Forum Archive Index - October 2003

["david.gibson" <david.gibson@k.co.nz>]

>My question to everybody is: When you see a company that you are interested
>in investing in, what is the most important analysis that you do?

1) Cashflow

For me - cashflow is the key.  It is possible for a company to be losing
money and still have good cashflow.  It is also possible for a company to be
making money and have terrible cashflow.  The cashflow analysis is the first
place I look in an annual report.

If a company is generating cash - it becomes a candidate.

2)  NTA

The next factor is asset backing.  This is more than NTA - some industries,
in long term structural decline, I would expect the price to reflect a
significant discount to the NTA.  On the other hand - other industries with
long term growth prospects, I would expect to pay a premium.  The assessment
of NTA is mixed with a number of intangible factors.

I will buy into declining industries if the NTA discount is good enough.  I
will only buy growth prospects if the NTA premium is acceptable.

3)  Market Timing

Interest rates are the single biggest factor, for me, influencing market
timing.  (I know this does not directly relate to your question).  Some
sectors are sensitive to interest rates (retail), some are not (utilities).

Generally, if interest rates are trending down - with a lag in timing - I'm
buying.  If interest rates are trending up - with a lag in timing - I'm
selling.


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