Spotting Cash Cows

Spotting Cash Cows
by Ben McClure (Contact Author | Biography)

Cash cows are just what the name implies - companies that can be milked for further ongoing profits with little expense. Producing plenty of cash, these companies can reinvest in new systems and plants, pay for acquisitions and support themselves when the economy slows. They have the capacity to increase their dividend or reinvest that cash to boost returns further. Either way, shareholders stand to benefit. To help you spot cash cows that are worthy of your investment, we look at what sets these companies apart and offer some guidelines for assessing them.

 

The Cash Cow: An Overview
A cash cow is a company with plenty of free cash flow - that is, the cash left over after the company meets its necessary yearly expenses. Smart investors really like this kind of company because it can fund its own growth and value.

• A cash cow can reinvest free cash to grow its own business - thereby boosting shareholder returns - without sacrificing profitability or turning to shareholders for additional capital.
• Alternatively, it can return the free cash flow to shareholders through bigger dividend payments or share buybacks.

 

Cash cows tend to be slow-growing, mature companies that dominate their industries. Their strong market share and competitive barriers to entry translate into

• recurring revenues,
• high profit margins and
• robust cash flow.

Compared to younger companies - which tend to reinvest their profits more aggressively to fuel future growth - more mature businesses (with less room for growth) often generate more free cash since the initial capital outlay required to establish their businesses has already been made.

 

Finally, a cash cow can often be a tempting takeover target. If a cash cow company seems like it can no longer use its excess cash to boost value for shareholders, it is likely to attract acquirers that can. (For more on what this means, see The Basics of Mergers and Acquisitions.)

 

The Life of the Cash Cow: Free Cash Flow
To see if a company is worthy of cash-cow status, you of course need to calculate its free cash flow. To do so, you take cash from operations and subtract capital expenditures for the same period:

Free Cash Flow = Cash Flow from Operations - Capital Expenditure

 

 

(For more on calculating free cash flow, see Free Cash Flow: Free, But Not Always Easy.)

 

The more free cash the company produces the better. A good rule of thumb is to look for companies with free cash flow that is more than 10% of sales revenue.

 

Consumer products giant Procter & Gamble (PG), for example, fits the cash cow mold. Procter & Gamble's brand name power and its dominant market share have given it its cash-generating power. Take a look at the company's Form 10-K 2004 Annual Report's (filed on Sept 9, 2004) Consolidated Statement of Cash Flows (scroll to sec. 39, p.166). You'll see that the company consistently generated high free cash flows - these even exceeded its reported net income: at end-2004, Procter & Gamble's free cash flow was $7.34 billion (operating cash flow - capital expenditure = $9.36B - $2.02B), or more than 14% of its $51.4 billion sales revenue (net sales on the Consolidated Statements of Earnings). In 2004, PG produced real cash for its shareholders - a lot of it.

 

Cows That Stand Apart from the Herd: Price and Efficiency
A Low Cash Flow Multiple
Once you've spotted a cash cow stock, is it worth buying? For starters, look for companies with a low free cash flow multiple: simply, divide the company's stock price (more precisely, its market capitalization) by its underlying free cash flow. With that calculation, you can compare how much cash power the share price buys - or, conversely, you see how much investors pay for one dollar of free cash flow.

 

To find PG's free cash flow multiple, we'll look at its stock price on the day it filed its 2004 10-K form, which was Sept 9, 2004. On that day, the stock closed at $56.09 (see PG's trading quote that day on Investopedia's stock research resource). With about 2.5 billion shares outstanding, Procter & Gamble's market value was about $140.2 billion.

 

So, at the financial year-end 2004, PG was trading at about 19 times its current free cash flow ($140.2 billion market value divided by 2004 free cash flow of $7.34 billion). By comparison, direct competitor Unilever traded at about 25 times free cash flow, suggesting that Procter & Gamble was reasonably priced.

 

Free cash flow multiples are a good starting point for finding reasonably priced cash cows. But be careful:

• sometimes a company will have a temporarily low free cash flow multiple because its share price has plummeted due to a serious problem.
• Or its cash flow may be erratic and unpredictable.
• So, take care with very small companies and those with wild performance swings.

 

High Efficiency Ratios
Besides looking for low free cash flow multiples, seek out attractive efficiency ratios. An attractive return on equity (ROE) can help you ensure that the company is reinvesting its cash at a high rate of return.

 

Return on Equity = (Annual Net Income / Average Shareholders' Equity)

 

You can find net income (also known as "net earnings") on the income statement (also known as "statement of earnings"), and shareholders' equity appears near the bottom of a company's balance sheet.

 

On this front, PG performed exceedingly well. The company's 2004 net earnings was $6.5 billion - see the Consolidated Statement of Earnings p.35 (p.161 in the PDF) on the 10-K - and its shareholders' equity was $17.28 billion - see the Consolidated Balance Sheets p.37 (p.163 in the PDF). That means ROE amounted to nearly 38%. In other words, Procter & Gamble was able to milk 38 cents worth of profits from each dollar invested by shareholders. (For more on evaluating this metric, see Keep Your Eyes On The ROE.)

 

To double check that the company is not using debt leverage to give ROE an artificial boost, you may also want to examine return on assets (ROA). (For more on this topic, see Understanding The Subtleties Of ROA Vs ROE.)

 

ROA = Return on Assets = (Annual Net Income / Total Assets)

 

Turning again to Procter & Gamble's 2004 Consolidated Statement of Earnings and Balance Sheets, you'll see that the company delivered an impressive 11.4% ROA (net earnings / total assets = $6.5B / $57.05B). An ROA higher than 5% is normally considered a solid performance for most companies. Procter & Gamble's ROA should have reassured investors that it was doing a good job of reinvesting its free cash flow.

 

Conclusion
Cash cows generate a heap of cash. That's certainly exciting, but not enough for investors. If they provide other attractions, such as high return on equity and return on assets, and if they trade at a reasonable price, then cash cows are worth a closer look.

 

by Ben McClure, (Contact Author | Biography)

 

Ben is director of McClure & Co., an independent research and consulting firm that specializes in investment analysis and intelligence. Before founding McClure & Co., Ben was a highly-rated European equities analyst at London-based Old Mutual Securities.

 

 

http://www.investopedia.com/articles/stocks/05/cashcow.asp

What Is A Cash Flow Statement?

What Is A Cash Flow Statement?
by Reem Heakal (Contact Author | Biography)

Cmplementing the balance sheet and income statement, the cash flow statement (CFS), a mandatory part of a company's financial reports since 1987, records the amounts of cash and cash equivalents entering and leaving a company. The CFS allows investors to understand how a company's operations are running, where its money is coming from, and how it is being spent. Here you will learn how the CFS is structured and how to use it as part of your analysis of a company.

 

The Structure of the CFS
The cash flow statement is distinct from the income statement and balance sheet because it does not include the amount of future incoming and outgoing cash that has been recorded on credit. Therefore, cash is not the same as net income, which, on the income statement and balance sheet, includes cash sales and sales made on credit. (To learn more about the credit crisis, read Liquidity And Toxicity: Will TARP Fix The Financial System?)

 

Cash flow is determined by looking at three components by which cash enters and leaves a company:

• core operations,
• investing and
• financing.

Analyzing an Example of a CFS


Let's take a look at this CFS sample
 

  

 

From this CFS, we can see that the cash flow for FY 2003 was $1,522,000. The bulk of the positive cash flow stems from cash earned from operations, which is a good sign for investors. It means that core operations are generating business and that there is enough money to buy new inventory. The purchasing of new equipment shows that the company has cash to invest in inventory for growth. Finally, the amount of cash available to the company should ease investors' minds regarding the notes payable, as cash is plentiful to cover that future loan expense.


Of course, not all cash flow statements look this healthy, or exhibit a positive cash flow. But a negative cash flow should not automatically raise a red flag without some further analysis. Sometimes, a negative cash flow is a result of a company's decision to expand its business at a certain point in time, which would be a good thing for the future. This is why analyzing changes in cash flow from one period to the next gives the investor a better idea of how the company is performing, and whether or not a company may be on the brink of bankruptcy or success.



Tying the CFS with the Balance Sheet and Income Statement

 

As we have already discussed, the cash flow statement is derived from the income statement and the balance sheet.

• Net earnings from the income statement is the figure from which the information on the CFS is deduced.
• As for the balance sheet, the net cash flow in the CFS from one year to the next should equal the increase or decrease of cash between the two consecutive balance sheets that apply to the period that the cash flow statement covers.

(For example, if you are calculating a cash flow for the year 2000, the balance sheets from the years 1999 and 2000 should be used.)

 

 

Conclusion

 

• A company can use a cash flow statement to predict future cash flow, which helps with matters in budgeting.
• For investors, the cash flow reflects a company's financial health: basically, the more cash available for business operations, the better.
• However, this is not a hard and fast rule. Sometimes a negative cash flow results from a company's growth strategy in the form of expanding its operations.

By adjusting earnings, revenues, assets and liabilities, the investor can get a very clear picture of what some people consider the most important aspect of a company: how much cash it generates and, particularly, how much of that cash stems from core operations.  

 

 

by Reem Heakal, (Contact Author
Biography)

 

http://www.investopedia.com/articles/04/033104.asp

 

 

 

What Is A Cash Flow Statement?

Cash flow is determined by looking at three components by which cash enters and leaves a company: core operations, investing and financing,


Operations
Measuring the cash inflows and outflows caused by core business operations, the operations component of cash flow reflects how much cash is generated from a company's products or services. Generally, changes made in cash, accounts receivable, depreciation, inventory and accounts payable are reflected in cash from operations.

Cash flow is calculated by making certain adjustments to net income by adding or subtracting differences in revenue, expenses and credit transactions (appearing on the balance sheet and income statement) resulting from transactions that occur from one period to the next. These adjustments are made because non-cash items are calculated into net income (income statement) and total assets and liabilities (balance sheet). So, because not all transactions involve actual cash items, many items have to be re-evaluated when calculating cash flow from operations.

For example, depreciation is not really a cash expense; it is an amount that is deducted from the total value of an asset that has previously been accounted for. That is why it is added back into net sales for calculating cash flow. The only time income from an asset is accounted for in CFS calculations is when the asset is sold.

Changes in accounts receivable on the balance sheet from one accounting period to the next must also be reflected in cash flow. If accounts receivable decreases, this implies that more cash has entered the company from customers paying off their credit accounts - the amount by which AR has decreased is then added to net sales. If accounts receivable increase from one accounting period to the next, the amount of the increase must be deducted from net sales because, although the amounts represented in AR are revenue, they are not cash.

An increase in inventory, on the other hand, signals that a company has spent more money to purchase more raw materials. If the inventory was paid with cash, the increase in the value of inventory is deducted from net sales. A decrease in inventory would be added to net sales. If inventory was purchased on credit, an increase in accounts payable would occur on the balance sheet, and the amount of the increase from one year to the other would be added to net sales.

The same logic holds true for taxes payable, salaries payable and prepaid insurance. If something has been paid off, then the difference in the value owed from one year to the next has to be subtracted from net income. If there is an amount that is still owed, then any differences will have to be added to net earnings.


Investing
Changes in equipment, assets or investments relate to cash from investing. Usually cash changes from investing are a "cash out" item, because cash is used to buy new equipment, buildings or short-term assets such as marketable securities. However, when a company divests of an asset, the transaction is considered "cash in" for calculating cash from investing.

Financing
Changes in debt, loans or dividends are accounted for in cash from financing. Changes in cash from financing are "cash in" when capital is raised, and they're "cash out" when dividends are paid. Thus, if a company issues a bond to the public, the company receives cash financing; however, when interest is paid to bondholders, the company is reducing its cash.

http://www.investopedia.com/articles/04/033104.asp

Find Investment Quality In The Income Statement

Find Investment Quality In The Income Statement
by Richard Loth (Contact Author | Biography)

To a large degree, it is the quality and growth of a company's earnings that drive its stock price. Therefore, it is imperative that investors understand the various indicators used to measure profitability. The income statement is the principal source of data to accomplish a profitability analysis, which should cover at least a five-year period in order to reveal trends and changes in a company's earnings profile. (To learn more basics on the income statement, see Understanding The Income Statement.)

 

Accounting Policies
With regard to the income statement, investors need to be aware of two things related to a company's accounting practices. First, the degree of conservatism, which indicates the degree of investment quality. The presentation of earnings depends, basically, on three accounting policies:

• revenue recognition,
• inventory valuation and
• the depreciation method.

Briefly stated, a completed sale, last in, first out liquidation (LIFO) rather than first in, first out liquidation (FIFO) valuation, and shorter-term depreciation periods, respectively, would produce higher quality reported earnings. (For related reading, see Inventory Valuation For Investors: FIFO And LIFO.)

 

Investors will be alerted to any changes and their impact on performance figures in a company's accounting policies in the notes to financial statements. Investors need to read these qualifying remarks carefully.

 

Sales
While the so-called "bottom line" (net income) gets most of the attention from financial analysts and investors in any discussion of profit, the whole earnings process starts with a company's revenue, or net sales. The growth of this "top line" figure is a key component in producing the dollars needed to run a company profitably. A healthy sales growth rate generally defines a growing company and is a positive investment indicator.

 

For investors, all sales increases are good and can occur as a result of sales growth through

• more unit volume from existing products/services,
• the introduction of new products/services,
• price increases,
• acquisitions and,
• for international sales, the impact of favorable exchange rates.

However, some increases should be viewed more favorably than others. There's no question that

• greater unit volume is the best growth factor,
• followed by product-line expansion and
• new services.

Price increases, especially those above the inflation rate, have their limits, as does sales growth through acquisitions. As applied to companies with foreign operations, the currency translation effect into U.S. dollars, either positive or negative, will even out over time.

 

Positive investment quality in the sales account comes from growth in better unit volume and the maintenance of reasonable pricing.

 

Margin and Cost Analysis
In the income statement, the absolute numbers don't tell us very much. A simple vertical analysis (common size income statement) - dividing all the individual income and expense amounts by the sales amount - provides profit margin and expense percentages (ratios) for the whole income statement. Looked at over a period of five years, an investor will have a clear idea of the consistency and/or positive/negative trends in a company's management of its income and expenses. The success, or lack thereof, of this important managerial endeavor is what determines, to a large extent, a company's quality of earnings. A large growth in sales will do little for a company's profitability if costs grow out of proportion to revenues.

 

The term margin is used to express the comparison of four important levels of profit in the income statement - gross, operating, pretax and net - to sales. Aside from monitoring a company's historical profit performance, these profit margins (ratios) also can be used to compare a company's profitability metrics to those of its direct competitors, industry figures and the general market.

 

Unusual Items
Also known as special, extraordinary or non-recurring, these items, generally charge-offs, are supposed to be one-time events. When they are, investors must take these unusual items, which can distort evaluations, into account, particularly when making inter-annual profit comparisons.

 

Unfortunately, in recent years, companies have been taking so-called "big-bath" write-offs with such regularity that they are becoming commonplace rather than unusual. Large multi-year charges on the income statement are increasingly distorting corporate earnings. Needless to say, evidence of undue use of major charge-offs is not indicative of investment quality. This practice is another reason why some financial analysts prefer to work with operating and pretax income numbers to evaluate a company's earnings, thereby eliminating the distortions of unusual items to net income. (To continue reading manipulating the books, see Cooking The Books 101.)

 

Traditional Profit Ratios
In addition to profit margin ratios, the return on equity (ROE) and return on capital employed (ROCE) ratios are widely used to measure a company's profitability. ROE measures the profits being generated on the shareholders' investment. Expressed as a percentage, the ROE ratio is calculated by dividing net income (income statement) by the average of shareholders' equity (balance sheet). As a rule of thumb, ROE ratios of 15% or more are considered favorable.

 

The ROCE ratio expands on the ROE ratio by adding borrowed funds to equity for a figure showing the total amount of capital being used by a company. In this way, a company's use of debt capital is factored into the equation. For this reason, conservative analysts prefer to use the ROCE ratio as a more comprehensive evaluation of how well management is using its debt and equity capital. This percentage ratio will vary among companies, but suffice it to say, that investment quality is represented by a higher rather than a lower figure. (To read more, see Spotting Profitability With ROCE, Measuring Company Efficiency and Keep Your Eyes On The ROE.)

 

The impact of leverage is picked up in the return on capital (return on invested capital or ROIC) ratio. (To read more, check out Spot Quality With ROIC.)

 

Earnings Per Share
While an absolute increase in net income is a welcome sight, investors need to focus on what each share of their investments are producing. If increased net income comes as a result of profits from increased share capital, then earnings per share (EPS) is not going to look so great, and could fall below the previous year's level. An increase in a company's capital base dilutes the company's earnings among a greater number of shareholders. (To learn more, read Types Of EPSand How To Evaluate The Quality Of EPS.)

 

 

Because of this circumstance, a company's net income, or earnings per share, is expressed as basic and diluted. The former represents EPS as of the balance sheet date as per the number of actual shares outstanding and net income as of a certain date, which is generally the company's fiscal year-end. Diluted EPS captures the potential amount of shares that could be outstanding if all

• convertible bonds,
• stock options and
• warrants were exercised.

While such a consequence is highly unlikely, it is possible. In terms of the investment quality of the income statement, a significant spread between basic and diluted EPS should be seen as a negative sign.

 

Conclusion

• Logic tells us that growing, profitable companies are generally attractive investment opportunities.
• However, how that growth is achieved is more important than the absolute sales and income numbers.
• In addition, conservative accounting policies, substantive sales growth, consistent and/or improving profit margins, the absence of outsized write-offs, above average returns on equity and capital employed, and solid earnings per share performance are the hallmarks of top-level investment quality.
• It is this set of attributes that investors should attempt to find in the income statement before they invest.

 

by Richard Loth, (Contact Author | Biography)

 

Richard Loth has more than 38 years of professional experience in the financial services sector, including banking, investment consulting and capital markets development, both internationally and in the U.S. He has worked with Citibank, Fleet National Bank and the Bank of Montreal. Mr. Loth is currently the managing principal of Mentor Investing, an independent Registered Investment Adviser based in Eagle, Colorado. Over the years, he has authored several investment education articles, publications, and books.

 

http://www.investopedia.com/articles/stocks/06/advincome.asp

Income Statement Accounts (Multi-Step Format)

Income Statement Accounts (Multi-Step Format) 

Net Sales (a.k.a. sales or revenue): These all refer to the value of a company's sales of goods and services to its customers. Even though a company's "bottom line" (its net income) gets most of the attention from investors, the "top line" is where the revenue or income process begins. Also, in the long run, profit margins on a company"s existing products tend to eventually reach a maximum that is difficult to improve on. Thus, companies typically can grow no faster than the growth of their revenues.

  

Cost of Sales (a.k.a. cost of goods (or products) sold (COGS), and cost of services):

• For a manufacturer, cost of sales is the expense incurred for raw materials, labor and manufacturing overhead used in the production of its goods. While it may be stated separately, depreciation expense belongs in the cost of sales.
• For wholesalers and retailers, the cost of sales is essentially the purchase cost of merchandise used for resale.
• For service-related businesses, cost of sales represents the cost of services rendered or cost of revenues.

(To learn more about sales, read Measuring Company Efficiency, Inventory Valuation For Investors: FIFO And LIFO and Great Expectations: Forecasting Sales Growth.)

  

Gross Profit (a.k.a. gross income or gross margin): A company's gross profit does more than simply represent the difference between net sales and the cost of sales. Gross profit provides the resources to cover all of the company's other expenses. Obviously, the greater and more stable a company's gross margin, the greater potential there is for positive bottom line (net income) results.

  

Selling, General and Administrative Expenses: Often referred to as SG&A, this account comprises a company's operational expenses. Financial analysts generally assume that management exercises a great deal of control over this expense category. The trend of SG&A expenses, as a percentage of sales, is watched closely to detect signs, both positive and negative, of managerial efficiency. 

Operating Income: Deducting SG&A from a company's gross profit produces operating income. This figure represents a company's earnings from its normal operations before any so-called non-operating income and/or costs such as interest expense, taxes and special items. Income at the operating level, which is viewed as more reliable, is often used by financial analysts rather than net income as a measure of profitability. 

Interest Expense: This item reflects the costs of a company's borrowings. Sometimes companies record a net figure here for interest expense and interest income from invested funds.

  

Pretax Income: Another carefully watched indicator of profitability, earnings garnered before the income tax expense is an important step in the income statement. Numerous and diverse techniques are available to companies to avoid and/or minimize taxes that affect their reported income. Because these actions are not part of a company's business operations, analysts may choose to use pretax income as a more accurate measure of corporate profitability. 

Income Taxes: As stated, the income tax amount has not actually been paid - it is an estimate, or an account that has been created to cover what a company expects to pay.

  

Special Items or Extraordinary Expenses: A variety of events can occasion charges against income. They are commonly identified as

• restructuring charges,
• unusual or nonrecurring items and
• discontinued operations.

These write-offs are supposed to be one-time events. When they are of this nature, investors need to take these special items, which can distort evaluations, into account when making inter-annual profit comparisons. 

Net Income (a.k.a. net profit or net earnings): This is the bottom line, which is the most commonly used indicator of a company's profitability. Of course, if expenses exceed income, this account caption will read as a net loss. After the payment of preferred dividends, if any, net income becomes part of a company's equity position as retained earnings. Supplemental data is also presented for net income on

• the basis of shares outstanding (basic) and
• the potential conversion of stock options, warrants, etc. (diluted).  

Comprehensive Income: The concept of comprehensive income, which is relatively new (1998), takes into consideration the effect of such items as

• foreign currency translations adjustments,
• minimum pension liability adjustments, and
• unrealized gains/losses on certain investments in debt and equity.

The investment community continues to focus on the net income figure. The aforementioned adjustment items all relate to volatile market and/or economic events that are out of the control of a company's management. Their impact is real when they occur, but they tend to even out over an extended period of time.

 

 

http://www.investopedia.com/articles/04/022504.asp

Understanding The Income Statement

Two basic formats for the income statement are used in financial reporting presentations - the multi-step and the single-step, which are illustrated below in two simplistic examples:


Multi-Step Format
Net Sales
Cost of Sales
Gross Income*
Selling, General and Administrative Expenses (SG&A)
Operating Income*
Other Income & Expenses
Pretax Income*
Taxes
Net Income (after tax)*

In the multi-step income statement, four measures of profitability (*) are revealed at four critical junctions in a company's operations - gross, operating, pretax and after tax.
In the single-step presentation, the gross and operating income figures are not stated; nevertheless, they can be calculated from the data provided.

Single-Step Format
Net Sales
Materials and Production
Marketing and Administrative
Research and Development Expenses (R&D)
Other Income & Expenses
Pretax Income
Taxes
Net Income

In the single-step method, sales minus materials and production equal gross income. And, by subtracting marketing and administrative and R&D expenses from gross income, we get the operating income figure. If you are a do-it-yourselfer, you'll have to do the math; however, if you use investment research data, the number crunching is done for you.

One last general observation: Investors must remind themselves that the income statement recognizes revenues when they are realized (i.e., when goods are shipped, services rendered, and expenses incurred). With accrual accounting, the flow of accounting events through the income statement doesn't necessarily coincide with the actual receipt and disbursement of cash; the income statement measures profitability, not cash flow.

----
Sample Income Statement


Now let's take a look at a sample income statement for company XYZ for FY ending 1998 and 1999 (expenses are in parentheses):

Income Statement For Company XYZ
FY 1998 and 1999
(Figures USD)
1998 1999
Net Sales
1,500,000 2,000,000
Cost of Sales
(350,000) (375,000)
Gross Income
1,150,000 1,625,000
Operating Expenses (SG&A)
(235,000) (260,000)
Operating Income
915,000 1,365,000
Other Income (Expense)
40,000 60,000
Extraordinary Gain (Loss)
- (15,000)
Interest Expense
(50,000) (50,000)
Net Profit Before Taxes (Pretax Income)
905,000 1,360,000
Taxes
(300,000) (475,000)
Net Income
605,000 885,000

Now that we understand the anatomy of an income statement, we can deduce from the above example that between the years 1998 and 1999, Company XYZ managed to increase sales by about 33%, while reducing its cost of sales from 23% to 19% of sales.


Consequently, gross income in 1999 increased significantly, which is a huge plus for the company's profitability. Also, general operating expenses have been kept under strict control, increasing by a modest $25,000. In 1998, the company's operating expenses represented 15.7% of sales, while in 1999 they amounted to only 13%, which is highly favorable in view of the large sales increase.

As a result, the bottom line - net income - for the company in 1999 has increased from $605,000 in 1998 to $885,000 in 1999. The positive inter-annual trends in all the income statement components, both income and expense, have lifted the company's profit margins (net income/net sales) from 40% to 44%, which is a highly favorable.


Conclusion

When an investor understands the income and expense components of the income statement, he or she can appreciate what makes a company profitable. In the case of Company XYZ, it experienced a major increase in sales for the period reviewed and was also able to control the expense side of its business. That's a sign of a very efficient management effort.

http://www.investopedia.com/articles/04/022504.asp

Reading The Balance Sheet

As you can see from the balance sheet above, it is broken into two sides. Assets are on the left side and the right side contains the company’s liabilities and shareholders’ equity. It is also clear that this balance sheet is in balance where the value of the assets equals the combined value of the liabilities and shareholders’ equity.

Another interesting aspect of the balance sheet is how it is organized. The assets and liabilities sections of the balance sheet are organized by how current the account is. So for the asset side, the accounts are classified typically from most liquid to least liquid. For the liabilities side, the accounts are organized from short to long-term borrowings and other obligations.

Analyze the Balance Sheet With Ratios
With a greater understanding of the balance sheet and how it is constructed, we can look now at some techniques used to analyze the information contained within the balance sheet. The main way this is done is through financial ratio analysis.

Financial ratio analysis uses formulas to gain insight into the company and its operations. For the balance sheet, using financial ratios (like the debt-to-equity ratio) can show you a better idea of the company’s financial condition along with its operational efficiency. It is important to note that some ratios will need information from more than one financial statement, such as from the balance sheet and the income statement.

The main types of ratios that use information from the balance sheet are financial strength ratios and activity ratios.

• Financial strength ratios, such as the working capital and debt-to-equity ratios, provide information on how well the company can meet its obligations and how they are leveraged. This can give investors an idea of how financially stable the company is and how the company finances itself.
• Activity ratios focus mainly on current accounts to show how well the company manages its operating cycle (which include receivables, inventory and payables). These ratios can provide insight into the company's operational efficiency.

There are a wide range of individual financial ratios that investors use to learn more about a company. (To learn more about ratios and how to use them, see our Ratio Tutorial.)

Conclusion
The balance sheet, along with the income and cash flow statements, is an important tool for investors to gain insight into a company and its operations. The balance sheet is a snapshot at a single point in time of the company’s accounts - covering its assets, liabilities and shareholders’ equity. The purpose of the balance sheet is to give users an idea of the company’s financial position along with displaying what the company owns and owes. It is important that all investors know how to use, analyze and read this document.

by Investopedia Staff, (Contact Author | Biography)

http://www.investopedia.com/articles/04/031004.asp

Reading The Balance Sheet

Reading The Balance Sheet
by Investopedia Staff, (Investopedia.com) (Contact Author | Biography)

A balance sheet, also known as a "statement of financial position", reveals a company's assets, liabilities and owners' equity (net worth). The balance sheet, together with the income statement and cash flow statement, make up the cornerstone of any company's financial statements. If you are a shareholder of a company, it is important that you understand how the balance sheet is structured, how to analyze it and how to read it.

How the Balance Sheet Works
The balance sheet is divided into two parts that, based on the following equation, must equal each other, or balance each other out. The main formula behind balance sheets is:

Assets = Liabilities + Shareholders' Equity

To learn more, check out our balance sheet video:



This means that assets, or the means used to operate the company, are balanced by a company's financial obligations along with the equity investment brought into the company and its retained earnings.

Assets are what a company uses to operate its business, while its liabilities and equity are two sources that support these assets. Owners' equity, referred to as shareholders' equity in a publicly traded company, is the amount of money initially invested into the company plus any retained earnings, and it represents a source of funding for the business.

It is important to note that a balance sheet is a snapshot of the company’s financial position at a single point in time.


Know the Types of Assets


Current Assets
Current assets have a life span of one year or less, meaning they can be converted easily into cash. Such assets classes include cash and cash equivalents, accounts receivable and inventory. Cash, the most fundamental of current assets, also includes non-restricted bank accounts and checks. Cash equivalents are very safe assets that can be readily converted into cash; U.S. Treasuries are one such example. Accounts receivables consist of the short-term obligations owed to the company by its clients. Companies often sell products or services to customers on credit; these obligations are held in the current assets account until they are paid off by the clients. Lastly, inventory represents the raw materials, work-in-progress goods and the company’s finished goods. Depending on the company, the exact makeup of the inventory account will differ. For example, a manufacturing firm will carry a large amount of raw materials, while a retail firm caries none. The makeup of a retailer's inventory typically consists of goods purchased from manufacturers and wholesalers.


Non-Current Assets
Non-current assets are assets that are not turned into cash easily, are expected to be turned into cash within a year and/or have a life-span of more than a year. They can refer to tangible assets such as machinery, computers, buildings and land. Non-current assets also can be intangible assets, such as goodwill, patents or copyright. While these assets are not physical in nature, they are often the resources that can make or break a company - the value of a brand name, for instance, should not be underestimated.

Depreciation is calculated and deducted from most of these assets, which represents the economic cost of the asset over its useful life.

Learn the Different Liabilities
On the other side of the balance sheet are the liabilities. These are the financial obligations a company owes to outside parties. Like assets, they can be both current and long-term. Long-term liabilities are debts and other non-debt financial obligations, which are due after a period of at least one year from the date of the balance sheet. Current liabilities are the company’s liabilities which will come due, or must be paid, within one year. This is includes both shorter term borrowings, such as accounts payables, along with the current portion of longer term borrowing, such as the latest interest payment on a 10-year loan.

Shareholders' Equity
Shareholders' equity is the initial amount of money invested into a business. If, at the end of the fiscal year, a company decides to reinvest its net earnings into the company (after taxes), these retained earnings will be transferred from the income statement onto the balance sheet into the shareholder’s equity account. This account represents a company's total net worth. In order for the balance sheet to balance, total assets on one side have to equal total liabilities plus shareholders' equity on the other.


http://www.investopedia.com/articles/04/031004.asp

Airline Capital Expenditure

This is one of the many reasons for avoiding airline stocks.  It is a tough industry to be in.

The Worst Decade for Stocks ... Ever

The Worst Decade for Stocks ... Ever
By Alex Dumortier, CFA
December 23, 2009

According to data compiled by Yale finance professor William Goetzmann, U.S. stocks will very likely close out the worst calendar decade in recorded history this month (Goetzmann's data goes back to the 1820s). That's a harsh lesson for buy-and-hold investors: Yes, stocks are very often an attractive asset class, but not always ... and certainly not at any price. But what of the next 10 years?

First, the gruesome context:

Decade
Annualized Nominal Return (incl. dividends)
Annualized After-Inflation Return (incl. dividends)

2000s*
(1%)
(3.4%)

1990s
18.2%
14.8%


*To Dec. 21, 2009.
Source: Author's calculation based on data from Standard & Poor's and the Bureau of Labor Statistics.


It was the best of times, it was the worst of times
This decade's horrendous performance follows one of the best calendar decades for stocks. In the 1990s, stocks roared ahead (of themselves), boosted by the Internet revolution and a favorable economic environment. This succession of near best and worst decades is no coincidence -- it's an illustration of Jeremy Grantham's observation that "mean reversion is a reality"; i.e., periods characterized by above-average historical returns are generally followed by periods of below-average historical returns.

Valuation: a sorcerer's apprentice
The reason for these swings in performance? Valuation, largely. Stocks got a huge boost from multiple expansion in the 1990s; according to data compiled by Yale finance professor Robert Shiller, the cyclically adjusted price-to-earnings ratio rose from 17.65 in December 1989 (a bit above the historical average) to 44.2 in December 1999 -- an all-time high. (The cyclically adjusted P/E multiple is based on average earnings over the prior 10-year period). That multiple could not defy gravity eternally; odds were good that stock returns over the next 10 years would be disappointing.

And that's exactly what came to pass. Not surprisingly, among the bottom 5% of S&P 500 stocks in terms of performance during this decade, technology and financials are the best represented sectors, while the top 5% is heavy with energy companies:

Company
Annualized 10-Year Return (incl. dividends) to Dec. 21, 2009

S&P 500 Top 5% Performers*


XTO Energy (NYSE: XTO)
52.3%

Southwestern Energy (NYSE: SWX)
50.5%

Denbury Resources (NYSE: DNR)
30%

S&P 500 Bottom 5% Performers*


Citigroup (NYSE: C)
(19.7%)

Akamai Technologies (Nasdaq: AKAM)
(22.6%)

E*Trade Financial (Nasdaq: ETFC)
(23.7%)

Sun Microsystems (Nasdaq: JAVA)
(24.5%)


*Selection.
Source: Author's calculations based on data from Capital IQ, a division of Standard & Poor's.


What's in store for investors next?
Surely after a period of such miserable returns, we can now look forward to great returns over the next 10 years? Unfortunately not -- unless you're betting on another massive stock market bubble. If we should have learned anything from the past 10 years, it is that valuation matters. At yesterday's closing price, the S&P 500 is valued at 20.3 times cyclically adjusted earnings -- nearly 25% above its long-term historical average multiple. Asset manager GMO's latest return forecasts, produced at the end of November, have large-cap and small-cap U.S. stocks earning less than 4.5% on an annualized basis over the next seven years. Index investors should be underweight U.S. stocks right now -- international equities are an attractive alternative.

The Fed's policies are creating a new set of tangible risks for investors. Motley Fool Global Gains co-advisor Tim Hanson explains why it's time to get out now.

http://www.fool.com/investing/general/2009/12/23/the-worst-decade-for-stocks-ever.aspx

Market Risk and Return

U Michigan / Economics


Risk and Return
By Jack Wheeler
Corporate Finance for Healthcare Administrators Lecture 9 of 20

http://academicearth.org/lectures/risk-and-return-healtchare

Latexx 2.11.2009

http://spreadsheets.google.com/pub?key=tzHjf-aElnBsLJpSKK319Uw&output=html

Year to Date iCap Stock Performance

For the whole year of 2009, iCap share price was traded at a discount to its NAV.

The index linked stocks have outperformed iCap and most of the non-index linked stocks in KLSE for this year.

Adventa 22.12.2009

Adventa Quarterly Results
http://spreadsheets.google.com/pub?key=tuKwXFcx7Ulr8SIM0SKas3Q&output=html

Comment:  Trading at rather high trailing PE for its fundamentals.

Adventa's 4Q net profit dips marginally

Written by Yong Min Wei
Wednesday, 23 December 2009 00:27

KUALA LUMPUR: ADVENTA BHD []'s net profit for the fourth quarter ended Oct 31, 2009 (4QFY09) dipped marginally to RM5.39 million from RM5.43 million a year ago despite a 15.2% rise in revenue to RM74.75 million from RM64.91 million.

According to a Bursa Malaysia filing yesterday, the company attributed the higher revenue to progressive addition of capacity in the surgical and dental gloves products. It also said the cost reduction exercises and high yield has improved the margin.

Earnings per share for 4Q shed 4.9% to 3.72 from 3.91 the same quarter last year.

Adventa proposed a final dividend of four sen per share tax exempt for 4QFY09 which is subject to the shareholders' approval at its coming AGM.

For the full year ended Oct 31, 2009, the company's net profit climbed 24.5% to RM17 million from the previous 13.66 million while revenue surged 52.1% to RM282.87 million as compared with RM185.94 million a year earlier.

On its current financial year prospect, Adventa said sales was expected to increase substantially gaining from the new capacities coming on stream and the new high output factory in Kluang, adding that the plant in Uruguay has been certified and would contribute to the profits.

"The group intends to increase investment into distribution and the life science division. These will be a strong contributor to the group in the future," it added.

http://www.theedgemalaysia.com/business-news/156189-adventas-4q-net-profit-dips-marginally.html


Adventa rises on higher earnings outlook

Tags: Adventa | earnings | OSK Research | Top Glove

Written by Joseph Chin
Monday, 21 December 2009 11:39

KUALA LUMPUR: Shares of Adventa rose in morning trade on Monday, Dec 21 on expectations of higher earnings for its fourth quarter results (4QFY09) to be released on Tuesday and after OSK Investment Research raised the target price from RM1.87 to RM3.58.

At 11.30am, the share price had risen six sen to RM2.94. There were 1.408 million shares done at prices ranging from RM2.89 and RM2.94.

OSK Research said it expected the earnings to be slightly better on-quarter, judging from the solid performance earlier of its peer, Top Glove. (Comment: The latest quarter result was actually worse.)

"Also, we understand that this would be the last quarter for recognition of the company's foreign exchange losses which should still amount to approximately RM4 million. Moving into FY10, Adventa is looking to capacity expansion again.

"We are upgrading our FY10 earnings by 42% in line with the improved numbers sans forex loss. Maintain Buy with a higher target price of RM3.58 (previously RM1.87)," it said.

http://www.theedgemalaysia.com/business-news/156008-adventa-rises-on-higher-earnings-outlook.html

Hai-O 2Q net profit surges 85% to RM20.18m

Hai-O 2Q net profit surges 85% to RM20.18m
Written by Joseph Chin
Tuesday, 22 December 2009 19:51

KUALA LUMPUR: HAI-O ENTERPRISE BHD [] reported net profit of RM20.18 million in its second quarter ended Oct 31, 2009, a jump of 85% from RM10.89 million a year ago as more consumers bought its health and wellness products.

It said on Tuesday, Dec 22 revenue rose 51% to RM132.37 million from RM87.29 million. Earnings per share were 24.23 sen compared with 13.38 sen. It declared dividend of 10 sen per share.

"The increase in profit after taxation was mainly due to higher contributions from all main divisions. The recovery of the domestic market had increased in consumer spending which had boosted the sales of the group's health and wellness products in the second quarter," it said.

Additional increase in other income earned which included realisation of exchange fluctuation reserve on disposal of foreign associates amounting to RM624,799 had contributed to the increase in profit.

For the first half, Hai-O said revenue rose 40% to RM280.95 million from RM200.20 million a year ago, mainly due to higher sales generated by its principal subsidiaries, the multi-level marketing and retail divisions, and higher rental income generated during the financial period.

Net profit increased by about 58% from RM24.73 million to RM38.97 million due to higher revenue achieved as mentioned above. Despite lower revenue achieved by the wholesale division, it had registered higher profit by focusing on higher margin product sales.

"The MLM division had contributed over 80% of group revenue, due to its effective A&P strategies coupled with attractive overseas incentive trips and strong newly recruited distributors' force.

"Additional contribution from the retail division due to higher revenue achieved coupled with the success in its house brand products had also contributed to the increase in profit," it added.

http://www.theedgemalaysia.com/business-news/156170-hai-o-2q-net-profit-surges-85-to-rm2018m.html


Last 4 quarters results of HaiO
http://spreadsheets.google.com/pub?key=tyxw8H8-rMbZwslu4WAXkog&output=html

Why Are We So Clueless about the Stock Market?

Books Of Knowledge

Why Are We So Clueless about the Stock Market? Learn how to invest your money, how to pick stocks, and how to make money in the stock market

The purpose of this book is to help readers understand the basics of stock market investing. Material covered includes the difference between stocks and businesses, what constitutes a good business, when to buy and sell stocks, and how to value individual stocks. The book also includes a chapter covering four case studies as well as a supplemental chapter on the pros and cons of real estate versus stock market investing….


Posted in Business and Investing

Jeff Lippincott says:
December 20, 2009 at 10:08 am
This book was OK. It was short, slick, and clearly a marketing piece for the author’s fledgling investment management firm. From the mug shot of the author on the back cover of the book it appears he’s a recent college graduate who is starting his own LLC since there are probably no jobs available to him. But that doesn’t mean he doesn’t know how to be successful playing the stock market. You don’t need any formal education to be successful at picking stocks.

The book basically has 14 chapters as follows:

1. Stocks vs. businesses


2. How do businesses make investors wealthy?


3. What is a good business?


4. When to buy


5. How to value a company


6. Basic capital structure


7. Diversification


8. Economy


9. Investing in IPOs


10. Analyzing investments


11. When to sell


12. Case studies


13. Conclusion

A. Real estate or stocks – which is a better investment?

The 14th chapter (appendix) probably should have been inserted up higher (maybe after Chapter 1?). And chapter 2 probably should have been renamed “How do investments make investors wealthy?”

In my humble opinion the title of the book was lousy. Many people are clueless about the stock market. But after reading this book I doubt the reader will be less clueless as to how to actually make money at the stock market. What we read about in this book is common sense. Investors make money by generating profits with their capital. And if the ROI (return on investment) is significant, then they get significant profits.

In a perfect world where everyone has access to all information, then you can implement what the author preaches in this little tome. Unfortunately we do not live in a perfect world, and rarely is it possible to accurately put a value on a plot of land, a business, or a stock certificate. The world is corrupt, it’s unethical, fraudulent, and getting the real story or facts about something usually costs more than it is worth. Remember that time is money.

The clueless after reading this book might be inclined to say to themselves: Hey, the author has done a nice job of explaining stocks to me – so why not let him pick the stocks and I’ll give him a professional fee for his services. If this is you, then the author has accomplished what seemed to be his goal in writing this book. However, if you wanted to truly be knowledgeable about the stock market and want to try and use it to your advantage, then you’ll need to read a lot of other books. And even then you will probably still be clueless.

Warren Buffet has been so successful in playing the stock market because he is not just an investor. He certainly invests, but then he gets involved with the management of his investment vehicles to make them grow and become more profitable. In effect he hedges his bets. Having said this, I think it is much smarter to stay out of the stock market and build your own companies, systematize them, put them on auto pilot or sell them, and then build another and another and another. That way you can invest in a way similar to Warren Buffet method. But buying stocks when other people are manipulating things is very risky. And it is difficult to beat the average returns earned on Wall Street because of all the smoke screens. 3 stars!
Rating: 3 / 5

D. Buxman says:
December 20, 2009 at 11:36 am
If you don’t know anything about the stock market and you want to make intelligent choices, this book is for you. The information provided is practical and straight-forward, without a lot of fluff or useless mathematical formulas. The presentation is easy to understand and apply to your individual investment plan. In the final analysis, successful investing for the long term is possible utilizing the principles outlined in this book. This is not a get rich quick sham, but rather a sensible, conservative approach that limits risk and maximizes reward.
Rating: 5 / 5

Livin' La Vida Low-Carb Man says:
December 20, 2009 at 1:30 pm
I’m the first to admit that the stock market intimidates me. I’ve watched certain stocks go up and down like a rollercoaster in just a matter of months and wondering what it would be like to take a chance and invest some of my hard-earned capital in a company I support. With big names like Wal-Mart, AT&T, and Apple showing a strong history of financial strength, are they good investments for my portfolio if and when I decide to take the plunge? This is just a sampling of the kinds of information you get in this book written by financial investment firm veteran Mariusz Skonieczny.

The skills that are taught in this book are not novel, but they do help professionals in other business sectors understand how to be smart about what stocks they put their money in, when to buy, when to sell, and making the most of their resources. Discovering the up-and-coming companies and ditching the down-and-outers is ESSENTIAL to becoming a savvy investor. Knowing the difference between the two can be tricky when you don’t know what to look for. This book will help you tell them apart.
Rating: 5 / 5

ShadowStock says:
December 20, 2009 at 3:33 pm
This book provides a clear and concise explanation of many critical principles and ideas to value a stock or a private company. Anyone beginning their journey in the stock market will benefits from the clear examples. Even the more experienced could benefit with a refresher on investment concepts simply forgot or just never fully understood their importance.

Mauriusz Skonieczny succinctly provides many short clear examples of the economic impact of capital allocation decisions such as expanding the business, reinvesting in the business, share buybacks, debt reduction, or dividends. The book also covers concepts such as identifying economic moats, margin of safety, stock valuation with clear examples of discounting future cash flows.

Many other ideas are crammed into the book such as when to sell, company analysis, capital structure, diversification, investing in IPOs, analyzing an investment, real estate versus stocks along with other nuggets of useful ideas for anyone.

I highly recommend this book for the less experienced and others looking for a clearer explanation of the most important stock valuation concepts.

[...]

Rating: 5 / 5

Ravi Nagarajan says:
December 20, 2009 at 3:41 pm
Those of us who allocate capital for a living are probably familiar with fielding the following types of questions at social events, particularly during the holiday season:

“So, what hot stock can you recommend?”


“What do you think about [random stock that recently had a huge run]?”


“How did your investments perform last quarter compared to the market?”


“My portfolio is up 25% this month … How does your portfolio compare?”

For those who do not want to be perceived as rude and obnoxious, some type of response is usually required. The individual asking such questions is not doing so in order to appear uninformed and most likely has no exposure to the basics of investing. Such investors really need a primer on basic investment concepts and techniques. Even if they never invest any money on their own, basic knowledge is required to intelligently interact with hired professional managers.

A Beginner’s Guide to the Stock Market

Why Are We Clueless about the Stock Market?Mariusz Skonieczny has written a worthwhile beginner’s guide to the stock market in his book Why Are We So Clueless about the Stock Market? The book’s audience appears to be those who are entirely new to business and investing concepts such as how businesses are capitalized and earn money from activities. Starting with a simple illustration of a Lemonade Stand’s balance sheet and income statement, Mr. Skonieczny walks the beginner through a number of basic scenarios regarding capital structures, return on equity, and the impact of competitors entering the market. Additionally, he provides a clear explanation of the power of compound interest which remains one of the least understood basic concepts of finance.

The Concept of Moats

The question of what qualities represent a “good business” is critical for those interested in handling their own investments. In illustrations that could be understood by any intelligent high school student, Mr. Skonieczny clearly shows the difference between businesses that create and destroy value. He also introduces the concept of opportunity cost and provides explanations of the key factors that sustain moats: Intangible assets, switching costs, network effects, and cost advantages.

Valuation

The chapter on valuation is quite basic but conveys enough information for a beginning investor to get started. The concept of compound growth is cleverly illustrated by comparing progress in net worth to an “elevator”. By avoiding compound interest equations and using illustrations, the discussion could be less intimidating to beginners. Through these illustrations, the book also explains the concept of discount rates.

Mr. Skonieczny also presents a simple valuation spreadsheet model which calculates intrinsic value based on a dividend discount model. While this model is clearly susceptible to the inability of most investors to forecast earnings or cash flow for distant periods in the future, it illustrates an important finance concept in a way that beginners can understand. One might worry that new investors could gain unwarranted confidence by coming up with seemingly precise forecasts of future earnings and plugging assumptions into a spreadsheet. However, attempts are made to explain such risks.

Capital Structure

The concept of capital structure and use of leverage is poorly understood by most investors. Again using simple illustrations, a chapter is provided that shows the impact of different mixes of equity and debt on a business. The fact that financial leverage is a double edged sword is obvious to experienced investors but not to beginners so more scenarios are provided which demonstrate how equity can be easily wiped out if a business carries too much debt and falls on hard times.

Case Study on Burlington Northern

Case studies using actual examples from earlier this year are presented in one of the later chapters. Interestingly, one of the case studies examines Burlington Northern which is expected to be acquired by Berkshire Hathaway early next year. The book was published prior to the announcement. The book also includes case studies on Moody’s, Thor Industries, and Wells Fargo. While fairly rudimentary, these examples show how the concepts discussed in the book can be applied to actual investment scenarios.

A Worthwhile Quick Read

This book is a worthwhile quick read for beginning investors. While it is definitely not a substitute for classics such as Ben Graham’s The Intelligent Investor, Mr. Skonieczny’s book can serve an important role by introducing new investors to basic concepts and serving as a starting point for further study.

The book could have been improved by providing an index as well as a list of suggested reading for those who wish to take the next step. In addition, the book’s title may be an obstacle for those who are thinking about gifts for friends, family, or clients who could use a basic primer on investing. After all, few of the folks asking you about last quarter’s performance or the next hot stock think that they are “clueless” about the stock market! It could be awkward giving this book as a gift for people who might be “clueless” but don’t recognize that fact. However, on balance, the substance of the book is very valuable and recommended for new investors.
Rating: 5 / 5


http://www.stanchee.com/why-are-we-so-clueless-about-the-stock-market-learn-how-to-invest-your-money-how-to-pick-stocks-and-how-to-make-money-in-the-stock-market/

Govt said planning compulsory acquisition of land

Govt said planning compulsory acquisition of land
By Vasantha Ganesan
Published: 2009/12/22



The government plans to compulsorily buy a piece of land measuring 0.38ha on Jalan Tun Razak, Kuala Lumpur, from property developer IGB Corp Bhd (1597).

The land is near Megan Phileo Promenade and a stone's throw from the Petronas Twin Towers.

Should the government pay the prevailing price of around RM1,200 per sq ft for the piece of land, the land may be sold for some RM40 million, a source said.

It is understood that the government may build a fire station on that location.

"IGB has already received a development order to build 166 units of high-end service apartments with 200,000 sq ft of net saleable area," a source told Business Times.

The source added that IGB hopes to get at least RM1,200 per sq ft, given that land prices in vicinity of the Kuala Lumpur City Centre ranges from RM1,900 to RM2,200 per sq ft.

Should IGB be paid RM1,200 per sq ft, it may get some RM40 million from the government.

"The project is in the pipeline, but it has not been launched yet," another source said.

Citigroup in a research report dated December 16 said that the book cost for the land is RM6.4 million or RM156 per sq ft.

"Typically, compulsory acquisition is done at market price (but what is the market price is also subjective) ... In the property market report, the last transaction in the KLCC area (off Jalan Tun Razak) was close to RM1,500 per sq ft," the report said.

It added that should the land be sold at RM1,200 per sq ft, IGB has a potential after tax-gain of RM32 million.

http://www.btimes.com.my/Current_News/BTIMES/articles/igbforce/Article/index_html

Hong Leong may yet seal EONCap deal

Hong Leong may yet seal EONCap deal
By Chong Pooi Koon
Published: 2009/12/22

Hong Kong-based Primus Pacific Partners may not be fond of Hong Leong's bid but its options appear limited

HONG Leong Bank Bhd (5819) may see through its deal to buy smaller rival EON Capital Bhd (EONCap), even without unanimous support from the latter's fragmented shareholders, analysts said.

Primus Pacific Partners Ltd, a Hong Kong-based investment firm that had paid RM9.55 per share for its 20.2 per cent stake in EONCap last year, may not be fond of Hong Leong's bid but its options appear limited.

Primus will need a high price to exit, but Hong Leong, controlled by shrewd investor Tan Sri Quek Leng Chan, is not known to overpay in deals.

"It will be tough for Primus. It's an uphill struggle for them," a banking analyst said.

Despite it being the single largest EONCap shareholder, Primus could be easily eclipsed by other major shareholders whose stakes, when added up, are way bigger.

It is believed that Tan Sri Tiong Hiew King, who holds a 16.3 per cent stake in EONCap, and Singaporean businessman Rin Kei Mei, with another 11.1 per cent, are ready to talk to Hong Leong.

Combined with Khazanah Nasional Bhd's 10 per cent stake, they will together control 37 per cent of EONCap, which is more than sufficient to trigger a general offer for the remaining shares, HwangDBS Vickers Research noted.

The Employees Provident Fund owns another 11.9 per cent of EONCap.

"Let's not forget about the minority shareholders who have roughly 30 per cent combined. This is a good exit strategy for them as they will never see a price as high as RM9.55 as Primus had paid," another analyst said, who estimated that a price of slightly above RM7 per share could be fair for "everybody except Primus".

Shares of EONCap jumped 4.6 per cent yesterday to close at RM6.88, retreating from an earlier gain in the day.

Hong Leong Bank could opt to buy EONCap's assets and liabilities under the takeover rules, where it would only need 50 per cent plus one EONCap share vote by value for the deal to go through, HwangDBS said.

This will be a less messy structure and Hong Leong will not need to worry about Primus being the deal breaker.

Primus also lacks a strong bargaining chip. While a merger could give Hong Leong greater scale and size to meet its aspirations as a regional player, it is likely to walk away and focus on building growth elsewhere if the price is expensive.

Hong Leong has already made solid forays into China and Vietnam, while it is eyeing to enter Indonesia and Thailand.

"These options in high growth, higher margin countries will be better bets for success for Hong Leong," HwangDBS said.

http://www.btimes.com.my/Current_News/BTIMES/articles/ionn/Article/index_html

KPJ Healthcare targets RM2b revenue in 2012

KPJ Healthcare targets RM2b revenue in 2012
Published: 2009/12/22

KPJ Healthcare Bhd (5878), the largest operator of private hospitals in Malaysia, has target its annual revenue to reach RM2 billion in 2012 through the continued expansion of operations throughout the country.

According to its chairman Tan Sri Muhammad Ali Hashim, the company will expand operations in the country either organically, by takeovers or building new hospitals.

"Through this continuous expansion of operations,we are confident of achieving an annual revenue of RM2 billion in 2012," he told reporters after the company's Extraordinary General Meeting (EGM) in Johor Baru yesterday.

He said the company had allocated RM150 million for capital expenditure this year and a similar amount would be spent next year for the same purpose.

The company's performance for the first nine months until September 30 2009 showed it had achieved revenue of RM1.07 billion and a net profit of RM80.57 million, compared to RM944.8 million and RM67 million for the same period last year.

KPJ, a subsidiary of the Johor Corporation owns 19 hospitals in Malaysia and two in Indonesia.

Muhammad Ali said the company had increased its network of hospitals with the JPJ Penang Specialist Hospital which began operations in August, while the Tawakal Hospital Kuala Lumpur which is moving to a new building, is expected to open in the first quarter of next year.

He also said that KPJ is building a new hospital in Klang, Selangor, which is expected to be open for operations in 15 months.

He said on December 16, the company had announced its move to take over the Maharani Specialist Hospital costing RM22 million in Muar, with another RM30 million being spent to develop it.

On its overseas operations, he said, the company's board of directors will re-evaluate investments in Bangladesh and Saudi Arabia following the current international financial crisis.

KPJ owns two hospitals in Indonesia, the RS Medika Permata Hijau and RS Bumi Serpong Damai. Both are located in Jakarta.

The company also operates a hospital in Padang, the Rumah Sakit Selasih, which was badly damaged by the recent earthquake which hit the region.

Earlier at its EGM, KPJ received approval from its shareholders to proceed with its proposed share split, bonus and warrant issue.

The proposed exercise involves the sub-division of one ordinary share of RM1.00 each in KPJ into two ordinary shares of RM0.50 each in KPJ, followed by a 1-for-4 bonus issue and a subsequent 1-for4-free warrant issue. - Bernama

Will 2010 be a good year for stock investors?

Will 2010 be a good year for stock investors?

The world markets have just recovered from a rather long and severe bear market. The recession has been severe. During this period, economic growth stalled and unemployment rose. Many companies and individuals went bankrupt. Many restructured, cutting cost, reducing excess capacity, conserve cash, sacked staffs, and so on, to remain and to survive. This phase has resulted in many surviving firms reporting a turnaround in their profits. This is reflected in the rise in stock markets. Going forward, these companies will consolidate and strategies for growth will be implemented. It is anticipated that the world economy will grow by 3% next year.

The interest rates of US, Japan and Europe are anticipated to remain low next year. Though their economies are anticipated to grow, these low rates will remain so as not to stifle their initial growths. As for the other countries, some have already raised their interest rates due to their improving economies.

The early rise in interest rate in these countries should be welcomed. The improving economies have enabled these governments to remove the stimulus ("medicine") needed to revive their economies the previous two years. Investors need not fear as equities have done well during these early periods of rising interest rates. Later rises in the interest rates should be viewed more cautiously as they probably are implemented to control rising inflation.

The interest yield curve is the difference between the interest rate of the 10 year treasury note and the 2 year treasury note. It is steepening. Some countries will deliberately keep interest rate low and their currency values competitive to stimulate their economy. The major economies using this policy will see their currencies used for carry trades round the world.

Due to the low interest rate policies and large liquidities the last two years, there is real fear of bubbles created in various asset classes, particularly in properties in certain countries. These countries will need to tackle these lest these lead to future problems. Bursting of bubbles will always be a risk to their economies. (Look at Dubai.)

The market has given good returns to investors since March 2009. The stock market has gone up substantially but it is neither frothy nor bubbly. Though a correction will be welcomed by many, long term investors continue to find values even in the present market. Buying a good stock at a bargain or a fair price requires due diligent and hard work. Good luck for 2010.