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Numbers We Like To See - A Summary

In this article we summarise the key points explored in the "๐™‰๐™ช๐™ข๐™—๐™š๐™ง๐™จ ๐™’๐™š ๐™‡๐™ž๐™ ๐™š ๐™๐™ค ๐™Ž๐™š๐™š" article to provide a short form guide to some of the quantitative measures I review as part of the Traditional Value Investing portion of the AVI portfolio.

Whilst no single metric should be used to measure the value or financial strength of a stock/business, utilised together with other metrics and fundamentals, they can be a powerful tool to interpret a stock/business's potential for investment. 

Whilst these metrics are very useful, we must remember that investing is ๐™–๐™จ ๐™ข๐™ช๐™˜๐™ ๐™–๐™ฃ ๐™–๐™ง๐™ฉ ๐™–๐™จ ๐™ž๐™ฉ ๐™ž๐™จ ๐™– ๐™จ๐™˜๐™ž๐™š๐™ฃ๐™˜๐™š, just because a stock doesnโ€™t meet one of the criteria below does not mean it is uninvestable. I, myself have invested in a number of opportunities that fall outside these metrics however they can be used as a good guide for future investigation via qualitative analysis:

๐™‹๐™ง๐™ž๐™˜๐™š-๐™ฉ๐™ค-๐™€๐™–๐™ง๐™ฃ๐™ž๐™ฃ๐™œ๐™จ ๐™๐™–๐™ฉ๐™ž๐™ค โ€“ below 16x 

๐™๐™š๐™ฉ๐™ช๐™ง๐™ฃ ๐™Š๐™ฃ ๐™„๐™ฃ๐™ซ๐™š๐™จ๐™ฉ๐™š๐™™ ๐˜พ๐™–๐™ฅ๐™ž๐™ฉ๐™–๐™ก โ€“ above or equal to 10% 

๐™๐™š๐™ซ๐™š๐™ฃ๐™ช๐™š ๐™‚๐™ง๐™ค๐™ฌ๐™ฉ๐™ โ€“ greater than 0% 

๐™‰๐™š๐™ฉ ๐™„๐™ฃ๐™˜๐™ค๐™ข๐™š ๐™‚๐™ง๐™ค๐™ฌ๐™ฉ๐™ โ€“ greater than 0% 

๐˜พ๐™๐™–๐™ฃ๐™œ๐™š ๐™„๐™ฃ ๐™Ž๐™๐™–๐™ง๐™š๐™จ ๐™Š๐™ช๐™ฉ๐™จ๐™ฉ๐™–๐™ฃ๐™™๐™ž๐™ฃ๐™œ โ€“ less than or equal to 0% 

๐™‡๐™ค๐™ฃ๐™œ-๐™ฉ๐™š๐™ง๐™ข ๐™‡๐™ž๐™–๐™—๐™ž๐™ก๐™ž๐™ฉ๐™ž๐™š๐™จ-๐™ฉ๐™ค-๐™๐™ง๐™š๐™š ๐˜พ๐™–๐™จ๐™ ๐™๐™ก๐™ค๐™ฌ ๐™๐™–๐™ฉ๐™ž๐™ค โ€“ less than or equal to 5 

๐™๐™ง๐™š๐™š ๐˜พ๐™–๐™จ๐™ ๐™๐™ก๐™ค๐™ฌ ๐™‚๐™ง๐™ค๐™ฌ๐™ฉ๐™ โ€“ greater than 0% 

๐™‹๐™ง๐™ž๐™˜๐™š-๐™ฉ๐™ค- ๐™๐™ง๐™š๐™š ๐˜พ๐™–๐™จ๐™ ๐™๐™ก๐™ค๐™ฌ ๐™๐™–๐™ฉ๐™ž๐™ค โ€“ below 16x 

๐˜ฟ๐™ž๐™ซ๐™ž๐™™๐™š๐™ฃ๐™™๐™จ ๐™‹๐™–๐™ž๐™™-๐™ฉ๐™ค-๐™๐™ง๐™š๐™š ๐˜พ๐™–๐™จ๐™ ๐™๐™ก๐™ค๐™ฌ ๐™๐™–๐™ฉ๐™ž๐™ค โ€“ less than or equal to 0.5 

๐˜พ๐™–๐™จ๐™ ๐™๐™ก๐™ค๐™ฌ-๐™ฉ๐™ค-๐˜พ๐™–๐™ฅ๐™ž๐™ฉ๐™–๐™ก ๐™€๐™ญ๐™ฅ๐™š๐™ฃ๐™™๐™ž๐™ฉ๐™ช๐™ง๐™š ๐™๐™–๐™ฉ๐™ž๐™ค โ€“ greater than 1 (and remaining unchanged/increasing) 

๐˜พ๐™–๐™จ๐™ ๐˜ผ๐™˜๐™ฆ๐™ช๐™ž๐™จ๐™ž๐™ฉ๐™ž๐™ค๐™ฃ๐™จ โ€“ investigate any significant or regular acquisitions 

๐™‹๐™ง๐™ž๐™˜๐™š-๐™ฉ๐™ค-๐™๐™ง๐™š๐™š ๐˜พ๐™–๐™จ๐™ ๐™๐™ก๐™ค๐™ฌ-๐™ฉ๐™ค-๐™‹๐™ง๐™ž๐™˜๐™š-๐™ฉ๐™ค-๐™€๐™–๐™ง๐™ฃ๐™ž๐™ฃ๐™œ๐™จ ๐™๐™–๐™ฉ๐™ž๐™ค โ€“ greater than 1 

๐™Ž๐™๐™–๐™ง๐™š๐™จ ๐™Š๐™ช๐™ฉ๐™จ๐™ฉ๐™–๐™ฃ๐™™๐™ž๐™ฃ๐™œ ๐™ฉ๐™ค ๐™‹๐™€ ๐˜พ๐™ค๐™ข๐™ฅ๐™–๐™ง๐™–๐™ฉ๐™ž๐™ซ๐™š โ€“ investigate share buybacks (should be cheap) and issuances (should be expensive) 

๐˜พ๐™ช๐™ง๐™ง๐™š๐™ฃ๐™ฉ ๐™๐™–๐™ฉ๐™ž๐™ค โ€“ between 1 and 1.5 

๐™‰๐™š๐™ฉ ๐˜ฟ๐™š๐™—๐™ฉ-๐™ฉ๐™ค-๐™€๐™ฆ๐™ช๐™ž๐™ฉ๐™ฎ ๐™๐™–๐™ฉ๐™ž๐™ค โ€“ less than 0.5 

๐™๐™š๐™ฉ๐™ช๐™ง๐™ฃ ๐™Š๐™ฃ ๐™„๐™ฃ๐™ซ๐™š๐™จ๐™ฉ๐™š๐™™ ๐˜พ๐™–๐™ฅ๐™ž๐™ฉ๐™–๐™ก ๐™ซ๐™จ ๐™’๐™š๐™ž๐™œ๐™๐™ฉ๐™š๐™™ ๐˜ผ๐™ซ๐™š๐™ง๐™–๐™œ๐™š ๐˜พ๐™ค๐™จ๐™ฉ ๐™ค๐™› ๐˜พ๐™–๐™ฅ๐™ž๐™ฉ๐™–๐™ก โ€“ ROIC is 2% greater than WACC 

๐˜พ๐™–๐™จ๐™ ๐™๐™–๐™ฉ๐™ž๐™ค โ€“ less than 0.3 

๐™๐™ค๐™ฉ๐™–๐™ก ๐˜ฟ๐™š๐™—๐™ฉ-๐™ฉ๐™ค-๐˜พ๐™–๐™ฅ๐™ž๐™ฉ๐™–๐™ก๐™ž๐™จ๐™–๐™ฉ๐™ž๐™ค๐™ฃ ๐™๐™–๐™ฉ๐™ž๐™ค โ€“ less than 0.3 

๐™Ž๐™ช๐™จ๐™ฉ๐™–๐™ž๐™ฃ๐™–๐™—๐™ก๐™š ๐™‚๐™ง๐™ค๐™ฌ๐™ฉ๐™ ๐™๐™–๐™ฉ๐™š โ€“ have awareness for valuation purposes 

Quantitative analysis is not the be all and end all of value investing. Whilst understanding the numbers behind a business is extremely important, they must always be backed up with solid qualitative analysis and a final thesis. Some areas of qualitative analysis are discussed in the article entitled ๐˜ฝ๐™š๐™ฎ๐™ค๐™ฃ๐™™ ๐™๐™๐™š ๐™‰๐™ช๐™ข๐™—๐™š๐™ง๐™จ, however every investor must develop their own research and decision process to match their own risk/reward tolerance as investing is as much an art as it is a science.

For further information on any of these metrics including their strengths and weaknesses as a measure of a business please refer to the full ๐™‰๐™ช๐™ข๐™—๐™š๐™ง๐™จ ๐™’๐™š ๐™‡๐™ž๐™ ๐™š ๐™๐™ค ๐™Ž๐™š๐™š article.


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