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Shows you Re fice & compery s locating sta invests apt ‘Fe NOPAT Tota vested Capt What: Shows youhow sficonty a ‘company allocating is ivestod capt ‘excucng good ac cash FF NOPAT Tota vests Capt - Good ‘Caeh Roturn On Capital Emploved (ROCE) companys pofiabily interme oft capt empoyed EBIT Captal Employed Prometric Pm eth eee tod [ear Flow rom operating tvs frConfon eo Opting hess etn once chee hgh moka [Finca rotommna Ae eon rey set comp erin > RESETS Sey ep cen ee Siemens so meron ben cmpeny ant omerar| on [eComifren steers Cn seeping eo re opi enAgsounts ReceivableEBITDA: == What is £5/70A? = Eamings Betore interest, Taxes, Depreciation, Amortization Why is £51704 important for Businesses? © cans = vs (0) NETINCOME21 LESSONS FROM NAVAL RAVIKANT Each) 1. If you want to make the wrong decision, ask everyone [4 Read the books they want to ban | 2. Imagine how effective you would be| if you weren't anxious all the time ls. The source of wisdom is pain | 3. The overscheduled life is not worth living 16. The secret to a happy relationship is two happy people 4. Read, reflect, love, seek truth, and ignore society 17. If you need a degree to do it, it’s not going to make you wealthy 5. Build, sell, write, create, invest, and own 18. The single most important decision you make is where you live 6. The three big decisions - what you do, where you live, and who you're with] 19, The more seriously you take yourself, the unhappier you're going to be 7. The ability to stay calm during conflict is a superpower 20. Clear thinkers take feedback from reality, not society 8. You don’t need mentors, you need action 21. If you don't know it, it’s because you aren't interested in it 9. The goal of media is to make every problem, your problem 10. The quality of your mind is the quality of your life 11. The only real test of intelligence is if you get what you want out of life 12. |, and | alone, am responsible for everything | think and feel 13. The more neatly you fit into society, the less free you actually are [5 © @acompounding LLCs MeL a TanThe World of Finance & AccountingT INVESTMENT TIPS 10 FROM WARREN BUFFETT BY COMPOUNDING QUALI The longer you invest, the better Today, Warren Buffett's net worth is equal to more than $100 billion More than 95% (!) of this wealth was created after his 65th birthday My partner Charlie Munger says there are only three ways a smart Person can go broke: liquor, ladies and leverage Boring companies are usually great investments Only invest in what you understand. Boring companies are usually ‘eat investments. Good investing is as watching paint dry ‘The interests of management and shareholders should be aligned, ‘Companies with skin in the game outperform the market Buy quality businesses Invest in robust companies wi margins which ean grow the a healthy balance sheet and high ‘earnings attractively Every investment strategy will underperform the market from time to time. As an investor you are running a marathon, not a sprint Market fluctuations are your friend ‘The best thing that can happen to investors who will still be buying shares in the next 10 years, is falling stock prices ‘Compounding machines are companies which can reinvest thelr earnings in organic growth for years or even decades Give your top ideas the most weight in your portfolio Diversification only makes sense for those who don't know what they're doing Pricing power is the best protection against inflation [EB © @ecompounaing Reece)HOW TO READ AN ANNUAL REPORTHOW TO ANALYZE STOCKS 7. BUSINESS MODEL +o understand how the company makes money? + oes the business mode lok atactve to 9, PROFITABILITY + How much $ does ne company make pee $100 sales (rote margin)? + Does the company ansate most eamings Ino re cash fw? 2. CAPABILITY OF MANAGEMENT. + Has management a song tack record n eating sharchelder vals? + Does management ha shin inthe game? “0. HISTORICAL GROWTH + Did the company manage e gow is revenue by more than S% nthe post? + Did the company manage ogrow ts earings by more han 3% Inthe past? @-SUSTAINABLE COMPETITIVE ‘ADVANTAGE + What orentsts ne company tom is poor? + oes the company have pring power? (I, USAGE OF STOCK:BASED ‘COMPENSATION (SCS) «oss the company use SBCs 0 reward Imenapemet ana ereloyees? cecressing? (a. ATTRACTIVENESS OF THE INDUSTRY + We asthe main pers of ho company? + Doss heen maret grow at an atactve "2. ouTLooK + Doe he ite ak gh? * Can the company grow ts revenue and rings by mere than 5% and 734? 5. MAIN RISKS e 5. VALUATION + Wat are tha mai take fr the comgany? fa + atch vation level dos he company + Are there any pote Black Sans? trade ight row? = Isthe company underlie or overvalued? (exncrsneer Thonn ees cece Soros tas cena = = ons See aay spoucten pa G.EAPITAL INTENSITY + How much capital dows he company + Ise company lnvosting aot fare (5, HISTORICAL VALUE CREATION + Did the company eee at of shrehlder \eluein the past? + Awhich rata dhe company comgound ff} © [@ecempounaing | owen (growth CAPER)? ce ts PO? @, CAPITAL ALLOCATION, FULL COURSE copia? {How analy stocks ke a Profesional + Does te company have @ igh and ebust Rea CS aaalindmap ncial Statements Mi FinaEBITDA 10 EBITDA margin = EBITDA / Revenue You want most revenue to be translated into EBITDA EBITDA stands for: * Earnings * Before * Interest * Taxes * Depreciation * Amortization EBITDA = Net Income + Taxes + Interest Expense + Depreciation & Amortization OR EBITDA = EBIT + Depreciation & Amortiziation In other words, it shows you what the company earns before costs like interest, taxes, depreciation and amortization are subtracted \ ---} Cost Of Goods Sold (To Suppliers) General Expenses (To Employees) Equipment Intagible (Depreciation & Amortiziation) a > Zz i > Gy & Wn) nv a < w GROSS PROFIT sources = — > = # Alot of companies also use the Adjusted EBITDA instead of EBITDA * Adjusted EBITDA removes one- time, irregular, and non-recurring items that distort EBITDA * This will result in a higher figure * In general, free cash flow is a way more reliable metric than EBITDA * Free Cash Flow shows you what a company REALLY earns in cash after deducting all expenses. Interest (To Creditors) ec (To Government) dpe Stare iy (To Owners) Charlie Munger once said the following: “ think that, every time you see the word EBITDA, you should substitute the words bullshit earnings." © The issue with EBITDA is that it removes real expenses © That's why | would never look at EBITDA to analyze a company www.compoundingquality.net 7S21 — Excel CTRL Shortcuts Hold donn the Ctl key ond tap thace keys,& Everything You Can Doin Excel ©100 FINANGE ANSWERSTOP 100 EXCEL TIPSFINANGE CHEAT SHEET: sy GD Ck i a