The objective of fundamental analysis is to determine a company's intrinsic value or its growth prospects.

Fundamental analysis

Fundamental analysis is the study of the various factors that affect a company's earnings and dividends.  Fundamental analysis studies the relationship between a company's share price and the various elements of its financial position and performance.

Fundamental analysis also involves a detailed examination of the company's competitors, the industry or sector it is a member of and the broader economy.

Fundamental analysis is forward looking even though the data used is by and large historical.  The objective of fundamental analysis is to determine a company's intrinsic value or its growth prospects.  This intrinsic value can be compared to the current value of the company as measured by the share price.  If the shares are trading at less than the intrinsic value then the shares may be seen as good value.

Many people use fundamental analysis to select a company to invest in, and technical analysis to help make their buy and sell decisions.

Factors affecting future earnings prospects of a company:

1. Change in senior management
2. New efficiency measures
3. Product innovations
4. Acquisition of another business
5. Industrial action

Analysing individual companies

The analysis of an individual company has two components:

-  The 'story' - what the company does, what its outlook is
-  The 'numbers' - the financials of the company, balance sheet and income statement and ratio analysis.

Unfortunately, balance sheet and ratio analysis is probably the most daunting part of fundamental analysis for non-professional investors.  A large number of numerical techniques appear to be used.  However, you can make it less painful by adopting a methodical approach and by always remembering that behind all the numbers is a real business run by real people producing real goods and services, this is the part we call "the story".

It is unlikely that you will need to do the number crunching for every company, your time will be more profitably spent developing the company story.  Balance sheets and ratio analysis, both historical and forecast, can be obtained from either a full service or discount stockbroker.


What are you trying to learn about a company?

Before trying to leap into the calculations behind fundamental analysis there are some basic questions that are worth considering as a starting point:

1. Where is the growth in the company coming from?
2. Is the growth being achieved organically or through acquisition?
3. Is turnover keeping pace with the sector and with competitors?
4. What about the profit margin - is it growing?  Is it too high compared to competitors?  If it is too high then new competitors could enter on price reducing margins.  Low earnings could suggest control of the cost base has been lost or factors outside the company's control are squeezing margins.
5. To what extent do profits reflect one-off events?
6. Will profits be sustainable over the long term?

Companies are multidimensional.  For example, debt funding may have increased - this may be a positive move if the funds produce new productive assets.



Fundamental analysis (Summary)

When you buy shares you are becoming a part owner in that business.

To make an informed decision if you want to be an owner in that business, it is important to understand how that company operates and what its prospects are.

To understand a company, you can read its annual report which is one of the most important publications it releases to the market.

Analysing an annual report gives you the ability to build a good picture of how that business has performed over the past 12 months and what its prospects might be for the future.

To compare the annual reports and prospects of different companies, there are commonly used financial ratios, these include dividend per share, dividend yield, PE ratio and earnings per share.



http://www.asx.com.au/courses/shares/course_10/index.html?shares_course_10

Stock fundamental analysis is a key component in any trading plan.

Stock Fundamental Analysis - A Key Component for Success

When it comes to investing in the stock market, one measurement stands out above the rest; how much did the investor earn at the bottom line. Traders use many tools to help determine their stock trading plan, but the best tool for assisting an investor is basic stock fundamental analysis. Stock fundamental analysis is the process of examining businesses at the most essential levels. This method of review evaluates key risk reward ratios of a business to attempt to determine the stability and financial health of a company and to determine the value of its stock. 

Many investors use stock fundamental analysis alone for their determination of future stock purchases. While stock fundamental analysis is a powerful practice, it should be an important part of an investor’s overall stock trading plan. This plan should include stop loss strategies, as well as a stock trading system such as Japanese Candlesticks. Such a trading system, coupled with basic fundamental analysis can provide the trader with a valuable insight into the murky waters of the stock market.

Basic fundamental analysis helps an investor to know how much money a company earns. This is the ultimate measurement of its success, both currently and in the future. Earnings can be difficult to calculate, but that is to be expected when dealing with the stock market. When a company is growing and profitable, its stock generally increases; earnings create higher stock prices and in some cases, regular dividends and successful trading. Lower stock value can have the opposite effect, making the market bearish on the stock. By evaluating a stock with stock fundamental analysis, it is possible to look for basic candlestick chart formations and determine the direction of a stock. When the direction is known, an investor can implement stock market strategies which reflect either a bullish or bearish approach.

In addition to understanding a company’s earnings, there are a number of ratios involved in basic fundamental analysis that help the investors to evaluate the worth of a company’s stock. These ratios focus on earnings, growth and value in the market. Evaluating these dynamics together can provide unique reflections on the value of the company. When a company can be identified by basic fundamental analysis, its stock can be tracked using candlestick chart analysis. With this information, an investor can move confidently to make a trade. 

Stock fundamental analysis is a key component in any trading plan.

Warren Buffet's strategy on technical analysis

Warren Buffet's strategy on technical analysis
Apr 05 '00

After much research and experience in investing I've discovered a simple strategy which works very well for profitable investing. It's a composite of Charles Schwab's and Warren Buffet's strategy. As you may know, Warren Buffet started with a little investment decades ago and now he's the third richest man in the world with over $30,000,000,000 in stock in the company he built. Charles Schwab is the genius who began the most successful off-price brokerage in the world. Here's what they say about investing and technical analysis:

Rule number one: Buy a company you'd be willing to hold for a lifetime.

When you put your money in a stock, you become an owner of that firm. You're essentially buying part of it and you reap the profit from the shares you buy in terms of earnings per share. Then the company may pay out those earnings per share in dividends or invest back into the company for growth. Make sure that you're buying a firm that you can depend on, even when the market is down. Investing isn't about the quick in-and-out schemes that lose most day-traders money. That's called gambling. Investing is putting your trust and your resources into a firm which you're willing to commit your hard-earned money to. This leads to my next point.

Rule number two: Ignore technical analysis.

Technical analysis is used to predict whether or not a stock will go up or down in the short term. Some people think that they can ignore the fundamentals of the companies they buy based on technical analysis and end up losing large amounts of money. Yet, no responsible financial advisor would recommend or practice buying based solely or largely on technical analysis. That practice is used for what I defined to be gambling. Essentially relying on technical analysis involves looking at the volume of trading, advances/declines in the share price, and trying to determine whether or not the price will continue upward or reverse. For example, a lot of people buy or sell based on momentum. They jump on the bandwagon or abandon ship with the rest of the crowd. Yet, these fluctuations based on the herd mentality do less for those playing on technical analysis and more for the investor who looks for good value in shares. For, often people selling on technical analysis overshoot and cause a stock's value to be worth less than its fair value. Thanks to people who get burned on these losses, investors find unique opportunities to snatch up great comanies at bargain-basement prices.

Rule number three: Focus on the Fundamentals.

You cannot accurately predict the short term price fluctuations of stocks. Let me repeat myself: You CANNOT accurately predict the short term price fluctuations of stocks. If you could, those stock experts working at Merrill Lynch and Goldman Sachs wouldn't be working. Believe me: they've got a lot more experience than you or I do, and they're not gambling. So, instead of "investing on luck" or momentum, take control and do your research. Find out whether the company is consistantly outpacing the industry. See what the price to earnings ratio is and whether it's being undervalued. Find out whether earnings per share has been increasing or decreasing. See what the financial community thinks by examining analyst opinions covering the firm. All this information is easily accessable over the internet and free of charge. IF you do your homework your gains will be all but certain OVER TIME and you'll feel satisfied and proud with your investment choices. You may even become attached to your company and become well acquainted with it.

Rule number four: Buy long term

Besides your liklihood of making money going up, there are tax advantages to holding stocks long term. For one thing, if you simply hold onto your stock, you won't be taxed until you pull out and your investment can continue to compound, without erosion, until you sell. But, if you constantly buy and sell, then you're taxed on all your gains and you don't get to pay the lower capital gains tax. Instead, it's taxed as regular income, which is a higher tax rate. For most daytraders, tax erosion is one of the biggest problems with making any profit. But, if you do sell make sure it's because your company has been consistently underperforming. This leads to the next point:

Rule number five: Buy low sell high.

Lots of people buy stocks and when the price dips they get scared and sell. Other people see the price of their stock go up and buy more. But, this seems like reverse logic, right? If you own a good company, short-cited investors can drive down a stock price temporarily because of one below-expected earnings report or a bit of bad news. Let these be times for you to take advantage of other people's hysteria and buy at an attractive price.


Be smart in your investment decisions. Warren Buffet didn't find himself where he is today by buying on momentum or following technical analysis. Instead, it took research, patience, and commitment. If you can commit yourself to these same principles, you too will enjoy financial success.

http://www.epinions.com/finc-review-1935-D65AB19-38EAE41E-prod2

Warren Buffett's Bear Market Maneuvers

Warren Buffett's Bear Market Maneuvers

Posted: Jul 12, 2009

Dan Barufaldi

In times of economic decline, many investors ask themselves, "What strategies does the Oracle of Omaha employ to keep Berkshire Hathaway on target?" The answer is that the esteemed Warren Buffett, the most successful known investor of all time, rarely changes his long-term value investment strategy and regards down markets as an opportunity to buy good companies at reasonable prices. In this article, we will cover the Buffett investment philosophy and stock-selection criteria with specific emphasis on their application in a down market and a slowing economy.

The Buffett Investment Philosophy
Buffett has a set of definitive assumptions about what constitutes a "good investment". These focus on the quality of the business rather than the short-term or near-future share price or market moves. He takes a long-term, large scale, business value-based investment approach that concentrates on good fundamentals and intrinsic business value, rather than the share price.

Buffett looks for businesses with "a durable competitive advantage." What he means by this is that the company has a market position, market share, branding or other long-lasting edge over its competitors that either prevents easy access by competitors or controls a scarce raw-material source.

Buffett employs a selective contrarian investment strategy: using his investment criteria to identify and select good companies, he can then make large investments (millions of shares) when the market and the share price are depressed and when other investors may be selling.

In addition, he assumes the following points to be true:

• The global economy is complex and unpredictable.
• The economy and the stock market do not move in sync.
• The market discount mechanism moves instantly to incorporate news into the share price.
• The returns of long-term equities cannot be matched anywhere else.

Buffett Investment Activity

Berkshire Hathaway investment industries over the years have included:

• Insurance
• Soft drinks
• Private jet aircraft
• Chocolates
• Shoes
• Jewelry
• Publishing
• Furniture
• Steel
• Energy
• Home building

The industries listed above vary widely, so what are the common criteria used to separate the good investments from the bad?

Buffett Investment Criteria

Berkshire Hathaway relies on an extensive research-and-analysis team that goes through reams of data to guide their investment decisions. While all the details of the specific techniques used are not made public, the following 10 requirements are all common among Berkshire Hathaway investments:

• The candidate company has to be in a good and growing economy or industry.
• It must enjoy a consumer monopoly or have a loyalty-commanding brand.
• It cannot be vulnerable to competition from anyone with abundant resources.
• Its earnings have to be on an upward trend with good and consistent profit margins.
• The company must enjoy a low debt/equity ratio or a high earnings/debt ratio.
• It must have high and consistent returns on invested capital.
• The company must have a history of retaining earnings for growth.
• It cannot have high maintenance costs of operations, high capital expenditure or investment cash flow.
• The company must demonstrate a history of reinvesting earnings in good business opportunities, and its management needs a good track record of profiting from these investments.
• The company must be free to adjust prices for inflation.

The Buffett Investment Strategy

Buffett makes concentrated purchases. In a downturn, he buys millions of shares of solid businesses at reasonable prices. Buffett does not buy tech shares because he doesn't understand their business or industry; during the dotcom boom, he avoided investing in tech companies because he felt they hadn't been around long enough to provide sufficient performance history for his purposes.

And even in a bear market, although Buffett had billions of dollars in cash to make investments, in his 2009 letter to Berkshire Hathaway shareholders, he declared that cash held beyond the bottom would be eroded by inflation in the recovery.

Buffett deals only with large companies because he needs to make massive investments to garner the returns required to post excellent results for the huge size to which his company, Berkshire Hathaway, has grown.

Buffett's selective contrarian style in a bear market includes making some large investments in blue chip stocks when their stock price is very low. And Buffett might get an even better deal than the average investor: His ability to supply billions of dollars in cash infusion investments earns him special conditions and opportunities not available to others. His investments often are in a class of secured stock with its dividends assured and future stock warrants available at below-market prices.

Conclusion

Buffett's strategy for coping with a down market is to approach it as an opportunity to buy good companies at reasonable prices. Buffett has developed an investment model that has worked for him and the Berkshire Hathaway shareholders over a long period of time. His investment strategy is long term and selective, incorporating a stringent set of requirements prior to an investment decision being made. Buffett also benefits from a huge cash "war chest" that can be used to buy millions of shares at a time, providing an ever-ready opportunity to earn huge returns.

For further reading, see Think Like Warren Buffett and Warren Buffett's Best Buys.
by Dan Barufaldi
Dan Barufaldi is an independent consultant associated with the management consulting and global business development firm, Globe Lynx Group, located in Lewiston, NY. He has a bachelor's degree in economics from Cornell University. Previous positions include president and CEO of Colonial Printing Ink Corporation, general manager of the Decorative Products Division of Johnson-Matthey, Inc., director of sales and marketing of the U.S. Colorants Division of CIBA-Geigy Corporation. He has also worked extensively in international business in China, the U.K., Western Europe, Canada, Sweden, Argentina and Chile. Barufaldi has authored business articles and columns in four newspapers and several Chamber of Commerce publications.


Read more: http://www.investopedia.com/articles/stocks/09/buffett-bear-market-strategies.asp#ixzz1Zmyvd1zK

Look at the big picture when Investing

Look at the Shadow

It is not a sin when you buy LOW

Use fundamental analysis to pick the good quality stocks.
Use technical analysis to buy into the stocks.

Technical analysis versus Fundamental Analysis
Malaysian Personal Finance

****Investment Valuation Ratios

This ratio analysis tutorial looks at a wide array of ratios that can be used by investors to estimate the attractiveness of a potential or existing investment and get an idea of its valuation.

However, when looking at the financial statements of a company many users can suffer from information overload as there are so many different financial values. This includes revenue, gross margin, operating cash flow, EBITDA, pro forma earnings and the list goes on. Investment valuation ratios attempt to simplify this evaluation process by comparing relevant data that help users gain an estimate of valuation.

For example, the most well-known investment valuation ratio is the P/E ratio, which compares the current price of company's shares to the amount of earnings it generates. The purpose of this ratio is to give users a quick idea of how much they are paying for each $1 of earnings. And with one simplified ratio, you can easily compare the P/E ratio of one company to its competition and to the market.

The first part of this tutorial gives a great overview of "per share" data and the major considerations that one should be aware of when using these ratios. The rest of this section covers the various valuation tools that can help you determine if that stock you are interested in is looking under or overvalued.

Table of Contents

1) Investment Valuation Ratios: Introduction

2) Investment Valuation Ratios: Per Share Data

3) Investment Valuation Ratios: Price/Book Value Ratio

4) Investment Valuation Ratios: Price/Cash Flow Ratio

5) Investment Valuation Ratios: Price/Earnings Ratio

6) Investment Valuation Ratios: Price/Earnings To Growth Ratio

7) Investment Valuation Ratios: Price/Sales Ratio

8) Investment Valuation Ratios: Dividend Yield

9) Investment Valuation Ratios: Enterprise Value Multiple

For traders: Always keep in mind that the company and its stocks are distinct

A company may reach new heights of prosperity while you as individual stockholder own a bit of it, but you still can lose money.  Why?  You and other temporary owners have bought merely rights to cash in on whatever changing level of perception other people (taken as a whole, the market) may hold about that company.

1.  They may like it less tomorrow

• because of buying in too late (too high), 
• because interest rates are rising (making all equities less attractive relative to bonds or Treasury bills); 
• because of adverse public opinion about its products or industry;
• because of press publicity over high executive salaries; 
• because general corporate reputation might deteriorate; 
• because investment tastes shift in favour of other industries; or 
• because of a rising fear of recession.

2.  Or the overall stock market may be declining from a too-high prior level.

3.  Other investors collectively may be right or wrong about the company over the short to medium term.  And you as an individual may prove correct, while the majority are incorrect, about fundamentals.


To determine whether now is the time to hold or to sell, focus on changes in perception rather than on long term fundamentals.  An investor can be dead-on right about fundamentals, but if the market collectively decides that it no longer is willing to pay as much for this company's reputation or earnings, its share price heads south.  Eventually, an individual's logic may be vindicated again as value reasserts itself and other investors resume their willingness to pay for it.  But in that interim, the individual is going to suffer a loss for fighting the tape.

As Benjamin Graham noted in The Intelligent Investor, markets act as voting machines in the short term but in the long run function as weighing machines.  Thus, actions and opinions of the crowd determine share price in the short to medium term, which is the most important factor because that share price determines whether you have a gain or a loss, and when.  So buy and sell not just on personal judgment of a company behind a stock but on your studied assessment of what other investors think of the company and how that thinking seems to change.  A great company can be a bad stock (for trading or investing) if bought at just any price without regard to reasonable value.

Prices on the tape reflect people's reactions and perceptions and beliefs translated into buying and selling decisions; they do not reflect the truth about a company's fundamentals.  So keep in mind that the company and its stock are distinct.  

Being able to keep a company and its stock strictly separate in your mind has become ever more critical in recent years.  Excellent companies may suffer single-quarter earnings shortfalls against analyst estimates or might even experience actual interim declines in earnings.  Such minor stumbles usually call down immediate and massive institutional selling.  While such selling may be vastly disproportionate to any long-term true fundamental meaning of the triggering event, it does signal a coming period of more cautious appraisal by major investors.

If you maintain the mental agility to view a stock as merely an opinion barometer because you have separated it from the company's fundamentals, you will be able to sell without costly hesitation.  Fail to differentiate a company and its stock in your mind and you will have great difficulty over separation and loyalty issues and will be less successful in your investment moves.  Unless you plan on holding forever, which will produce merely average or even sub-par returns, you need to buy and sell.

Swings in market psychology drive prices to fluctuate around true long-term value (if only the latter could ever be known accurately today!).  Another way of viewing these price swings is to think of them as changes in the consensus of esteem given to a company by all investors taken together.  When esteem runs up above reasonable valuation of fundamentals, price will eventually correct downward to redress that temporary mistake.  Above-average profits accrue to those who capture such positive differentials of esteem minus reality.  (Similarly, on the buying side of the equation, handsome profit opportunities can be captured when reality minus esteem is a positive number, meaning that the stock in more common terms is temporarily undervalued by the market of opinion.)

Introductory Lecture to Fundamental Analysis

Investments - Fundamental Analysis, Lecture 1 - Introduction

1:08:47 - 1 year ago

Introduces the role of fundamental analysis in investing; explains concepts such as fundamentals and valuation; and begins to develop basic concepts from macro-investment analysis.

http://video.google.com/videoplay?docid=3236390700554076825#docid=1129162666296607058

Investments - Fundamental Analysis - Lecture 2 - Interest Rates

1:02:21 - 1 year ago

The role of interest rates in fundamental analysis. The fundamental determinants of interest rates; liquidity effect; Fisher effect.http://video.google.com/videoplay?docid=1340565254021002003#

Famous Mr. Market Parable

Stocks will fluctuate substantially in value. For a true investor, the only significant meaning of price fluctuations is that they offer ". . . an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal." 

Using his famous Mr. Market parable, Graham suggests the attitude one should adopt toward fluctuations in prices. Imagine owning a $1,000 interest in a business along with a partner, Mr. Market. 

Every day the accommodating Mr. Market offers either to buy your interest or to sell you a larger interest. Sometimes his price is ridiculously high, allowing you a good opportunity to sell. At other times his price is ridiculously low, allowing you a good opportunity to buy. Still at other times, his quotes are roughly justified by the business outlook, and you can ignore them. 

The point is that the market is there for your convenience and profit. And market valuations are often wrong. Price fluctuations, Graham believes ". . . bear no relationship to underlying conditions and values." It is a mistake, he argued, to let the market determine what stocks are worth. Generally an investor will be wiser to form independent stock valuations, and then to exploit divergences between those valuations and the market's prices.

Graham's Mr. Market parable is related to his view of technical analysis. According to Graham, nearly all of technical analysis is based on buying stock when prices have risen and selling when they have fallen. Based on over 50 years' experience, he had ". . . not known a single person who had consistently or lastingly made money by thus 'following the market.'" This approach, he declared, ". . . is as fallacious as it is popular." 

Evaluating Company Management in Fundamental Analysis

Evaluating Company Management in Fundamental Analysis
BY STOCK RESEARCH PRO • APRIL 21ST, 2009

When evaluating a stock, many investors will look at the strength and effectiveness of company management as part of the due diligence process. The corporate scandals of recent years have reminded all of us of the importance of having a high-quality management team in place. The role of the management team, as far as investors are concerned, is to create value for the shareholders. While most investors see the significance of strong management, assessing the competence of an executive team can be difficult.

The Role of Company Management
A strong management team is critical to the success of any company. These are the people who develop the ongoing vision of the company and make strategic decisions to support that vision. While it can be said that every employee brings value, it is the management team that “steers the ship” through competitive, economic and the other pressures associated with running a company. In measuring the effectiveness of the management team the investor is able to determine how well the company is performing relative to its industry competitors and the market as a whole.

Assessing Management Performance
Some of the metrics a fundamental investor might use in measuring the effectiveness of company management might include:
Return on Assets: The ROA provides an indication of company profitability in relation to its total assets. Part of effective company management is the efficient leverage of company assets to produce earnings.

A Return on Assets Calculator

Return on Equity: The ROE measures net income as a percentage of shareholders equity. For shareholders, the ROE provides a means of measuring company profitability against how much they have invested. The ROE is best used to compare the profitability of the company (and company management, by extension) with other companies in the industry.

A Return on Equity Calculator

Return on Investment: The ROI measures the effective use of debt for the benefit of the company. Skillful use of debt resources by company management can play a significant role in the growth and prosperity of the company.


http://www.stockresearchpro.com/evaluating-company-management-in-fundamental-analysis

Bullbear Stock Investing Notes
http://myinvestingnotes.blogspot.com/

The Importance of Retained Earnings

The Importance of Retained Earnings
BY STOCK RESEARCH PRO • JUNE 9TH, 2009

Retained earnings, also known as “accumulated earnings” or “retained capital” refer to the portion of net income the company retains as opposed to distributing those funds to shareholders in the form of dividends. A company’s retained earnings are typically reinvested into its core business or used to pay down debt. A company’s retained earnings (or retained losses) are cumulative from year to year with losses and earnings offsetting and reported in the company’s Statement of Retained Earnings/ Losses.

Calculate Retained Earnings
The formula to calculate retained earnings can be written as:

Retained Earnings = Beginning Retained Earnings + Net Income – Dividends

The formula simply adds net income for the period (or subtracts a loss) from the beginning retained earnings and then deducts any dividends paid for the period.

Interpreting Retained Earnings

• Reinvestment of retained earnings can be an important source of financing for many companies. 
• Many creditors will closely monitor a company’s retained earnings statement because the company’s policy regarding dividend payments to its stockholders can have a direct impact on its ability to repay its debt.
• The importance of retained earnings to investors is in understanding the level to which the company reinvests its earnings to fund growth and expansion. If, however, the company reinvests retained earnings without demonstrating significant growth, investors would probably be better off if the company had issued a dividend.

The Statement of Retained Earnings
The Statement of Retained Earnings or Statement of Owner’s Equity is a basic financial statement issued by a company to outline the changes in the company’s retained earnings over the reporting period. Using net income for the period and other company financial statements, the statement reconciles the beginning and ending retained earnings for the reporting period. The statement of retained earnings uses information from the income statement and provides information to the balance sheet.


http://www.stockresearchpro.com/the-importance-of-retained-earnings

Bullbear Stock Investing Notes
http://myinvestingnotes.blogspot.com/

Find Growth Stocks Through Fundamental Analysis

Find Growth Stocks Through Fundamental Analysis
BY STOCK RESEARCH PRO • AUGUST 15TH, 2009

Growth investing is one of the primary investing approaches investors may choose in finding worth stocks for their portfolio. Finding growth stocks is about seeking out those companies that show promise for high growth when compared to other stocks within their industry or the market as a whole. Growth investors are typically making qualitative judgments in finding the stocks with the best growth potential and are committed to a longer-term approach to stock investing than other types of strategies (e.g. technical investing). Most investors see a growth strategy as more of an art than a science as there is no guaranteed method for finding the best growth stocks.

Fundamental Analysis and Growth Investing
The growth investing approach is one of several methods of evaluation that fall within fundamental analysis, along with Value, Income, and GARP (Growth at a Reasonable Price) investing. While a growth investor employs fundamental analysis to assess the strength and viability of a company, a growth strategy places a greater emphasis on qualitative factors, including the company’s business model, the strength of its management team, business model and the overall prospects for the industry in which the company operates.

Steps to Find Growth Stocks
Look for financial strength: The first step to think about in choosing a good growth stock is in making sure that the company is and will likely remain financially viable. Looking at the company’s current ratio, for example, will give you an idea of whether the company will be able to pay its short-term debts.
Assess the company’s industry: The strategy for many growth investors starts with finding those industries that show the most promise for future growth, and then finding the company within that industry that is best positioned to emerge as the leader. A top-down investment strategy can help to identify the most promising industries for the near future.
Emphasize profitability: Make sure to look at the company’s profitability by examining its return on equity. ROE measures profitability and will tell you the level of profit the company is generating for its shareholders with the money they invest. Because earnings cannot exceed a company’s ROE, growth investors will look at the measure to as a means of determining growth potential.
________________________________________________________________
The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.


http://www.stockresearchpro.com/find-growth-stocks-through-fundamental-analysis

http://myinvestingnotes.blogspot.com/

Share Price: The Key Factors

http://zetafund.com/page2.htm

Important Speculative and Fundamental Factors determining Market Price

Understanding The Cash Conversion Cycle

by Jim Mueller (Contact Author | Biography)

The cash conversion cycle (CCC) is one of several measures of management effectiveness. It measures how fast a company can convert cash on hand into even more cash on hand. The CCC does this by following the cash as it is first converted into inventory and accounts payable (AP), through sales and accounts receivable (AR), and then back into cash. Generally, the lower this number is, the better for the company. Although it should be combined with other metrics (such as return on equity and return on assets) it can be especially useful for comparing close competitors because the company with the lowest CCC is often the one with better management. In this article, we'll explain how CCC works and show you how to use it to evaluate potential investments. 

What Is It?
The CCC is a combination of several activity ratios involving accounts receivable, accounts payable and inventory turnover. AR and inventory are short-term assets, while AP is aliability; all of these ratios are found on the balance sheet. In essence, the ratios indicate how efficiently management is using short-term assets and liabilities to generate cash. This allows an investor to gauge the overall health of the company. (For further reading, see Reading The Balance Sheet andIntroduction To Fundamental Analysis: The Balance Sheet.)

How do these ratios relate to business? If the company sells what people want to buy, cash cycles through the business quickly. If management cannot figure out what sells, the CCC slows down. For instance, if too muchinventory builds up, cash is tied up in goods that cannot be sold - this is not good news for the company. In order to move out this inventory quickly, management might have to slash prices, possibly selling its product at a loss. If AR is handled poorly, it means that the company is having difficulty collecting payment from customers. This is because AR is essentially a loan to the customer, so the company loses out whenever customers delay payment. The longer a company has to wait to be paid, the longer that money is unavailable for investment elsewhere. On the other hand, the company benefits by slowing down payment of AP to its suppliers, because that allows the company to make use of the money for longer. (To learn more, read Measuring Company Efficiency and Understanding The Time Value Of Money.) 




The Calculation
To calculate CCC, you need several items from the financial statements:

• Revenue and cost of goods sold (COGS) from the income statement
• Inventory at the beginning and end of the time period
• AR at the beginning and end of the time period
• AP at the beginning and end of the time period
• The number of days in the period (year = 365 days, quarter = 90)

Inventory, AR and AP are found on two different balance sheets. If the period is a quarter, then use the balance sheets for the quarter in question and the ones from the preceding period. For a period of a year, use the balance sheets for the quarter (or year end) in question and the one from the same quarter a year earlier.

This is because, while the income statement covers everything that happened over a certain period of time, balance sheets are only snapshots of what the company was like at a particular moment in time. For things like AP, you want an average over the period of time you are investigating, which means that AP from both the time period's end and beginning are needed for the calculation.

Now that you have some background on what goes into calculating CCC, let's take a look at the formula:

CCC = DIO + DSO - DPO

Let's look at each component and how it relates to the business activities discussed above.Days Inventory Outstanding (DIO): This addresses the question of how many days it takes to sell the entire inventory. The smaller this number is, the better.

DIO = Average inventory/COGS per day Average Inventory = (beginning inventory + ending inventory)/2

Days Sales Outstanding (DSO): This looks at the number of days needed to collect on sales and involves AR. While cash-only sales have a DSO of zero, people do use credit extended by the company, so this number is going to be positive. Again, smaller is better.

DSO = Average AR / Revenue per day Average AR= (beginning AR + ending AR)/2

Days Payable Outstanding (DPO): This involves the company's payment of its own bills or AP. If this can be maximized, the company holds onto cash longer, maximizing its investment potential; therefore, a longer DPO is better.

DPO = Average AP / COGS per day Average AP = (beginning AP + ending AP)/2

Notice that DIO, DSO and DPO are all paired with the appropriate term from the income statement, either revenue or COGS. Inventory and AP are paired with COGS, while AR is paired with revenue.Practical ApplicationLet's use some real numbers from a retailer as an example to work through. The data below is from Barnes & Noble's 10-K reports filed for the fiscal years ending January 28, 2006 (fiscal year 2005) and January 29, 2005 (fiscal year 2004). All numbers are in millions of dollars.

Item	Fiscal Year 2005	Fiscal Year 2004
Revenue	5103.0	Not needed
COGS	3533.0	Not needed
Inventory	1314.0	1274.6
A/R	99.1	91.5
A/P	828.8	745.1
Average Inventory	( 1314.0 + 1274.6 ) / 2 = 1294.3
Average AR	( 99.1 + 91.5 ) / 2 = 95.3
Average AP	( 828.8 + 745.1 ) / 2 = 787.0

Now, using the above formulas, CCC is calculated:

DIO = $1294.3 / ($3533.0 / 365 days) = 133.7 days DSO = $95.3 / ($5103.0 / 365 days) = 6.8 days DPO = $787.0 / ($3533.0 / 365 days) = 81.3 days CCC = 133.7 + 6.8 - 81.3 = 59.2 days

What Now?
As a stand alone number, CCC doesn't mean very much. Instead, it should be used to track a company over time and to compare the company to its competitors.

When tracking over time, determine CCC over several years and look for an improvement or worsening of the value. For instance, for fiscal year 2004, Barnes & Noble's CCC was 68.9 days, so the company has shown an improvement between the ends of fiscal year 2004 and fiscal year 2005. Barnes & Noble achieved this improvement by decreasing DIO by 4.5 days, increasing DSO by 1.5 days and increasing DPO by 6.7 days. While between these two years the change is good, the slight increase in DSO might merit more investigation, such as looking further back in time. CCC changes should be examined over several years to get the best sense of how things are changing.

CCC should also be calculated for the same time periods for the company's competitors, such as Borders Group and Amazon.com. For fiscal year 2005, Borders' CCC was 101.2 days (168.4 + 12.0 - 79.2). Compared to Borders Group, Barnes & Noble is doing a better job at moving inventory (lower DIO), is quicker at collecting what it is owed (lower DSO) and keeps its own money a bit longer (higher DPO). Remember, however, that CCC should not be the only metric used to evaluate either the company or the management; return on equityand return on assets are also valuable tools for determining the effectiveness of management. (For more insight, check out Keep Your Eyes On The ROE, Understanding The Subtleties Of ROA Vs. ROE and ROA On The Way.) 

Interestingly, Amazon's CCC for the same period is negative,coming in at -31.2 days (29.6 + 10.2 - 71). This means that Amazon doesn't pay its suppliers for the books that it buys until after it receives payment for selling those books; therefore, Amazon doesn't have a need to hold very much inventory and still hold onto its money for a longer period of time. Although online retailers have this advantage, there are other issues that keep Borders and Barnes & Noble in the game. After all, you cannot curl up in those comfortable chairs with a fresh latte at Amazon - despite Amazon's success, there is still something to be said for the experience of going to a bookstore.




Wrapping It Up
The cash conversion cycle is one of several tools that can help you evaluate management, especially if it is calculated for several consecutive time periods and for several competitors. Decreasing or steady CCCs are good, while rising ones should motivate you to dig a bit deeper.

CCC is most effective with retail-type companies, which have inventories that are sold to customers. Consulting businesses, software companies and insurance companies are all examples of companies for whom this metric is meaningless. 

For additional reading, see Using The Cash Conversion Cycle and Cash 22: Is It Bad To Have Too Much Of A Good Thing? 

by Jim Mueller (Contact Author | Biography)
Jim Mueller started his career as a scientist, earning his advanced degree in biochemistry and molecular biology from Washington State University. He has since become a self-taught investor and financial writer. He is also a regular contributor to The Motley Fool.

http://www.investopedia.com/articles/06/cashconversioncycle.asp

Also read:
Cash Conversion Cycle
http://en.wikipedia.org/wiki/Cash_conversion_cycle