A Singapore Perspective Value Investing

A colleague was reading this book he borrowed from the library and from the title, I was interested as I need to know how to calculate the value of companies in order to buy their shares. So when my colleague finished reading it, I borrowed it.

After reading it, I felt that the useful content is only a small part which spells out the 4 steps to evaluate a company. They are namely; Business strategy analysis, Accounting review, Ratio analysis and Forecasting and valuation.

Biz strategy analysis is to determine if the company has good management and if the management has a sound strategy to grow the company.

Accounting review and ratio analysis are what you can find out from the annual reports. So some of the more interesting ratios are:

1) Net Profit Margin (net profit / sales)
This should be better than the industry average. Would be best if it is >20%.

2) Inventory (for manufacturing companies)
As low as possible

3) Return on Equity (ROE) (net profit / shareholders funds)
Should be 8-9% at least.

4) Cash flow
Net operating cash flow > Net operating profit after tax.

The last step is about how to forecast and value the company. The author gives a couple of methods in very general scenarios. Using the PE method, he states that if the company's growth rate is 20%, the forecasted PE would be 20 times and the fair value will be 20 times the Earnings Per Share(EPS).

Most of the books are the author's opinion of several companies which he tracks, like Venture, Informatics, Qian Hu etc. The last quarter of the book is dedicated to auditing of companies, regulations and such information, which I feel should not be included in this book as the title is Value Investing.

Overall, this book is a below average read for the information it has on valuation of a company.