Health insurance premiums dwarf worker’s earnings and far exceed overall inflation.

http://rmwyatt.wordpress.com/

Earnings, Dividends and Payout Ratio: Earnings don’t grow at a constant rate. Dividends are more stable than earnings. Payout ratio varies over time.

Dividends are more stable than earnings, so the payout ratio certainly varies over time. Additionally, corporations have shown less willingness to pay dividends, and investors have shown less inclination to demand dividends, to the payout ratio today is roughly half of what it was in the early 60s.

Earnings don’t grow at a constant rate, either. Over the last 53 years, earnings have grown at a 6.7% rate, but that has included times of shrinkage, and boom times as well.




http://alephblog.com/2007/07/09/the-fed-model/

Banking Basics

http://wfhummel.cnchost.com/bankingbasics.html

The Risk Pyramid

Profile of University Graduates' Earnings

http://www.hrsdc.gc.ca/eng/cs/sp/sdc/pkrf/publications/bulletins/2000-000007/page09.shtml

When patience and prudence are ignored, portfolios are at risk.

We urge you to practice discipline and patience. Attempting to forecast the market or nit-pick quarterly returns are efforts that need to be discouraged. You will find it easier to be patient if you first evaluate your personal risk tolerance, time horizon, age, and income needs. This process of evaluation will guide you and us toward achieving the diversification appropriate for your long-term goals.



The stock market, as measured by the S&P 500, has shown an affinity toward investors who are willing to remain patient by holding stocks over long periods of time. The three pie charts above show the percent of periods the stock market was down over various holding periods. In the 61 one-year periods from 1945-2005 the stock market was down in 14 years. In the 56 five-year periods the stock market declined in five of those periods, but in the 46 15-year periods the stock market was not down once. Patience has certainly proven itself as a virtue when it comes to investing.

The Power of Diversification (Modern Portfolio Theory)

LIFO and FIFO

Price-Earnings Ratios as a Predictor of Twenty-Year Returns (Shiller Data)

Price-Earnings ratios as a predictor of twenty-year returns based upon the plot by Robert Shiller (Figure 10.1,^[1] source). The horizontal axis shows the real price-earnings ratio of the S&P Composite Stock Price Indexas computed in Irrational Exuberance (inflation adjusted price divided by the prior ten-year mean of inflation-adjusted earnings). The vertical axis shows the geometric average real annual return on investing in the S&P Composite Stock Price Index, reinvesting dividends, and selling twenty years later. Data from different twenty year periods is color-coded as shown in the key. See also ten-year returns. Shiller states that this plot"confirms that long-term investors—investors who commit their money to an investment for ten full years—did do well when prices were low relative to earnings at the beginning of the ten years. Long-term investors would be well advised, individually, to lower their exposure to the stock market when it is high, as it has been recently, and get into the market when it is low."^[1]

Robert Shiller's plot of the S&P Composite Real Price-Earnings Ratio and Interest Rates (1871–2008), from Irrational Exuberance, 2d ed.^[1] In the preface to this edition, Shiller warns that "[t]he stock market has not come down to historical levels: the price-earnings ratio as I define it in this book is still, at this writing [2005], in the mid-20s, far higher than the historical average. ... People still place too much confidence in the markets and have too strong a belief that paying attention to the gyrations in their investments will someday make them rich, and so they do not make conservative preparations for possible bad outcomes."

http://en.wikipedia.org/wiki/P/E_ratio

http://www.invalueable.net/fs_overview.html

Financial Statements 101

Table of Contents

1. Understanding Financial Statements
2. Balance Sheet
3. Income Statement
4. Statement of Cash Flows
5. Statement of Retained Earnings
6. Intrinsic Valuation Modeler™ and Putting it all Together

Market P/E Ratio Volatility Channel for The US Stock Market

The key point of the chart is that earnings and P/Es are cyclical. Spare us the your slacker analysis, merely stating that “you can make any chart look however you want.” (At least this sarcasm is amusing).

"I am very skeptical of earnings forecasts, because they have been so terrible for most of my adult life.  The conspiracy of optimists always seems to overestimate future earnings.

Trailing earnings are real data, not opinion of guesswork. They provide a factual basis for valuation, and not a wishful or theoretical version. Those who were claiming that there is no recession have now taken to saying we are at the worst levels of the recession. Often, we see forward earnings estimates at the heart of this faulty analysis."

http://www.ritholtz.com/blog/2009/02/a-cyclical-look-at-pe-ratios/

Retained Earnings or Reserves

What is the correct company value? Value versus Price

What is the correct company value?

Nobel Prize winner in Economics, Milton Friedman, has said; “the only concept/theory which has gained universal acceptance by economists is that the value of an asset is determined by the expected benefits it will generate”.

Value is not the same as price. Price is what the market is willing to pay. Even if the value is high, most want to pay as little as possible. One basic relationship will be the investor’s demand for return on capital – investor’s expected return rate. There will always be alternative investments, and in a free market, investor will compare the investment alternatives attractiveness against his demand for return on invested capital. If the expected return on invested capital exceeds the investments future capital proceeds, the investment is considered less attractive.



http://www.strategy-at-risk.com/2009/02/15/what-is-the-correct-company-value/

Stocks with High Dividend Yields have outperformed in the U.S.

Why are Dividends so Important?
"Dividends have historically accounted for more than half a stock's total return."  Jeremy Siegel, PhD.

Stocks with High Dividend Yields have Substantially Outperformed the S&P 500 for 10 and 20 Year Periods.

Dividends are evidence that a Company is profitable.  Corporations find it difficult to pay out false earnings.

An S&P study shows that stocks that paid dividends outperformed non-payers by 1.9% per year from 1980-2003.

When Dividend is Cut or Omitted?

The Board of Directors proposes that no dividend be paid for the financial year 2009 (0).

http://www.swedbank.com/idc/financialreports/AnnualReports2009/en/Om_Swedbank/Ekonomiskt_sammandrag_2009/ekonomiskt_sammandrag_2009.html

Indonesian shares rise fast...

http://82.118.73.16/assets/print?aid=INJAK25793320100205

A key to beating the market is to invest in companies with strong returns on capital when they trade at low P/E's.

You wouldn't know it from looking at Acme's stock price, however. The company trades with a P/E of just 11, despite excellent returns on equity. To see the company's valuation in perspective, consider the P/E ratios of the following companies with similar returns on equity over the last five years (see chart).

Acme is not as recognizable as the rest of the names, but this is precisely why investors are offered this company at a discount. Many would argue that because the company is small, its riskiness is higher than the companies above. While that may be true to some extent (for example, three customers each exceed 10% of Acme's sales), the upside is also higher as the company has room to grow. Acme has an on-going goal of generating 30% of its sales from products developed in the last 3 years. This is something that the large companies listed above would have great difficulty achieving.

In his book, The Little Book That Beats The Market, Joel Greenblatt discusses how the key to beating the market is to invest in companies with strong returns on capital when they trade at low P/E's. Acme fits this description well.

Of course, investors cannot buy simply on the basis of a company's P/E. Further investigation of a company's risks and opportunities is necessary, as well as a careful reading of the company's notes to its financial statements.

http://www.gurufocus.com/news.php?id=86069

Economic performance of a Bank (National Australia Bank 2005)

Year 2005

Table 17: Gross value add in the community17
Year to 30 September 2005	$m
Net interest income	7,082
Fee income	4,157
Trading income	656
Net life insurance income	1,672
Other income	289
Net operating income	13,856
Significant revenue	2,493
Total net income	16,349
Other costs18	(3,811)
Movement in excess of net market value over net assets of life insurance controlled entities	335
Significant expense	(2,209)
Total	10,664
17 Gross value add in the community for the Group includes Australia, Europe, New Zealand, the United States and Asia. 18 Excludes salary-related costs, income tax relating to ordinary activities, payroll tax, fringe benefits tax, depreciation and goodwill and includes outside equity interests.

Table 18: 2005 distribution of community value
Distribution of community value	Australia $m	Europe $m	New Zealand $m
Shareholder19	2,125	1,525	424
Government20	1,665	251	131
Employees21	2,348	1,205	325
Depreciation & goodwill	268	175	73
19 Net profit attributable to ordinary shareholders. 20 Includes income tax relating to ordinary activities, payroll tax and fringe benefits tax. Excludes net GST and VAT payments. 21 Salary-related costs, excluding payroll tax and fringe benefits tax.

Interest expense
Year to 30 September 2005	$m
Deposits and other borrowings	10,401
Other financial institutions	1,780
Bonds, notes and subordinated debt	1,494
Other debt issues	115
Total interest expense	13,790

Full year dividend     166 cents

On 9 November 2005, a final dividend of 83 cents per full-paid ordinary share, 80% franked, was declared in respect of the year ended 30 September 2005. This brings the full year dividend to 166 cents (80% franked). Refer to Figure 22.

Diluted earnings per share     248 cents (after significant items)

Diluted earnings per share (after significant items) increased 26.5% from 196 cents to 248 cents. Refer to Figure 22.







http://www.nabgroup.com/0,,76586,00.html

Dupont Return on Equity Model (Graphic)

Return on Equity and Invested Capital (Graphic)

http://yahoo.brand.edgar-online.com/EFX_dll/EDGARpro.dll?FetchFilingHTML1?SessionID=s0MYW0RaIQfzvKB&ID=5187822