Notes from reading

1) Earning per share (EPS)

2) Equity = value of the funds contributed by owners (shareholder) + the retained earnings/losses.

Shareholder equity = Total assets - Total liabilities

3) Returns on Equity (ROE) ** MOST IMPORTANT **
= Net income or Net profit
   Shareholder's equity

= Net income or Net profit 
   (Ending Equity + Beginning Equity) / 2

= Percentage of returns from the resources which shareholders provided to them to generate profits.

= shareholders returns on investment.

>> When ROE ^, stock price ^.
>> look for past 5 to 10 years ROE to view on company's growth
>> if ROE > 15% and maintain it, ---> good company.
>> conditions for companies to have a high ROE :
(i) company is really good at growing its business with ^ earnings.
(ii) company pays dividend & hence reduces the equity of shareholders & make it easier to post higher ROE.
TIPS : Companies which are growing at a rapid rate normally do not pay high dividends.

ROE α        1      
                Equity
When equity low, ROE ^.

(iii) manipulation - company buy back stocks by cash.
sales of assets, or one-time gains ----> artificial boost.
** be aware of this trick.
** look at historical records will help to recognize this manipulation.

4) EPS Growth Rate (EPSGR) : good if ≥ 15%

5) Debt Equity Ratio (should < 0.5)
D/E =           Total debt          
            Shareholders equity

>> companies with high ROE and EPSGR, with a healthy cash flow & minimum debt are always better than those with similar ROE but with huge debts to settle.

>> shareholders equity = shareholders' claim to a business's assets after all creditors & debts have been paid.

>> shareholders equity = Total Assets - Total Liabilities.

>> D/E < 0.5, means $1 spend will earn $2 in equity.

6) Net Profit Margin

Profit Margin =      Net Profit  
                                  Revenue

>> e.g : making $2 profit in revenue for every $4 spent is better than making $1 profit in revenue for every $4 spent.
Profit margin = 2/4 = 0.5 (50% --- high profit margin)
Means making $0.5 for every $1 spent.

>> the higher the profit margin, the better the company's financial health.

7) Valuing stocks
>> don't buy stock at just any price.
>> the higher the price you pay for stocks, the lower the rate of potential returns.
>> you should know the maximum price you should pay for good stocks. Try to make your valuation estimation realistic and conservative. Try to avoid overpaying.

7.1) Comparing Average Price to Earning Ratio (P/E)

>> Market capitalisation = number of outstanding shares x (multiply)  current price per share = The "cost" of acquiring the entire business.

>> Price to Earning Ratio (P/E) =          Market Value per Share      
                                                               Earning per Share (EPS)
                         = help us know how much we are really paying for a stock.

>> Assuming EPS remains unchanged (which means EPS GR = 0%),
P/E = 30, means takes 30 years for the earnings to equal the buying price.
e.g : company A : P/E = 5.     company B : P/E = 20.

This means that :
(i) The market values the stocks of Company A at $5 for every $1 of its earnings,whereas,
(ii) It values the stocks of Company B at $20 for every $1 of earnings.

One analyst may find that Company A is more attractive since it costs less for the same earnings of $1. A second analyst may reason that Company B is more attactive as a higher P/E means that the stocks are more valuable in that the company has a higher potential to deliver attractive returns.
So, whicih is the best, a low or high P/E?

** Please take note, if stocks have passed the tests of ROE, EPS GR & D/E, the lower the P/E, the better the stocks. So, go for lower P/E.
** Bear in mind, P/E can be reliable if :
  (i) the EPS is stable & does not fluctuate by a great deal.
  (ii) comparing of P/E is useful if they are in same industry.

>> If EPS is keep positive & growing ----> GOOD.
If EPS is become negative : P/E = ?? (unknown cos number cannot be divided by negative number).

** DO NOT CONSIDER if a company does not earnings or an EPS until it posts a sustainable positive EPS.

>> some analysts provide a P/E range calculated using he highest and lowest value for a given year or period. I think this is fair. As with all other numbers (ROE, EPS GR, etc), it is more valuable to look at P/E overtime (past 5 to 10 years in order to determine the trend.

>> average P/E will allow us to relate the current P/E to the range of P/E experienced by the shares in the past.
>> ideal stocks must have a P/E which is at least below mid range.
e.g : Past 10yrs, highest P/E = 30, lowest = 20. Average = (30+10)/2 = 20.
If stocks selling below 20, can consider to buy.

In conclusion, you can get into a lot of trouble if you only look at simple indicators such as P/E ratio alone.
A high P/E ratio could mean that the stocks are overvalued and there is no guarantee that they will come back down any time soon.
Even if stocks are undervalued, it could take years for the market to value properly.

一步一脚印 Step by step

15/5/2016 (Sunday)
1) email to "helpdesk@hlib.hongleong.com.my"

Email title : Application for Direct CDS account.

Documents required : TBC

Email content :
Helo there,   
Kindly send a set of application form for Direct CDS account to address below :  

Attn : Mr/Ms. AAA

xxx home/office address xxx   

Regards, 
AAA

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Email on 15/5/2016 10.30pm (Sunday), get reply from Sophia Ooi on 16/5/2016 - 8.30am (Monday).
Speed : 5 stars.
Document will be send out as normal mail.

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20/05/2016 (Friday)

Receive application form from HLBB.
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25/5/2016 (Wednesday)
Make up my mind to fill up form and to submit to HLIB

Direct CDS, CDS = Central Depository System

Any enquiry related with HLeBroking application, can contact
Bandar Utama Branch
Level 10,
1 First Avenue Bandar Utama,
47800 Petaling Jaya, Selangor
Tel: (03) 7728 8222 Fax: (03) 7729 2829

PIC contacted : Sophia.
HLB whatsapp : 012-287 4790

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2/6/2016
Receive email to register online at HLeBroking website.

5/6/2016
Online registration at HLeBroking

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