Stock Picking Template

Income Statement

1. Net Profit Margin for the past 10 years 
 – look out for
                 – non- recurring earnings
                 – reserves
                 – subsidiary earnings
                 – depreciation and amortization

2. Net Income > Revenue (for the past 5 years)
    i.e Operating profit margin


Balance Sheet
1. Current ratio > 1
2. Debt ratio 
 – ensure no large debt maturing; may cause re-financing issues
3. Rising retained earning for the past 10 years
4. Current Asset Value (liquidation value) = CA – Liability 
 – if market price < current asset value, then equity is undervalued


Cash Statement
1. FCF/ Share
2. CFO
3. Cash Ratio = (CA – inventory)/ CL


Dividends
1. Dividend yield – look at 5 year average
2. Dividend payout ratio > 50%


Strategy
1. Easy to understand business model
2. “best in breed” firm
3. Mid to large cap firms (< 2 Bn)

Sidenote: refer to CANSLIM