (PAT) or PBT is adjusted to include certain items such as DA, Interest Cost, Tax expense, Bad Debts Written Of/recovered etc. and exclude certain items such as non-operating sources of income, working capital changes [Payables, Receivables, and Inventory], Direct Taxes Paid.
Essence – Management has multiple levers to
tune up sales and expenses, both operating and non-operating as per their incentives or business strategies. Some of them harm the business in the long-term by blocking cash. The ratio CFO (Net cash generated from operating activities)/ EBITDA indicates the ability of a business to generate cash relative to the declared operating income. To use it effectively, the trend of this ratio over the years and nature of items that are included or excluded to arrive at ‘Net cash generated from operating activities’ shall be observed closely.
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Whenever investing i always analyse ROE ratio, PE and ROCE, and the most important i always look at the management prespective about the company’s growth annually.
Please let me know any different technique or additional ways to study the company.
What is the meaning of Each Instrument
Long Term / Funds Based
My Understanding
Long Term Debt - Loan Taken this could include NCD and CCD
Short Term Debt - Commercial Paper (which is usually less than a year or the debt that has to be repaid in less than a year )
Fund Based : Is this approved Overdraft ?
Please clarify.
Thanks
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Long Term Debt is usually Term Loans taken from banks / FIs or Debentures. The meaning is pretty straightforward.
The term “fund based” is used where the bank is actually lending money. “Fund based working capital facilities” usually include cash credit (as overdraft is called in this context) and working capital loans extended by banks. Most of these loans finance specific transactions such as purchase of raw materials, payment to vendors, discounting of commercial invoices, etc. Based on at what stage in the operating cycle they take place, they are called pre-shipment or post-shipment finance. But essentially, they are all short-term loans such as of 60 or 90 day tenure. All these loans appear as an asset on the bank balance sheet. The company pays interest on them.
“Non-fund based” facilities refer to instruments like Letters of Credit and Guarantees issued by banks, where there is no immediate lending but the bank is only standing as a backup on behalf of its customer. They appear as Contingent Liabilities in the Notes to Accounts in the financial statements of banks. The company pays commission and fees for them.
Commercial Paper is short term loan taken from any third party willing to subscribe to the paper. A CP of Tata Consumer may even be subscribed to by say, an Asian Paints or Nestle.
Hope this answers the question.
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China + 1 is Hype or real
Reasons for China + 1 , two things come to mind
- China is clamping down on most polluted companies , due to this many plants either cutting down on their capacities or shutting down their plants
Questions I have
- Is China that dumb it didn’t foresee this is coming ?
- By saying this is advantage India, we are going to setup all those industries in India and we will be part of that so called polluted industries ?
- The answer I received for the above question is in one of the CRISIL webinar is - Indian pollution norms are strict. If this all about being strict, having zero liquid discharge, why not china didn’t implement them?. I always feel being a communist country they can implement laws swiftly (their growth in the past decade is the evidence )
- Customers want to de-risk the supply chain and have another source outside of china.
Why only India ? Where as there is strong presence by Taiwan , Vietnam , Bangladesh etc…
I am missing something here, please help me with your knowledge or any further reading on this.
@Worldlywiseinvestors @barathmukhi @Chandragupta
Many Thanks to all for sharing your insights.
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I guess this question warrants a separate thread, so that all can share their knowledge.
My 2 cents.
I don’t know how efficient PCB is in terms of monitoring the rules. Now and then I come across members mentioning, a particular plant is not yet given permission to operate or an already running plant is shut down etc. But presuming PCB is not autonomous (legally it may be) and is part of the very system that we have and anecdotal knowledge suggests otherwise.
So if something is hazardous to China, it sure is for India too, but I guess we are okay with it, considering the opportunities that it brings. Also, perhaps, things may be changing on the pollution front, with many scientific advancements and initiatives that are being implemented even in small towns, by the time we are polluted, we could undo a part of it, the rest I guess is irreversible.
We have skilled labor, state governments on their own run programs and initiatives that train and provide these people to different industries. Abundant population, no dearth of talent, educated folk. And when the boss says overtime, no questions asked I guess, due to lack of knowledge, complacency.
I don’t follow the countries’ politics you have mentioned, but any industrialist looks for a stable government. India although had coalition governments in the past, they were very stable among the third world countries. No coup d’etat, no sudden change of power, no violent uprisings to seize power, no military action. Barring the local violence that erupts in states, we are peace loving people, relatively.
We were ruled by Europeans for centuries, so a lot things are unchanged since their departure. So now they don’t have to start from the beginning.
And India always had cordial relationships with everyone, excluding the wars we have fought for the reasons they were fought.
So, I would say that India has a better system, one that can be relied upon for decades.
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My views are very different, I think our ignorance towards environment will teach us a lesson very soon, we are moving very fast and destroying whole ecosystem, and on the top of that our policymakers do not care the environmental effects of any policy before passing it.
I work in construction industry and I want to share some figures, which unfortunately many people working in my industry are not aware of.
- To cast 1 Ton of Concrete 1.2 Ton of carbon dioxide is emitted.
- To make 1 Ton of steel 1.5 ton of carbon-dioxide is emmited.
Construction sector is the 2nd largest emitter of CO2, around 8% of total greenhouse gas is emitted by this industry.
Also, there are many hazardous materials which are still being used in the industry, which are not only harmful to human but also to environment. For eg.
-
Asbestos composite sheets are still used,
-
Thermocol (Polystyrene) is still being used in packing material in tiles, ceramics etc.
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Teflon (Polytetrafluoroethylene) is still being used for various works.
I am sure, there are many such things in other industries, but only persons working in that industry may know.
And many studies also shows that our cities are topping pollution charts, 21 out of 30 most polluted cities are in India.
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