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Brian Feroldi

@BrianFeroldi

Sep 25, 2020 • 7 tweets • 3 min read • Read on X

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The 5 "Technical Analysis" Charts I use every day

⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️⬇️

1) 5-Year Performance vs. $SPY

Winners keep on winning

It's a great sign if a stock has beaten the market over the last 5 years

It's a warning sign if it has lost badly

$MKTX ✅
$MNKD 🚫

2) Long-term Revenue Growth

Recurring revenue is the gift that keeps on giving

Consistent revenue growth -- especially through recessions -- indicates greatness

Inconsistent revenue growth = avoid

$MA ✅
$XOM 🚫

3) Margins

Ideal: Gross / Operating / Net Margin all consistent/expanding over time

Avoid: Gross / Operating / Net Margin all declining over time

$VEEV ✅
$GME 🚫

4) Returns on capital

Great businesses create value by investing at high rates of return

Bad businesses destroy value by investing at low or negative rates of return

I check ROE, ROA, ROIC

Ideal: Double-digit and expanding

Bad: Negative and declining

$FB ✅
$UA 🚫

5) Dilution

Shares outstanding rising through stock-based comp = bad

Shares declining because of stock-buybacks = good

I'm OK with <3% dilution per year if growth is high

>5%/year is bad

$VRSN ✅
$CRM 🚫

@ycharts

Bad performance in any of these categories doesn't exclude investment

Lots of great companies have negative returns on capital and high share dilution in the beginning

Still, always worth looking at

All data from @ycharts

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More from @BrianFeroldi

Brian Feroldi

@BrianFeroldi

Aug 16

WACC Cheat Sheet

What is the Weighted Average Cost of Capital?

Here's a quick primer:

WACC is the average after-tax expense of capital for a company from all of its sources.

This includes common stock, preferred stock, bonds, and other hybrid debt & equity instruments.

WACC is the mean rate a company pays to fund its operations.

WACC = [(E/V) x Re] + [(D/V) x Rd x (1 - Tc)]

E = Market value of the firm’s equity
D = Market value of the firm’s debt
V = E + D
Re = Cost of equity
Rd = Cost of debt
Tc = Corporate tax rate

WACC is a sum of the weighting of each capital source

Read 6 tweets

Brian Feroldi

@BrianFeroldi

Jul 3

If you pick stocks, you MUST learn how to analyze a cash flow statement.

Here's how to do it in less than 2 minutes:

The Cash Flow Statement shows how cash moves in and out of a company over a period of time.

Its purpose is to track cash movement through a business.

The Cash Flow Statement uses CASH accounting.

This method only records transactions when money goes in or out of an account.

This differs from ACCRUAL accounting, the accounting method used on the Income Statement and Balance Sheet.

Read 10 tweets

Brian Feroldi

@BrianFeroldi

Jul 2

How to analyze a Balance Sheet in less than 2 minutes:

The balance sheet is one of the three major financial statements.

It shows a company’s:
▪️Assets: What it owns
▪️Liabilities: What it owes
▪️Shareholders Equity: It's net worth

At a fixed point in time

That “at a point in time” part is key!

A balance sheet is a SNAPSHOT of a company’s net worth.

It is measured at the end of a quarter/year.

Read 11 tweets

Brian Feroldi

@BrianFeroldi

Jun 21

Warren Buffett's favorite way to measure profit isn't Net Income or Free Cash Flow.

It's Owner's Earnings.

What is it? How to does it work?

In this thread, I'll walk you through the calculation:

Imagine that you're opening a coffee shop.

You spend $100k on furniture & fixtures that will last 10 years.
You spend $60k on coffee equipment that will last 3 years.

Here are your total annual operating costs:

You make $1 million in revenue, so here's your income statement:

Revenue: $1,000k
Expenses: $450k
Pre-tax income: $550k
Taxes: $110k
Net Income: $440K

If you started with $105K in cash, how much do you have now?

Read 11 tweets

Brian Feroldi

@BrianFeroldi

Jun 17

If you invest, you MUST understand accounting.

This thread will walk you through the Income Statements, visually:

An Income Statement is a *record* of how much money a business made (or lost) during a particular period of time -- eg, a quarter or a year.

The formula is: Revenues - Costs = Profits

Here's an example using Starbucks's income statement:

The Income Statements also contain a few other numbers that interest investors, including:

Gross Profits, Gross Margin, EBITDA, Operating Profits, Operating Margin, Earnings Per Share, etc.

Read 12 tweets