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1. as The Sustainable Growth Rate for the trailing four quarters of 12 1 is derived by multiplying its two component fundamentals namely the Retention Ratio 88 7 and the Return on Equity 13 6 The visual display of the historical Profiles for the Sustainable Growth Rate and its two principal components illustrates clearly the strong influence of the company s Return on Equity on its Sustainable Growth Rate Finding Stocks in the Buy Zone 86 Anomaly When a company repurchases a significant number of its shares each year the effective Retention Ratio is reduced Such repur chases tend to reduce the company s sustainable growth rate You can observe the effect of repurchase activities on a company s Retention Ratio and sustainable growth rate by clicking on the check box labeled Alternate Retention Ratio Calculation For Sample Inc repurchase activity reduces the effective Retention Ratio for last year to 76 7 from 90 4 which causes the Sustainable Growth Rate to decline to 10 196 from 11 996 JM ww Dua Widow Mo zie x Seutetrabie Grow tifcienciex Summary Rahim en Sasfalnahln Sustainable Growth amp Its Components re 4 Cquity 3 Growth s SAMPLE tet oct anet yr OS F yr Q2 m aret yr Ot P wa yeme ni e 132 1 y nal w ou 1 om wre when nA 7 NC Mn 4 VoU Li Tree 73 e
2. F Drew Sumay ott ug F Orrell iym Waring ov Aven Show Weite Cust Apply 5 Once you have selected your preferences at the Advanced Level click the Apply amp Close button Stock Study Guide B Other Preferences Graph Colors and Options Also available through the Preference menu item are the following Options 1 Set colors for lines on charts found throughout the Guide s screens Graph Colors screen and Ti _ x Graph Cninrr Graph Options Graph Nackyrrend ine Brilon Mav Bay S lar weno ira TIPAI ine Ptas yery Lar E Trandfasa ina Savetalnahiin Growth 1 ina Iute Grew Lave Lae in erat T9 clancy ine po Inen Prica l aa Lee v ne thane cakara Marsiin SUG fot Helpful Hint If you set one or more of the line colors to be the same color as the Graph Background the line s will not be visible on your monitor Clicking on the Reset to SSG Defaults button will return the lines and Graph Background to their original colors Finding Stocks in the Buy Zone 103 APPENDIX A 2 Set the number of background lines on the charts Graph Options screen Clicking on the Reset to SSG Defaults button will return the preferences to the original selection 104 Stock Study Guide APPENDIX B A Key Entering Data Throughout
3. nr 5 wo awe rE 7h Swe MaR na 7n Gyo mi t2 Tee 2 73 5 ayee i we E wm Ss 1 125 1725 w4 Madrun 204 142 25 Avenge 3 103 52 Dastevorst Zcanaries Dazed cn max rain efficanciar Ber 94 21 182 fom R ana a4 vara 43 as All other things being equal the higher the Retention Ratio the higher the Sustainable Growth Rate Accordingly growth oriented investors generally look for a Retention Ratio Profile that is at a high level with a flat or rising trajectory Stock Study Guide JA EMO vow Dua Widow Hp zie xi Sestainabix Growth tfhcienziex Summary Retention _ Reim em Sustainable Growth amp Its Components Ratio Cays Growth S SAMPLE oct yos m7 F ian 121 cunc yr Q2 wR 137 124 arret ort war 123 3 a yee wa 132 my tyre mak ni tos Profile iws 88 5 nix w ha 70 Syam na 70 fp ITA bees TD Gyo mi t2 51 Trem 0 79 t5 ywsepo sak 18 we s Dest erst Scenarios Dasad of max Inin atfcanciat fent RE 201 182 MR 102 aa ot Ma 15 review of the annual data and the Earnings Retention Profile on the Growth Chart indicates that Sample Inc has had a generally high and consistent Retention Rate throughout the entire study period 2 Rate of Return on Equity A company s equity cons
4. 1 5 2wt m 1925 Us wsi 653 Uw dw 750 Us6 154 Smem 553 UKE 182 Bye Ux 29 7 ew Z2 bmp Z2 5 5 pi 2109 50 Ux 2 10 653 amp uw j TU You Average PE Pubs 115 Orci dil Ana Hau 1743 8 2 Current Ycar Prica b XR i int Recent MI tis maw 174 3 Protected Unsiie PE av for Pive Years Forward 1 Yours Lat 5 Years Am Yen Susi ree SES Proc ul Bs sj The following material describes the information and analysis available in the Great Price screen Stock Study Guide 1 Calculating and Interpreting P E Ratios Observe the high and low P E ratios contained in the P E Ratios table P E ratios are calculated as High Price Low P E Ratio Low Price Hich P E Ratios 18 AMAT RPS EPS A P E ratio is interpreted as the price that is being paid by buyers to own 1 of the company s earnings For last year the High P E and Low P E were 31 1 and 16 3 respectively KE ric View Du Wedow Mop 4 xj Great Rewenees GreatEPs Great Price Great Rotera Great Fick Semmary 4 odios aed Pas PA Pool ient Price amp EPS Historical Relationship TY Price F P Ration e dew PAR h d bayer x5 Bm
5. 24A ux 29 125 fun Mh na 1A 254 18 10 yr 259 um 327 29 22 11 ago iain na nnm na NA Equity Elfen igara okre arte Iras cvy 100 ol cuui Ebay in gering revenus boni cea 100 uf srda Timana Honey 1 Haan in parang amine Irma ence SII ot reer Stock Study Guide Also note that when a company declares a stock dividend you must also adjust any company data reported on a per share basis For example a 10 stock dividend is the equivalent of a 1 1 for 1 stock split 3 Quarterly Data Screen To complete the study of a company s revenues and EPS the Guide s program also has the capacity to analyze historical growth in the company s quarterly revenues and EPS D arkal SAMLE INL The Die lian Basic Intermahan Ansual Data quactnety Ihara PDT a EAE RR fet LAE LEEA ESI CS s 5s ae 3 Ld nit m5 117 12 Iyoo 4135 1 52 ms 14 3y 225 2 nra 127 nas 10 12 ann 4 yet sso SHE use 119 Uus rsu eg 97 nar om nha non 7m tyes n yoege 122 Aan 172 na 1 25 10 242 a 5 75 osu oye age ax nos 71A na 5m 19 ye age 257 use ws LEM 4a 333 Tov uo non am nas ann noa NA e Equity 9 Elfen igara arate Iras
6. Asset efficiency is calculated as Revenues x 100 for descriptive purposes Total Assets Finding Stocks in the Buy Zone 91 92 For the trailing four quarters Sample Inc generated 107 of rev enues from every 100 of assets at year end This performance compares with the start of the study period when the company was generating 112 revenues for every 100 of assets JA Mic tb Wen Dus Werke Hoy xj Sustamnatle Growth FMomectes Serrmary Arsi Revo ur Vet Components of Return en Equity ry Ulery blew eony SAMPLE C Oct cune y Ox 912 7 mE nav cured y Q2 wmr ameti sa v gah ae yee e me ex 7 yw wi eak Sf mi ak mmt a Ld Sy mE mm 2 snk nw 105 af Tyson smh diem Z9 nen 1000 aye wv ssk 7 Morse Cui rum Arata Oyo ay wh usk nmm sh nk ymago wE sa Veo 2 116 e2 Arwa ses t E m sa Reven Efficiency 40 97 of Hat Camisgr tum every FIO of Pure as 79 1088 sees S Dont All other things being equal the higher the Asset Efficiency the high er the Return on Equity and the Sustainable Growth Rate Accordingly growth oriented investors generally look for an Asset Efficiency Profile that is at a high level with a flat or rising trajectory A review of the annual data and the Asset Efficiency Profile indi cates that Asset Efficiency declin
7. Finding Stocks in the Buy Zone 11 GETTING STARTED DE Shark Shy miiie Trist Sd eel Lecce Agroma Ihc ron Ue sno a UNEL aSr inr Poets he IOC OM PINYIN sitam ba yau upan fip endian hat you 28 ike ieme comard in he licere apeme krr rezd ihe tom carly beere canbnumng the iria brian because dhe Toes baton wal ndee yor ascent bother Hy da reri qe dp these irs Ped press The 5 bahon dp eri ihe netalabon ber3usr Gish Inc umaing ba licere the adtam ba yau in tach you z ha uid reium ihe dull product with praot of purchase ba ihe dealer rom whom SQUID within ety diys pr pense Jrd yar mene wil be refunded Click on Yes if you agree TITENI FITETET ETTET Oy pte lea unc Chand loan nuno Belus hl ceh 3 The User Information Screen Please enter the required information Please note that the serial number for your copy of the program is located on the back cover of your Guide Manual The installation will not proceed without a valid license number pz Sherk Wy miiie Tres Shield Ad balun rala Pez ador ya niun Ara Click on Next ii rer to Proceed nd fr ITANA phn PA rera dioere E fur peter 12 Stock Study Guide
8. PREFERENCES A General Preferences The Guide s software can operate on any one of three types of functionality Introductory Intermediate and Advanced Each type of functionality has default preferences to best accomodate the different levels of analysis The default setting for the functionality is the Introductory Level This default level may be changed through the Edit Preferences menu item which takes you to the General screen To change the User Level simply select the desired level and click on the Apply amp Close button General Preferences Inroductory Level At the Introductory Level you may 1 choose to open the program without showing its start up or splash screen and 2 choose to open the Guide at the Worksheet screen rather than at the Great Revenue screen The default choice at the Introductory Level is to set the program to open at the Worksheet screen where you can update the stock s recent price LLL x Graph Crinan Graph C MOCHAM MAC US UO ape Cale Backen F PIC AC TAMPA TEN STI BON IC wa ciat 23 R Umari li true F Stew abu ap v o Shue Worker an nean Ca a C T Anye Show Wet Finding Stocks in the Buy Zone 99 The General Screen also lets you set the default folder and a backup folder for locating ssg files or saving gr8
9. 100 ul cuui Arni Ebay Ebay in bun ceay 100 uf ads Viana Haan n nescire rong SUELE revere The quarterly data for this analysis are contained in the Quarterly Data screen which can be viewed by clicking on the tab labeled Quarterly Data This tab is located immediately to the right of the Annual Data tab Note that this screen lists quarterly revenue and EPS data for up to 16 fiscal quarters depending upon availability You can move the cursor throughout these quarterly data using the same procedures as discussed for annual data Finding Stocks in the Buy Zone 23 24 Add or Remove One Quarter of Data This functionality is accessed through the Details menu item Please see above discussion of Annual Data screen Summary Following your review and update of the Worksheet screens you can move the analysis forward by clicking on the Save amp Close in the upper right corner of the Worksheet This action closes the Worksheet and takes you to the Great Revenues screen where an analysis of the company s record of growing its revenues is available Stock Study Guide D The Great Revenues Screen After updating the stock s recent market price in the Worksheet screen the Guide begins to walk you through the process for dis covering a Great Stock The first step in that process is an analysis of the company s historical revenues to see if they
10. 4 Choose Destination Location This screen displays the name of the directory that the installation program creates on your hard drive Stock Study Guide The path that the installation directory sets up is C Program Files CSAComputing Stock Study Guide ip Sherk Sindy miira dir Mero x Laue baler hk iL Woe Cobb un de ge aod Tea ber m Tei rt hee Cad cel gk al Lk Click on Next to proceed m The Stock Study Guide directory will contain 1 the files for the Guide program 2 the sample data file that is used throughout this Manual to demonstrate studying a stock and 3 a subdirec tory containing 20 more data files of prominent companies for you to use when exploring the program s many features You may store the program in a different drive or directory by clicking on the Browse button and making a choice To accept the default or to activate your changed path click on the Next button Finding Stocks in the Buy Zone 13 5 Start Copying Files This screen summarizes the information that you provide to the Wizard If any of this information looks incorrect you may navigate back to the applicable screen by clicking on the Back button Otherwise click the Next button and the next screen will appear indicating that the installation process is underway ITERUM Bandy Tribal Fes nr R2 rabo Fr
11. The material in this Section describes the operation of the Guide when the functionality preference is set at the Intermediate Level The Intermediate Level introduces users of the Guide to its Summary screen and to some additional data that are available for studying a company s profitability in greater detail In part this additional functionality is available to help users appreciate and test the sensitivity of a stock s projected rate of return and Buy Zone to different judgments about the company s growth rates and P E Ratio Additional information and analysis for developing best judg ments based on more than extrapolations of past performance into the future are provided at the Guide s Advanced Level So for now users of the Guide should focus on learning the refine ments to the basic sequential process for studying a stock s invest ment merit that are available at the Intermediate Level To access the Guide s Intermediate Level click on Edit Preferences and select the Intermediate Level on the General screen See Appendix A for a detailed discussion of all available preferences Finding Stocks in the Buy Zone 67 68 x General Graph Culurs Graph Optium Netant Fnider PICA 1 COMPUTING EOM GUIDCTS SUGL or Buskup Fuld FI FRSA COMIS ITIICHETOCK STUY CHIE SOT 7 Uncons tie beckup 7 Show startup screen p e d 7 Show Worksheet on
12. rate of return on reinvested equity capital or the implied growth rate The formula reflects the fact that growth in a company s revenues and EPS is driven by a the proportion of annual net earnings retained in the company and b the profitability of these retentions Stock Study Guide The significance and interpretation of these fundamentals is dis cussed in the following material 1 Retention Ratio Generally a company can do only two things with its annual net earnings retain them in the business or pay them out as cash divi dends to shareowners or a combination of both A company s board of directors makes this decision The Retention Ratio is defined as Earnings minus Dividends x 10096 for descriptive purposes Earnings the proportion of net earnings retained by the firm and available for 1 investment in revenue producing assets such as receivables inventories plant and equipment 2 paying down debt etc For the trailing four quarters Sample Inc retained 88 7 of its Net Earnings That is it paid out 11 3 ie 100 88 7 of its Net Earnings as dividends to shareowners Furthermore as indi cated in the accompanying Growth Chart that Retention Ratio was up 5 4 over the Retention Ratio 11 years ago i e 83 3 Finding Stocks in the Buy Zone 8l 82 ADVANCED ocn came yos ml 126 24 cud Qa maf 137 124 amet yr Ot ora 2 129 3 ye 132 wwe
13. Aarra Datu Date Tieren Nout venit eun sj Ced oa du enema n Cumminiuiimnk t 11 5 I Yiedet 106 Stock Study Guide Begin entering information and data in the Basic Information screen the Annual Data and the Quarterly Data screens There is no minimum amount of information or data required for these screens however it is preferable to have 1 at least 5 years of annual Revenues EPS DPS and fiscal year High amp Low Prices and 2 at least 8 fiscal quarters of Revenues and EPS After entering all available annual data click on File in the main menu and select the Save amp Close option to save your file as a gr8 file In addition you can save the data that you ve key entered as a ssg file by accessing the Details Export to File functionality in the Worksheet Screen Finding Stocks in the Buy Zone 107 APPENDIX B B Finding an SSG or GR8 file Stock Study Guide lets you search for ssg files or gr8 files using several conditions You can search for a file by Company Name Ticker Symbol Exchange Industry Most Recent Fiscal Year or by performing a Generic Text Search Note All ssg files are named according to the company s ticker symbol The ticker symbol for a U S based company is followed by US T
14. Oct ume yos nF sae cured y Q2 175 2 ami umwiywot 7 7 1205 woke m emi Ty wf me 3 eR 16568 sni awe ae be Pty deny aee ME mE 9 SICA ed rne undi 6 yag 12 mi anh osar S000 el Tw wh seach wp 17 them 0999 3 mE wl o aei R Ouch bow Ast wre ash mym 168 sni jha HMymmags 140 wh sar yns Asset Efficiency Madrun 2 142 620 BTI of ter Average s m 325 vary 8 00 et Sooty Mrirur 115 3 4 mms ATS eee TON Reme HH it Net Lars ror tin vary 8 00 ct wp 17 m 1988 Annate Faty Det For Sample Inc removing idle cash from the Asset Efficiency cal culation shows that the efficiency of the rest of the assets typically receivables inventory fixed assets etc in generating revenues has declined by 17 during the study period instead of 2 Similarly the company s Equity Efficiency calculation shows a 17 increase in reliance on debt to finance non cash assets during the study period instead of no increase in reliance on debt 5 Summary Values for the Efficiencies The Maximum Average and Minimum values for each of the three components of Return on Equity are reported in this screen Note that the Maximum values for each of the three components when multiplied together produce the Best value for the Return on Equity reported
15. irn un Myn pean bo reader change ara ob srar indir cd Hinr rnt fe Cni Canal m coal pacar utin solup Click on Next to Proceed Dezel lea Pubs Co aya sel de Sk sae Lek eer nham Wage 223 LOW xx OCDE CRX T rui Hid d Tek Ted Cannel After the Guide software has been installed completely you will be prompted to restart your computer It is recommended that you do so Congratulations your installation of the Guide Software is complete Stock Study Guide SECTION 3 USER LEVEL INTRODUCTORY ANALYSIS A Introduction The following material is intended to walk the user through the sequential process for thoroughly studying a stock s merit as an investment That is 1 First you review a company s history of growing its revenues then you make your best judgment about the revenue growth rate during the next five years 2 Next you review a company s history of growing its Earnings per Share EPS then you make your best judgment about the EPS growth rate during the next five years 3 Next you review the history of the prices that have been paid for 1 of the company s EPS then you make your best judg ment about the price that investors will pay for 1 of the com pany s EPS in five years 4 Next you identify the potential reward and rate of return from owning the stock during the next five years 5 Last you make your best judgmen
16. screen provides you with the opportunity to estimate the stock s potential for a price decline The Guide then compares that downside risk to the upside reward of the stock s price increasing during the next five years A reward risk ratio of less than three suggests Great Risk Finding Stocks in the Buy Zone Overview These are the five intuitive steps of the Guide s stock study process for identifying Great Stocks A Great Stock is from a company with Great Revenue and Earnings Profiles trading at a Great Price with a potentially Great Return but without great risk A summary measure of the attractiveness of a stock s recent price is available in the Great Risk screen which calculates a Buy Zone for the stock A Great Stock is typically in the Buy Zone In addition the Guide contains a Summary Screen where all the key data and your judgments are available Stock Study Guide SECTION 2 GETTING STARTED A Installation Requirements Minimum Requirements Processor Pentium 166 Mhz Memory 32 Mb RAM Monitor SVGA or Better Resolution 800 x 600 higher resolution will alter screen display and printing Colour Settings True Colour 24 bit Hard Drive Storage 100 Mb Operating System Windows 9x NT 2000 ME XP CD ROM 2x or higher Finding Stocks in the Buy Zone B Installation Instructions Please begin to install the Stock Study Guide program by inserting the CD ROM into your computer
17. 11 40 Projected 15 mae Da 104 2 4 nod Pec 10 Dese Wwterical Pra Ciwrent Vaar 18 Yr Avenge Mee Pr 10 n san gt Li 172 Recent aw aye 1 11 Leow pim 174 Relates 118 lipida 7 Pree Yra Powered A Ge Hein n wre nm Uprad Near bees Hate Ire Pun of heun A Provasion fee a 2 amp ixvrdodeeiu KW Price thee 9 24 of Powurd fur cucti 3 of emote Not 8 Lori rome 5 Neveu E55 and 4 11 tos Ana Yat oaan roti ut on zj ema Stock Study Guide C Additional Data The Intermediate Level provides additional data to assist you in developing judgments about a company s future revenue and EPS growth rates These data are discussed below 1 Quarterly Data To view the additional quarterly data that are available at the Intermediate Level click on Data Worksheet in the main menu Then click on the Quarterly Data tab Fo weht SAAT TNT inj xj Fk Wow Diab Bust ldem Datu Quarterly Duta c yar O2 1 yer gr 25 JT 92 U2 U 1 139 122 Ort 2yn ego 116 1150 Fyraa qi zus 121 5 M3 Ul 1 110 233 e 2 NN aw 4 non 110 n 2 qt 252 2 0270 1222 275 Jysage 2252 man ma nam my 4 qi ans as a UIJ 235 er Jyrage 2
18. 138 w O2 we orety Ol wsk 123 ust year mak 132 pza Wi z span 53 09 Seve a Tee 13 LI twee rs LE lus Li 10800 wsk 143 25 nysa sah 125 ws More 704 ms Awg 59 Min 13 LE Marad on mas nin efficiencies Tt wa we 18 Avoa U53 ne 4 a 3s Anomaly Companies often build up cash is actually used This Sustainable Growth amp its Components SAMPLE INC 18 xj Retention Ratio wp 65 fom 1000 274 om 1 quay ap WU bem 1000 19 Sustainable Growth 10 tom 900 722 w Set wrary 900 et Revercar ap 21 tem 190 Arrate Debt their cash balances in anticipation of acquisitions major asset expansions etc Because of the low returns earned on cash the Asset Efficiency Profile of these compa nies often indicates a downward trend for several years until the trend is also reflected in the company s Return on Equity and Sustainable Growth Rate calculations You can check for significant cash balances by clicking on the check box labeled Remove Cash From Assets Finding Stocks in the Buy Zone 95 96 JM ER vow Duda Wade Mp zit xi Grass Summary bywy Ammi Bonneau Wt Components of Return on Equity rt 5221 SAMPLE IC
19. 2 Lol XX 25270 Terentio ines Pra Pick 2 Upside Reward FAM prom Ug prom Prec Nev Hewa 3 Upsije Reward vs Downside Fisk there 099 ul Mc tor nach 1 Mat US 164 Cham Pres Probe 11 Yours Lat Am Suel Prices Prol ul L The following material describes the information and analysis available in the Great Risk screen 1 Calculating the Downside Price It would be heroic not to expect a stock to decline at least tem porarily after you purchase it The Program takes a 20 decline as the default decline in a stock s price from the Recent Price Stock Study Guide That is the default Downside Price is set at 80 of the Recent Price Downside Price Recent Price X 8096 28 50 X 80 22 80 Guideline for the Downside Price It would be unusual but not impossible to allow for less than a 20 decline in the price of a stock following its purchase 2 Calculating Downside Risk The Downside Risk for a stock is calculated as Downside Risk Recent Price Downside Price 28 50 22 80 5 70 3 Great Risk It is difficult to characterize the potential loss of 5 70 per share as representing Great Risk without reference to the amount of money used to purchase the stock and the potential gain from owning the stock if one s judgments prove accurate Accordingly the Guide calculates the Upside Reward for the stock based upo
20. eet E yow su Rayo IW Pee si let ee T2 um eni o lsd 3 aal 4 ream wav we uw betwee 153 von un T ys eo a 3 by ago Zu iv us Bur oon Zu v eae 103 10 yrs tioa 109 Use 11 mw tera l nan he hamd panle pr f 255 inert Coreei Year e Year x 3 Projected Revesue _ Mus Fusdasscstats 1H Frojactad mh Rate ect 5 wre 1895 T grum Vruscctod Pio mi Cerci You ra Projected Fran Yeas Foran M Revenis 11 Years Ay i Sunt Note ut 1n S Finding Stocks in the Buy Zone 29 JM rhe tb Vias Werk Hop 16 Great Rewermes Great EPS Great Price Great Retera Great RISK Summary 4 zal loran Revenue Growth Historical amp Projected Coumpustid Gi uw 1 SAMPLE doc E kra yew qx Rayo 1 Fea inte wa Uw Imama oni dive 163 4 ream wn indie we tmo wm itive 159 fy von aas ie iiye 169 ys a hate uM b yrs ago 25 E 122 um zu iv dae 193 10 yrs ago 2 lsg 10 yr 125 Dp Reve ramo Trend Line 2 m Hover Dos hamd roe Ier B A 2 rana Mure c husemi ety 3 Projected Revenue Projected ooh Rate te 185 h par yaw Vruscctod Pieve m
21. ms mmm T 1 Vvremraim Priis Projected Cert Mata 38 tern 5 Coresrese AGO por yaw Projected Current Van uc 0100 Projected 1 pakin TPA Prom Yeas Forever oe 2 11 1 11 Years Lat gt Years s Year ur revere iro ot Srs irais ut ED sj Finding Stocks in the Buy Zone 37 38 The following material describes the important features and use of the information contained in the Great EPS screen 1 Location of the EPS Profile The historical EPS data have been plotted so that the EPS Profile begins at the intersection of the horizontal line labeled 2 and the vertical line labeled 11 Years Ago Note that any EPS number may be removed from the analysis by clicking on the check box adjacent to the number Changing the Location of the EPS Profile You can relocate the EPS Profile by changing the value in the Start EPS Profile at box Generally you prefer to have the EPS Profile located lower on the Growth Chart than the Revenue Profile JA Me EM Won Dua Werke Hop Revenues Great EPS Great Price Great Return Great Risk Summary 1 Hindu ica E oe rong Pia Sisan PS EPS Growth Historical E Projected rv owth 2 SAMPLE Oct ost Yous R aw kra yew nsh YU Pea ind Pee age tiye i2 a 4 yt von use int tye wn Syam ity un fy von indie ay wm T ys
22. oe Sustainsbic Growth ug 18 tem 1900 11 Years law nd 5 Yours Yew roae All other things being equal the higher the Return on Equity the higher the Sustainable Growth Rate Accordingly growth oriented investors generally look for a Return on Equity Profile that is at a high level with a flat or rising trajectory A review of the annual data and the Return on Equity Profile for Sample Inc indicates that the Return on Equity had declined sig nificantly during about the first half of the study period to 6 90 of earnings for every 100 of equity but then returned to the 12 13 level quite steadily during the latter part of the period Stock Study Guide 3 Sustainable Growth Rate ww Du Widow Ho zii xi Sastanak Grawe h tfhciencex Summary Arenstion Rahim cn Seersimahin Sustainable Growth amp Its Components rt Rates Cay Growth fh SAMPLE Imc 007 120 121 cunc yr OE mea F2 137 rot safe 123 3 miye 132 my reals ws ws 3575 98 5 gt 87 amoa 67 ha 7 pose US ARN get Vidi Sem MaR na 7n oy Gya mu t3 s7 Ple ofa dun Tree 73 ef ayce sa 8 oso ws yee FSE 126 Hysa MIF 125 te Madmum 204 142 125 Average as 103 43 Dazsts erri Scenarios Dasad cn max Inin atficanciat Dert 94 201 182 fme wy MR 109
23. over revenues during the first three quarters Last Year Finding Stocks in the Buy Zone 33 34 JE ric Vise Dua Werk Help Great Revermes Great EPS Great Price Great Retera Groat Risk Summary E dodi Forero m oct lane kra yow v niv 4 yt on ov on Gyre on an 7 ws ago By zai 1D yrs ago 2 mv Compustd uwha Tues je yor 159 1 lad 2 w uw led lye ied tee we led See 159 led Gyre hats v3 UM tut Ore us inet UW laiOgs 195 Use 2 m Hoeven Dis bmd com Doer c 75 Mune pr Curreet Year 1 Year 3 Projected Revesue Erjactad foros Rate Maat te T 185 amp per yw Vruscctod Pom ai Cur Y cur ra Prejacted Pavarsia From Yann Fora oc seri 1 Years Lane 5 Years m Morons ot fn Revenue Growth Historical amp Projected SMART nm Henis 1 Curent Yaar Guideline for Revenue Growth A general Guideline is provided to assist you in developing a reasonable judgment for a company s future growth in revenues It would be unusual but not impossible to project rev enues to grow at more than 20 for a period of five years or more Note that the Program emits a warning message whenever the
24. through the View Notes menu item Notes may also be present in datafiles obtained from Canadian ShareOwner see Appendix B 2 Annual Data Screen The intuitive process followed by the Guide to study Sample Inc s merits as an investment begins with an analysis of the company s historical record of growth in annual revenues and earnings per share EPS Werkslicxt SAMISUE INL Fin Tr Date Basic Intermahan Date Guastnsiy bata ee e Pt Pm m Od s 5 117 106 nit 449 152 1925 1 Jye MA A 127 nas 1012 an 4 yt ase ene usb 139 sU eu ray Syse na nw 7m S Ux IE uur 1050 10 na 1125 nan ara Bye ago 2 US E7 sn usu Mh nas 71A naa nm Wyse my Uw uss 353 TU ago am am nas nn nan 5n NA Hut E uui Elcg i gora orm areste ra 100 ul cuui Arni Dbamy in bun crap 100 uf acts 1 Haancy 1 Honey mn nene ase fran avers of rwn The data used in this historical analysis are contained in the Annual Data screen which can be viewed by clicking on the tab labeled Annual Data This tab is located immediately to the right of the Basic Information tab Stock Study Guide The Annual Data screen lists data fo
25. 658 1 Projected Revenue aM Prrincted Grew Rate tat te par yane Irurtia m Cum You ra Sistem Prejactad Pavarsia Fran non Fort ie vee Current Year 11 years Lat m Sur oara Ionic ut f n The following material describes the important features and use of the information contained in the Great Revenues screen 1 Location of the Revenue Profile Observe the Revenue Profile plotted on the Growth Chart The Y axis of the Growth Chart is a semi logarithmic or ratio scale There is no linear correlation between the actual revenue data and the 1 10 100 200 scale The profile is the result of a mathematical calculation that allows the company s growth to be plotted The company s historical annual revenue data Section 1 of the screen are plotted on and to the left of the thick vertical line labeled Last Year Stock Study Guide Furthermore the revenue data have been plotted so that the Revenue Profile begins at the intersection of the horizontal line labeled 10 and the vertical line labeled 11 Years Ago Any revenue number may be added or removed from the analysis by clicking on the check box adjacent to the number The company s trailing four quarters of revenue for the current year are plotted immediately to the right of Last Year s vertical line Changing the Location of the Revenue Profile Sometimes the historical growth rate for revenues is so large a
26. A mons x Hop sini Dont 5 Click on the browse button then double click on Update exe in the directory you saved it in and click OK h Follow the on screen instructions of the installation program to install the update 3 Reinstall Stock Study Guide Many operational problems can be solved by simply rein stalling the program If you encounter problems reinstalling the Guide software delete all of your Guide application files Do this by using Add Remove Programs located in the Control Panel from Windows Start Button Finding Stocks in the Buy Zone 113 114 Internet Support FREE Review our internet knowledge base 24 hours a day all year long to review questions and problems posed by the users themselves and the responses from the technical support staff Internet Support www ShareOwner com support htm Fax Support FREE Another way to receive support is to FAX your technical support request Please include the following information List of steps necessary to recreate the problem Product Version Number available from the Help About main menu of the Guide After our technical support staff has had a chance to review your FAX one of our support representatives will respond to you FAX Support 416 595 0400 Mail in Support FREE If you prefer you can also contact us by mail with written questions or comments Please include the following information
27. Currend Your ra Projected Fran nen Forsand oe doen liens ridi 11 Years Lane m Sur Hote The second line in the Compound Growth table reports the growth rate during the last 2 years at an average compound rate of 16 296 per year ie growth from 689 million to 930 million The bottom line in the Compound Growth table reports the aver age compound growth rate for the entire 10 years of the study period namely 19 5 per year Note that all growth rates are calculated from the slope of the least squares regression lines drawn through the applicable set of revenue data This straight red line on the Growth Chart is referred to as the Revenue Trend Line and represents the longest study period available from the revenue data Stock Study Guide The Quality Statistic Accompanying each revenue growth rate is the R2 pronounced R squared statistic which is referred to more simply as the Quality Statistic This statistic is used for describing the straightness of a Revenue Profile The Quality Statistic is available from the regression analysis The maximum value for the Statistic is 1 00 when the data all line up and form virtually a straight line When there is no linear relation ship in the data at all the Statistic has a value of 0 Generally val ues for the Quality Statistic between 0 90 1 00 indicate very con sistent growth 4 The Defa
28. Guide Part 10 g IT TT T TTT Tal Canadian ums Canadian hareowner Canadian Tire Corp Shareowner Penney JC Co Stock Selection Guide Part 1 25 Stock Selection Guide Part 41 TTTT TT WT T TITTET T Sharcowner Wal Mart Stores Home Depot Inc REVENUES See how easy it is to discover a Great Stock See how easy it is to discover a Great Stock nem Recent mem pem As of November 1998 Earlier Yer Year Finding Stocks in the Buy Zone F The Great Price Screen After finding a company with Great Revenue and EPS Profiles you can conclude that you ve found a Great Company Now the Guide s process for discovering a Great Stock continues by investi gating whether or not the Great Company s stock is currently trad ing at a Great Price The focus of that investigation is a comparison of the price that investors are currently paying to become the owner of 1 of the company s EPS and the price they have paid in the past A Great Price is indicated when the current price is relatively low JE Pic Yew Dua Werke Help ala xi Great Revermes GrestEPS Great Retana Great Risk Semmary A aed Haw md PA Ebel eens Price amp EPS Historical Relationship Market Price 5 PT Ration INC doc e law TPS M Mah law bay
29. Qa 097 57 10317 amtyl ss iv w yw e me Feed my E E T woo Sii E 2 amm Bia Smm mE my naw 42 FES twee deb hte 100 of Equity dime 29 non 1000 Merov Cunt from Arata ysg ssk wil ue nef hi2 1 Hyma SR pa Y 3 116 t2 1 Ms t Arenga ses every 100 wmn E domm ons BOOK Efficiency 30 97 ctt Camisgr tum evum FIND of as 179 1008 S Dont Stock Study Guide Equity efficiency is calculated as Total Assets x 100 for descriptive purposes Total Equity For Sample Inc s trailing four quarters the company had 182 of assets for every 100 of equity Given that assets equity debt the company had 82 of debt for every 100 of equity virtually unchanged from the start of the period when there was 86 of debt for every 100 of equity Pros amp Cons Generally growth oriented investors experience mixed feelings about the level of a company s Equity Efficiency For example these investors generally prefer a prudently high value for Equity Efficiency because it contributes to a high value for Return on Equity and for the Sustainable Growth Rate Accordingly growth oriented investors would be looking for an Equity Efficienc
30. Return 2 86 x 20 0 57 20 minus 28 50 28 70 x 100 101 Upside EPS Upside P E Upside Price Recent Price Upside Reward 28 50 Simple Hem Recent Price Price Return Conversion Table 15 0 0 9 15 9 Dl Simple Price Return 27 34 47 61 75 93 101 110 129 149 182 205 244 271 Compound Annual Dividend Upside Compound Annual s 6 8 10 12 14 15 16 18 20 23 25 28 30 Price Return Return Rate of Return 5 Great Risk 6 Reward vers Provision for a 20 0 decline in the Recent Price to 22 80 Reward 3 Downside Price 5 04 of Reward per Risk 5 70 dollar of Risk 28 50 minus 22 80 5 70 _ 00 A Recent Price Downside Price Downside Risk 7 What is the Buy Zone Upside Price minus Downside Price 57 20 minus 22 80 34 40 Zone Size 11 47 3 3 3 Zone Size F BUY ZONE MAYBE ZONE m SELL ZONE 4 Downside Price Upside Price 22 80 1147 34 27 1147 45 73 UEM EE gt 57 20 Zone Size Zone Size The Stock s Recent Market Price of 28 50 is in the Buy Zone 1999 Canadian Shareowner Magazine Inc Adapted from the Stock Selection Guide of the National Association of Investors Corporation Stock Study Guide SECTION 4 USER LEVEL INTERMEDIATE ANALYSIS A Introduction
31. SINtrOdUCtION er ERE REN UR VR ERA ER Dee Cat we SON Seen 15 B Studying the Sample Company 0 cece eee cece ee eee ereenn 17 C TheMorksheet wisst aee ecco ol des 18 Basic Information Screen mes cotan nenta ceiui ce cece as 18 Annual Data Screen 2 cv epe va Ee BER A PAN RATS Ads 20 Quarterly Data Screen s ide pepe Ried hp er eb ee erede Eaten NG 23 D The Great Revenues Screen 25 E The SGreat EPRS Screen ot vetitis t eda tuer et 37 FE The Great Price Screen sii c euer rai Vere ear x oe Yun Hate 48 G The Great Ret rn Screen ios merece eU eb AU en e ox deen 56 H The Great Risk Screen deese e eR step ERES ER EUR S 60 l Saving the Analysis as a GR8 file essel 64 Section 4 User Level Intermediate Analysis A Jritrod cti nc 5 due urea tena ec Potes Ram eT rect RU Fa are RR 67 B Using the Summary 70 Additional Data 5 65e ub Ba Sige ede ats eo mea 71 Section 5 User Level Advanced Analysis As ntrod ction EL o e E e epa dep da 75 B The PE G Ratio ug eons cte Reed uere rut ees vues VR Ns 77 C More Fundamentals saa re er e dor exa Aor AH ACAD eR ace egi widens 79 Appendix A Preferences A General Prefe
32. company s EPS When the PE G ratio is about 0 80 or less it may be indicative of a projected EPS growth rate that is unduly optimistic Alternatively a PE G Ratio greater than about 1 2 may indicate a projected EPS growth rate that is unduly pessimistic As with all ratios a second set of interpretations for the PE G Ratio is possible For example a PE G ratio of about 0 80 or less may be indicative of the market underpricing the company s future EPS growth prospects Alternatively a PE G Ratio greater than Finding Stocks in the Buy Zone 77 78 about 1 2 may indicate a market that is paying an excessive price for future EPS growth Neither underpricing nor overpricing of future EPS is indicated with a PE G ratio of about 1 0 Caution is clearly required when interpreting the significance for you of a stock s PE G Ratio With a PE G Ratio of 1 03 buyers of Sample Inc are paying a bit more for 1 of EPS than the company s projected EPS growth rate which suggests that the stock s recent price does not reflect over pricing Stock Study Guide C More Fundamentals When operated at its Advanced Level the Guide gives you access to additional company data and analysis that can help you develop a more informed best judgment about the company s future rate of growth in revenues and EPS than available at the Introductory and Intermediate Levels Access to this material is provided through the More Fundamentals
33. complete an initial study of a stock see page 70 Once you ve studied a number of stocks at the Introductory Level and are familiar with the program s stock study process you may find it convenient to study a stock initially from the Summary screen with reference as needed to the detailed screens available at the Introductory Level Simply click on the check box to enable access to the Summary screen when the program is opened 2 The Disable Judgment warnings preference is unchecked This preference is available to users who have learned the vari ous Guidelines for judgment available at the Introductory Level that are an integral part of the stock study process Simply click on the check box to disable the appearance of these judgment warnings Once you have selected your preferences at the Intermediate Level click the Apply amp Close button Finding Stocks in the Buy Zone 101 102 General Preferences Advanced Level When the Advanced Level is selected on the General Screen the default preferences change to better accomodate an advanced analysis of a stock you may change these preferences by clicking on the applicable check box Pretereares Graph Graph Gave Fuluci CE OCRAM LACS UI IS LUU YOU C pol Backen Miter F ROAM FIIIT wn cpm 23 R Umari Llc bday F Arw aoa ap wo ec o T Shea Warkriast an C
34. default projected revenue growth rate exceeds 20 or whenever the user enters a number greater than 20 in the Projected Revenue Growth Rate field Stock Study Guide Revenue Judgment Warning x It would be unusual but not impossible to project revenues to grow at more than 20 0 For a period of five years or more Do you wish to continue with the judgment you are entering For illustrative purposes the judgment was made to project Sample Inc s revenues to grow during the next five years at an average compound rate of about 15 per year This rate is some what lower than the average annual growth rate during the last 10 years somewhat higher than recent annual growth and quite a bit higher than recent quarterly growth in revenues In effect this illustrative judgment projects revenues to continue their historically strong growth into the future It should be noted that another investor using the same limited information as avail able here could arrive at a significantly different judgment about the company s future revenue growth rate The wisdom reflected in a judgment about a company s revenue growth will become evident during the next five years Typically the skill with which you generate judgments about future revenue growth and your level of comfort with the process will increase with practice To effect this judgment left click on the highlighted data entry box labeled Projected Revenue Grow
35. files Please note that ssg files are data files that the Guide uses in its analysis of a stock gr8 files are the output files from your analysis of a com pany s data To change the default directories click on the folder icon to the right of the Default or Backup Folder fields and select the directory that you want the Guide to default to when looking to open or save ssg or gr8 files Once you have selected your preferences at the Introductory Level click the Apply amp Close button General Preferences Intermediate Level When the Intermediate Level is selected on the General Screen two new default prefer ences become available You may change these preferences by clicking on the applicable check box ILCONENESSGS UO x rapis KAUAI ALAC UC OUS UU YOUR pela Ca Backen F BROT PARC AC FAMPATTBIA TER STI BN IPC wapa 23 R Ord li sdy F Drew aoa ap we ec Shane Warkriant an npan C Mmuducny T Stew Sumay et ug m T Jude Vias iara C annad ov Piwne Stew Wet 100 Stock Study Guide 1 The Show Summary Screen on Open preference is unchecked This preference is available because the program provides users with a Summary screen at the Intermediate Level in addition to those screens available at the Introductory Level The Summary screen contains all of the key data and judg ment boxes needed to
36. i NOTICE CSA Computing Inc licenses the accompanying software to you only upon the condition that you accept all of the terms con tained in this license agreement Please read the terms carefully before continuing the installation because the Yes button will indicate your assent to them If you do not agree to these terms please press the No button to exit the installation because CSA Computing Inc is unwilling to license the software to you in which event you should return the full product with proof of purchase to the dealer from whom it was acquired within sixty days of purchase and your money will be refunded LICENSE AND WARRANTY The software which accompanies this license the Software is the property of CSA Computing Inc or its licensers and is protected by copyright law While CSA Computing Inc continues to own the Software you will have certain rights to use the Software after your acceptance of this license Except as may be modified by a license addendum which accompanies this license your rights and obligations with respect to the use of this Software are as follows YOU MAY 1 use only one copy of the Software on a single computer 2 make one copy of the Software for archival purposes or copy the software onto the hard disk of your computer and retain the original for archival purposes 3 use the Software on a network provided that you have a licensed copy of the Software for each computer that ca
37. is described below and more information and analysis is available at the Guide s Advanced Level As well the publication Discover the Great Stocks to Buy provides further discussion and lots of illustrations for developing judgments about future EPS growth Introductory Level Judgment To begin developing a judgment about the future rate of EPS growth for Sample Inc you would review the data in the Compound Growth table and note that EPS growth during the last five years was at the 20256 3096 level while average growth during the entire 10 year period was only 12 9 As well you would also review the Interim Revenue data in Section 2 of the screen and note that for the first three quarters of the current year EPS were up 10 5 over EPS during the first three quarters Last Year Furthermore you would note the consensus estimate of security analysts estimates for the company s EPS growth rate during the next five years available immediately beneath the default EPS pro jection namely 1896 Guideline for EPS Growth It would be unusual but not impossible to project EPS to grow faster than revenues for a period of five years or more Stock Study Guide Unless disabled a warning message pops up whenever the default projected EPS growth rate exceeds 20 or whenever the user enters a number greater than 20 in the Projected EPS Growth Rate field For illustrative purposes the judgment was made to project S
38. merit being described as Great Revenues Generally Great Revenues are evi dent when a company has a long history of growing revenues at a high rate consistently from year to year and strong prospects for continuing to do so during the next five years The history of a company s revenues is easily available from the Revenue Profile presented on the Guide s Great Revenues screen Great Revenues are reflected in a Revenue Profile that is long steep and straight The Revenue Profile for Sample Inc is presented below along with details about the information contained on the Great Revenues screen Together the Profile and its related information help you decide if a company has Great Revenues Finding Stocks in the Buy Zone 26 JE ric tb vew Werke Help 21e xl Groat Revermes Gres EPS Great Price Great Retera Great RISK Semesary 4 loran Revenue Growth Historical amp Projected Rasanin 2 UC mE dorf Tors hac E kra qu ayer 159 110 Fea int ee w Us snw tiye tym wipe tiye ws uw yon wav indie fy aas wehiy un 7 7 0 0 btw v3 by age 255 ties 192 US i ME Byron 2517 wta Uw IDyaago 20877 1 10 195 yrange nu 2 lita m l nan Dos bmd cquo lon sc 7 2 Creet par Lae Year 2 Pu
39. more of its practices during the current year the actual growth rate for the current year will differ from the calcu lated growth rate Finding Stocks in the Buy Zone 97 Reducing the Growth Rate Here are some practices that cause a company s actual growth rate for the current year to be less than the calculated sustainable growth rate e Using retained earnings to pay down debt repurchase shares or hold as cash e Increasing the cash dividend paid to shareowners e Selling more common shares Increasing the Growth Rate Some practices that cause the actual rate of growth in the current year to exceed the calculated sustainable growth rate include e Raising the selling price of products and services or lowering production costs e Reducing any excessive cash inventories or plant and equip ment e Increasing the effectiveness of product advertising or sales force incentive programs A Benchmark For Judgments About Future Growth The availability of the sustainable growth rate calculations pro vides users of the Guide with an understanding of the key financial and operating fundamentals that influence a company s growth in revenues and EPS In addition the calculated values for the Sustainable Growth Rate often provide useful benchmarks for developing a well informed judgment about the reasonableness of various revenues and EPS projections that may be developed with more intuitive methods Stock Study Guide APPENDIX A
40. rate of return available from the stock s price increasing from the Recent Price to the Upside Price during the next five years namely 15 0 2 Calculating the Best Worst and Average Dividend Yields Observe the range of Best and Worst dividend yields during the study period These yields are calculated as follows Dividend per share Best Yield x 100 Low price Worst Yield Dividend per share x 100 High price Exercise judgment and decide either i to keep all of the dividend yields in the analysis or ii to remove unrepresentative dividend yields from the analysis To remove the dividend yields for a particular year click on the box adjacent to the Worst Dividend yield for that particular year A detailed discussion of the justifications for removing dividend yields from the analysis is available in Discover the Great Stocks to Buy Also reported are 1 the average of the Best dividend yields during the study period 1 1 ii the average of the Worst dividend yields 0 7 and iii the average of the Best and Worst averages 0 9 Finding Stocks in the Buy Zone 57 58 JA Hic Yew Da Wark la xl Great Revermes Great EPS Great Price Great Retera Great Rick Semesary A lodan Bo uem Perce Pive Years Pormard we Price amp Dividends Historical Relationship wn x 000 Carers SAM um Upe 4k nuc 3 tis t Price Rt
41. recent price A Great Rate of Return is gen erally considered to be 15 or higher JM Mie Yew Werke Great Revermes Great EPS Great Prke Great Retera Groat Risk Serrmary ate Voi m bina Pace Pive Years Forward ic X XD Upe LE me Prica 2 Main uf Vosa Bo H Menus Mee f uh Low Ursi lus 06575 nm n11 2 IRS 1n13 tp 7 0 Syse Aw Eys 1077 7mp 11 7 bysego 722 Syse 713 10 too 551 10 var Dividend eium Orci uid Ana eye Draci 2 Projected Upside Rate of Retera 157 Owekred Carre 955 hee tae Drar Roter Wut no avv 1 1 1 1187 1 ams 1 07x 11 nn 1 ams omy 1 omy 115 17 un i nn Upe Belt ut Pua Nev Mien SPS schit cepen Erbit 2555 HI 11 Years Price amp Dividends Historical Relationship SAMPIT INC Frotk 2 2 Sul Prices SBS Prol ul sl The following material describes the information and analysis available in the Great Return screen Stock Study Guide 1 Calculating the Upside Price Observe that the Upside EPS repeated from the Great EPS screen and the Upside P E Ratio repeated from the Great Price screen are multiplied to project an Upside Price in 5 years for the stock namely 57 20 The Program calculates the compound
42. s CD ROM Drive To activate the installation program click on the Windows Start menu in the lower left corner of your screen Click on the Run option Type DA SETUP EXE then click OK Tae reae apa oe foes 1 indore Buna Ard ade vell npa Fra pai Ferr xt n d cm Be Note Most computers have D as their CD ROM drive howev er if you have multiple hard drives or other added peripherals Stock Study Guide your CD ROM may be EX F etc Please make the appropriate substitutions to the above instruction The installation program s Wizard now walks you through several screens that make the program available and your files easily accessible You proceed through these screens by clicking as required on the Next or Yes buttons at the bottom of each screen The screens are 1 Welcome screen Shirk Charty Amide tbi Biren B icome te the Wizard tor Stacic Efurty Guide Tha eh dade R reins Tek ne Fa rie m yin de Hc Click on Next to Proceed WAU 1 paupa uice peo od lose a el Frasi me gt tand 2 The Software License Agreement After reading the agreement click on the Yes button if you agree to adhere to the license and the installation will proceed or click on the No button if you do not wish to agree to the license and the installation will be cancelled
43. this Manual it has been assumed that the user has access to a ssg file for Sample Inc that the Guide could open and analyze The most ready source for ssg files is a subscription to the Database on CD Service available from ShareOwner Six times each year you receive a CD containing updated ssg files for thousands of North American companies Visit our online store at www ShareOwner com for more details Alternatively you can access the Data on the Internet Service where ssg files are updated weekly by visiting www ShareOwner com and downloading individual ssg files When you do not have access to a ssg file for a stock that you wish to study you can still use the Guide to analyze the company s investment merits First though you will have to collect the required financial data about the company You may obtain the required company data from possibly the company s annual report or web site a third party source such as the Financial Post Data Group Value Line Standard amp Poors a full service broker etc Finding Stocks in the Buy Zone 105 APPENDIX B Once collected you can begin key entering data into the program by clicking on File in the main menu and selecting the New option which will take you to the Basic Information screen in the Worksheet window Yew Ute Work Drm aj Creer Qus B DA esu VIE INT Fk b Won Duab
44. u wsi 1925 113 553 imam 25 tu Usb 154 ui Svea ES ss use w fur on 1050 xo sI 1125 uss s ne Bye 22 ux mok 7 19 Ux2 2 nsi 10 ago 6 53 uw 63 i TU Y cur ME Habs Orci al Ama eye P Haw 113 8 2 Current Year Price b pum i 14 Recent Mb MI 448 m maw 174 5 2 Protected Unsiie 20 Por Pive Years Forward tos Looe o ee SES Proc ult B s Exercise judgment and decide either to i keep all of the P E ratios in the analysis or ii remove any unrepresentative P E ratios from the analysis To remove the P E ratios for a particular year click on the applicable check box for that year Finding Stocks in the Buy Zone 49 50 A detailed discussion of the justifications for removing P E ratios from the analysis is available in Discover Great Stocks to Buy Also observe that 10 Year Averages have been calculated for the High and Low P E Ratios as well as for all of the P E Ratios namely 21 0 13 6 and 17 3 respectively 2 Calculating and Interpreting the Relative P E Ratio Observe that the Recent Price for the stock 28 50 is the price loaded with the ssg file when the Guide for Sample Inc was creat ed This price may be updated on the Basic Information screen available through the Data Workshe
45. user of the Guide While care was taken in compiling and verifying the information and data con tained in this publication because of the possibility of human mechanical or print ing errors the accuracy of the information and data cannot be guaranteed The Companies Companies listed or mentioned in this publication are there for illustrative purpos es only and their inclusion in this publication should not be construed as recom mendations to trade securities of the subject companies The publisher does not give any advice to readers regarding the investment merits of any security Views Views expressed herein are those of the author s and are subject to change with out notice they do not necessarily reflect the opinion of the publisher Published by Canadian ShareOwner Magazine Inc 4 King Street West Suite 806 Toronto Ontario M5H 1B6 Copyright Canadian ShareOwner Magazine Inc 2005 All rights reserved Reproduction in whole or part without written permission is strictly prohibited Eighth Printing ISBN 0 921468 12 1 Stock Study Guide is a trademark of Canadian ShareOwner Magazine Inc Acknowledgments This Stock Study Guide software is a computer based adaptation of the Stock Selection Guide published by the National Association of Investors Corporation NAIC The original version of the Stock Selection Guide was cre ated by George Nicholson Jr who was also instrumental in the formation of NAIC and the Wo
46. y FINDING STOCKS IN THE Buy ZONE WITH THE STOCK STUDY GUIDE Bringing you superior returns like these Gavin Bogle Bought a Porsche David Nelson Paid for his wedding Arthur Comely Paid for his daughter s University Education Vivian Giddens Travelled to the Orient Bought a Porsche e Consistently Superior Returns Since 1987 STOCK STUDY GUIDE FOR SUPERIOR STOCK SELECTION amp REJECTION USER S MANUAL Version 1 1 DISCLAIMERS The Information and Data The information and data and their representation in a graphical format in this publication are intended to assist investors in studying stocks using the Stock Study Guide Guide To simplify the discussion of numerical data for the companies described in this manual the text refers to all data as if they were the most recently reported data For example last year always refers to the fiscal year before the current fiscal year and the current year always refers to the first of five years going for ward into the future The Recent Price refers to the price for the stock at the time the Exhibits were prepared Users of the Guide are solely responsible for the results of any stock analysis using the Guide and the information and data contained in this publication The pub lisher provides no guarantee whatsoever that the use of the information and data contained herein will result in investment results which are satisfactory to a
47. 7 182 5 7425 ann nam Gt 16423 mis 4 vx go O4 1806 2 n2nn nam os 4 vts qi 1659 P un e 4yxago 02 a n2nn n 4 yae 1603 Oct Od 124 ain WA Not Awadabla Liga iay 1 prana bean aarp 311EL apay Aat 1 nanain weer hore every SIIR nd crate Reveruc i gara ding coming Iras even 100 ul remos quately nof vum Uo ard The enhanced Quarterly Data screen provides you with two additional data items regarding the company s quarterly revenue and EPS data a The Trailing 4 Quarters values namely the sum of the latest four quarters of revenues and EPS For example the Trailing 4 Quarters value for the company s revenues as of the 3rd quarter ending July of the current year was 973 0 million This value is Finding Stocks in the Buy Zone the sum of 256 4 million 3rd quarter ending July 31 252 1 million 2nd quarter ending Apr 30 228 9 million 1st quarter ending Jan 31 235 6 million 4th quarter ending Oct 31 of the previous fiscal year b The Yr over Yr Change calculated on the Trailing 4 Quarter values For example the Year over Year Change for the company s revenues as of the 3rd quarter ending July of the cur rent year was 5 6 This percentage is calculated as follows Trailing 4 Quarters as of the 3rd quarter ending July of the current ye
48. 8 in the indicated default directory C ProgramFiles CSA Computing Stock Study Guide ssgdata Click on the Save menu item to accept these default actions 2 Choosing the Save As option lets you save the Stock Study Guide for Sample Inc with a different name or in a different directory Printing the Results In addition to saving the Samp gr8 file for Sample Inc you may wish to print one or all of the screens from the Stock Study Guide software To do so click on File Print in the Main Menu and select the desired page from the drop down list An example of the resulting printout from selecting is shown on the following pages Stock Study Guide EPS Stock Selection Guide Superior Stock Selection and Rejection Company SAMPLE INC SAMP on TSE Major product service Medical Laboratories 1 Great Revenues Great EPS 200 Friday September 15 RECENT RESULTS Quarters Revenues M EPS Latest 3 737 0 95 Year Ago 3 694 0 86 100 Change 6 2 10 5 90 80 70 60 50 40 30 20 10 9 Revenue Profile 8 T Revenues EPS and Share Prices Hi Lo 6 EPS Profile 4h 11 yrs ago REV M 169 206 225 295 332 445 640 631 0 30 0 40 0 32 0 36 0 43 0 39 0 46 0 56 1 871 M 1 070 M COMPOUND GRowrH ard HISTORICAL PROJECTED 19 5 15 0 12 9 20 0 Finding Stocks in the Buy Zone 66 S
49. AMPLE INC EPS Estimates from graph Per Share Data current fiscal year Current Upside Recent High Low Indicated Annual EPS Current Year 1 38 EPS 5 yrs forward 2 86 Price 28 50 Price 35 75 Price 24 00 Dividend 0 14 Recent _ Recent Price 2850 _ 207 Dividend _ Dividend oy P E Ratio EPS Estimate Current Year 1 38 Return Price 2 Great Price 3 Dividend Returns Years Fiscal Year A Share Prices B c D P ERatio E F G Dividend Returns H Ago b High Low Earnings Hen Low P E Dividend Best IF B ct Price Price Per Share C B C per Share 96 9 1 last year 35 75 18 70 1 15 31 1 16 3 0 11 0 6 0 3 2 2yrsago 19 25 9 88 0 94 20 5 10 5 0 10 0 0 5 3 3 yrs ago 10 13 6 63 0 68 14 9 9 8 0 09 4 0 9 4 4yrsago 7 50 6 00 0 56 13 4 10 7 0 08 3 Lj 5 5 yrs ago 8 38 5 38 0 46 18 2 11 7 0 07 3 0 8 6 6 yrs ago 10 50 7 00 0 39 26 9 17 9 0 07 0 0 7 7 7yrsago 11 25 6 50 0 43 262 15 1 0 07 al 0 6 8 8 yrs ago 7 22 5 75 0 36 20 1 16 0 0 06 0 0 8 9 9 yrs ago 7 19 5 09 0 32 22 5 15 9 0 06 2 0 8 10 10 yrs ago 6 53 4 78 0 40 16 3 12 0 0 05 0 0 8 Average Average Average Average Relative _ Recent Ratio 119 21 0 13 6 all 0 7 P E Ratio Average P E Ratio Average P E Ratio Average Dividend Return PE G Ratio 1 03 17 3 0 9 4 Great
50. Level on the General screen See Appendix A for a detailed discussion of all available preferences Note the default selection of preferences you may change these preferences by clicking on the applicable check box Finding Stocks in the Buy Zone 75 ADVANCED Preferences C PROGRAM FILES CSA COMPUTING STOCK STUDY GUIDE SSGE C PROGRAM FILES CSA COMPUTING STOCK STUDY GUIDE SSGE a Once you have selected your preferences at the Advanced Level click the Apply amp Close button lt TENES 76 Stock Study Guide B The PE G Ratio At the Advanced Level the Guide provides a benchmark for assessing an investor s projected EPS growth rate for a stock This additional perspective on the EPS growth rate is available through the PE G Ratio located in Section 2 of the Great Price screen The PE G ratio is calculated as PE G Ratio Recent P E _ 20 7 1 03 Projected EPS Growth Rate 20 0 from the Great EPS Screen Guidelines for interpreting the PE G Ratio The following general guidelines are available for interpreting a PE G Ratio they may not be applicable for the analysis of a specif ic stock When the PE G Ratio equals 1 0 the recent price for 1 of the company s EPS is the same as the growth rate projected for the company s EPS during the next five years That is the projected growth rate is consistent with the price being paid for 1 of the
51. List of steps necessary to recreate the problem Product Version Number available from the Help About in the main menu of the Guide Stock Study Guide After our technical support staff has had a chance to review your letter one of our support representatives will respond to you Our mailing address is Stock Study Guide Technical Support 4 King Street West Suite 806 Toronto ON M5H 1B6 Telephone Support Registered users of the Guide are entitled to free telephone support subject to availability for 30 days from the time of their purchase Guide support is available from 8 30 a m to 5 00 p m E S T Please have available the following information List of steps necessary to recreate the problem Product Version Number available from the Help About main menu of the Guide Telephone Support 416 595 9600 Toll Free 1 800 268 6881 Finding Stocks in the Buy Zone 115 STOCK STUDY GUIDE 2005 Canadian ShareOwner Magazine Inc ISBN 0 921468 12 1
52. Projected Upside P E Ratio in 5 years namely 21 0 Note that removing P E Ratios from the analysis alters the Average High P E Ratio and the default value for the Projected Upside P E Ratio JA rie Yew Dd Werk l Great Revermes GrestEPS GreatPrice Great Retera Great RISK Summary A imd Price amp EPS Historical Relationship Market Price 5 PT Gatien SAMPILT INC oc e law PAR low E bayer s ms w o Us3 wsi zesp Uw imm a uw 154 2 Smm 5 162 mE Bw 1090 7 Tyso 2 nik na bmp 22 Ux byes 219 UR 23 msk IDysago 653 69 763 10 Y cur Aage PE Hale LALI Orci dil Aww eye Pt Habu 133 8 2 Curreat Year 2 Prica 2 LU XR i 104 Recent MI pr t HI low maw 174 P E 1 Protected Unsiie PE 21 jo a for Pive Years Forward te piste 11 Yours Am Suri Ic S zio 4 Making Your Judgment about the Upside P E Every investor must make his her own judgment about the price that the market will be willing to pay for 1 of a company s EPS in five years Stock Study Guide There is a Guideline to help you develop a value for the company s Upside P E in five years Guideline for the Projected Upside P E Ratio It would be unusual but not impossible to project a growtb stock to
53. The same process can be used to search on the other criteria identified earlier You can also perform a search by looking for files modified creat ed or last accessed between two specific dates during the last x number of months or the last x number of days This option is available by clicking on the Date tab in the Find window This option must be used in conjunction with a search of the Search Criteria amp Location information lol zi Search CrMaria Rlacation Bain Mk Pos 7 I f bamu 1 1 E Naw C peas proa 1 ier Syra Curran Mare tung ihn mosaic raved nta Kl c DH mnt Stock Study Guide APPENDIX C SERVICE AND SUPPORT SOLUTIONS Product Support ShareOwner is proud of the quality of the Guide program and has spent a great deal of time making it intuitive to use If however there is something you can t figure out how to do we suggest you consult this Manual or the extensive on line help Help System The Help System can be accessed in the Guide at any time by depressing the F1 key or by choosing help from the main Guide menu The Help System contains most of the information from this Manual and includes numerous examples Should you have questions that cannot be answered through the use of the Help System or this Manual the following alt
54. ample Inc s EPS to grow at an average rate of about 20 dur ing the next five years This rate is comparable to last year s growth and quite a lot faster than recent quarterly growth JM ric Yew Da Werk Hop Great Rewenees Gres EPS Groat Price Great Rotera Great Rick Semmry 1 1 Pea Stren NJ EPS Growth Historical amp Projected Conquer Gurih 1 SM FAC Oct Hs ei Yours Mae E kra yew 11957 110 Fam usw sty uw nana amam ee 2562 v 4yream bti 265 uw Syam litum Uw fy von vx lw aw Un T ys eo bate wu un by age us we un By oon un istay 157 uss iDa 7 10 12 U ym aac uyw 2 infia am 17 hie band yanlar pE o qnm 10 775 nera rn Curreet Year ae Year Fuoco ety L Projected EPS Mane 1 re Prripetad Gerth Rate tm Sper your Arahi Canann 10 TAS per yaar s Pe Saa 25 26 5 Prniectad in Current ear 1333 138 5 Prejacted Tipit TPS Fran wen Fora oe 2 86 11 gt Years Feran TAa eaw Irti ut AN Eu 2 In effect this illustrative judgment projects EPS growth to continue at quite a strong pace As noted for revenues another investor using the same limited information available here could arrive at a significantly different judgment about the company s future EPS growth r
55. ar x 100 Trailing 4 Quarters as of the 3rd quarter ending July of last year 973 0 9221 3 X 100 5 696 The calculation of the Year over Year Change enables you to easily identify any slow down or acceleration in growth that may be occurring during the last 16 fiscal quarters and particularly since the end of the last fiscal year For Sample Inc you might note that revenue growth has generally slowed since the end of the last fiscal year Stock Study Guide 2 Cash Flow Per Share Data The Intermediate Level provides an option to study a company s profitability expressed as cash flow per share CFPS instead of or in addition to its ability to generate EPS For example companies that operate in an industry where very large expenditures are made to build an infrastructure for deliver ing products or services to a market often have relatively large non cash charges on their income statements e g depreciation and amortization These charges typically reduce reported EPS by significant amounts even though the excess of revenues over cash costs may actually be increasing This contradiction is avoided by studying a company s Cash Flow Per Share CFPS rather than EPS until the non cash charges become less significant relative to net income You can substitute a company s CFPS for its EPS in the analysis by clicking on Data in the main menu and selecting CFPS Analysis which toggles between EPS a
56. ate Finding Stocks in the Buy Zone 43 The wisdom reflected in a judgment about a company s future EPS growth will become evident during the next five years Typically the skill with which you generate judgments about future EPS and your level of comfort with the process increase with practice To effect this judgment left click on the highlighted data entry box labeled Projected EPS Growth Rate Next 5 Yrs and type in the number 20 This action causes i the slope of the projected portion of the EPS Profile to become steeper ii the estimated value for EPS in the current year to increase to 1 38 ii the estimated value for EPS in five years to increase to 2 86 the Upside EPS These two EPS estimates are used in subsequent Screens 6 Excluding EPS Data From the Calculated Growth Rate You can remove any year of EPS data from the analysis by unchecking the check box adjacent to each EPS number Stock Study Guide INTRODUCTORY Negative EPS Last Year When a company s reported EPS for Last Year is negative a warn ing message appears on the EPS Screen To proceed with the analy sis the Program requires you to a cancel and return to the previ ous tab b restate the negative EPS value using a positive EPS c project from next years EPS or c project from the last positive EPS There i FPS in the mid tracert Eras yaur There are theee chaicez for proceedi
57. bave an Upside P E Ratio in 5 Years greater than 20 Unless disabled a warning message pops up whenever the user enters a number greater than 20 in the Projected Upside P E Ratio field Discover the Great Stocks to Buy provides a detailed discussion of the process for developing a judgment about an appropriate Projected Upside P E Ratio A review of the data in the P E Ratio table indicates that the com pany s P E Ratio has been experiencing increased volatility during its recent history You would also note that the range of P E ratios for the current year 17 4 to 25 9 is smaller than in recent years For illustrative purposes the judgment was made to proceed with the study using an Upside P E ratio of 20 This value is similar to the average high P E ratio during the latest five years ie 19 6 not shown Please proceed to determining if the company s stock is currently on sale or over priced in relation to a possible future price by clicking on the Great Return tab at the top of the screen Finding Stocks in the Buy Zone 55 G The Great Return Screen After finding a Great Company currently trading at a Great Price the Guide continues by investigating whether or not a Great Rate of Return is available from the stock during the next five years The focus of this investigation is on estimating the stock s price in five years and the rate of return that would be realized if the stock were purchased at the
58. button located in Section 3 of the Great Revenues screen and Great EPS screen and in Section 1 of the Summary screen 1 The Sustainable Growth Screen The Sustainable Growth screen provides several estimates of the theoretical steady state growth rate for a company s revenues and EPS These estimates often provide a useful benchmark for assess ing the reasonableness of various growth rates developed by more intuitive methods Finding Stocks in the Buy Zone 80 JA Me EM Wov Dau Wiw Mel Rerastion Sestalnahin Sustainable Growth amp Its Components re Duty Cs Growth s zie xi oct an 121 5542 157 124 anetyOt wak 129 3 yw a 132 teow ni 5 3w e9o 5 awe 67 na 7h Swm na 7 Gua mil t3 Twm mr 79 5 3 sak LE Bak we ze mmm FSF 125 MIF 125 we Medrun 904 143 435 Average 22 103 Mrirun 512 Dasts errt Scanarea Masad ce max Inin atficanciat Dert LI 201 182 Amy an ana aa ort as op 17 bees BO T Ptr dn Pate Note that the Sustainable Growth Rate for a company s revenues and earnings are represented by the formula Sustainable Growth Rate 96 Earnings Retention Ratio x Rate of Return on Equity 96 The growth rate calculated from this formula is also referred to as the
59. calculated as the upper third of the price range The stock s Maybe Zone is calculated as the middle third of the price range Conclusion The Guide s analysis of Sample Inc has produced a number of judgments about its history and future prospects These include 1 The company has a long history of growing both its revenues and EPS at a high rate consistently and strong prospects for continuing to do so 2 The price that investors are currently paying for 1 of the com pany s EPS is generally in line with the prices that have been paid in the past 3 The stock s recent price and its expected future prices both upside and downside offer the prospect of a sufficiently high rate of return without a great amount of risk When you can make these types of statements about a company and its stock your conclusion is that you have discovered a Great Stock to buy Finding Stocks in the Buy Zone 63 64 1 Saving the Analysis as a gr8 file Now that you have completed this analysis of Sample Inc you will want to save it for future reference To do so click on File in the Main Menu and choose either Save or Save As 7 Steck Stuy Ir Vr Ves iniu D nre IHH fer Irri IHH Do Ll times Lit ke imn lad 1 Choosing the Save option lets you save or re save the Stock Study Guide for Sample Inc with the indicated default file name Samp gr
60. ch one would you buy That is which stock has the strongest record of growth in revenues and EPS Which one has the best prospects for future revenue and EPS Profiles being relatively steep and straight Please proceed to determining if the company s stock is currently on sale or over priced in relation to previous prices by click ing on the Great Price tab at the top of the screen Stock Study Guide For Long Term Investors Great Stock Grief Stock Over the longer term Growth in a stock s price is driven by Growth in a company s earnings which is driven by Growth in the company s revenues Almost Everyone Everywhere Lo Years last Years Tast Ago Year Ago Year Which one Retailing stock would you want in your portfolio Stock Selection Guide Part I 6 Stock Selection Guide Part 1 s T TT Canadian Canadian T T Snareowner Dylex Ltd Shareowner K Mart Corp 1 REVENUE EYENUES EARNINGS EARNING Stock Selection Guide Part I 2 _ Stock Selection Guide Part 8 TITT TT T T T Hudsons Bay Co Rnarsowner Sears Cda Inc VENUE EARNINGB Stock Selection Guide Part 1 10 Stock Selection
61. cific and economy wide developments which can introduce volatility and trends into a company s price and P E ratio Stock Study Guide For example during bull markets the general level of P E ratios in the stock market tends to rise during bear markets the gener al level of P E ratios tends to fall Visual Assessment of On Sale or Over Priced The stock s annual High and Low prices for the last 10 fiscal years and its EPS are plotted on the growth chart available on the Great Price screen This chart helps you to see if growth in the stock s price is getting ahead or behind growth in its EPS You should note that the High and Low prices have been plotted and indexed so that the average price of the first available fiscal year is located on top of the EPS value for that year The location of the High Low price bar in subsequent years can help you decide if the stock is currently on sale or over priced For example when the price bar moves above the EPS value the stock s price may becoming over priced when the price bar moves below the EPS value the recent price may becoming a sale price Finding Stocks in the Buy Zone 53 54 3 The Default Projected Upside P E Ratio in 5 Years The Guide s analysis requires an estimated P E Ratio for the stock in five years The default value for that estimate is the Average High P E Ratio during the study period This value appears in the data input box labeled
62. cta rco Hac Sarara T Hon Cors arm SC IT Goh ETI TEWE ERG Mhi Laie MEH wI vm EI THES be ye Wk Jg M iu meya 2a kpm ISIE idy wi Hr miya Adr lS Ev du Tron nmng ed tye un aa A geram DV ed ye mn as E gran DECRE kiiy wee me Kerk HL gr can page gt COPS Tur Late 2 quarters Em me Lara ear LA HRT Ponte CPC tak Spear MAd ln Cure Vicari pd Te lor Tp ble OP fha ms Mara ari s px Thad Hisn m Pred ES THH I a PUE FPS Groth Hira amp Frapad CADUC Cops SR TEES BE 3 be i u men a4 a Marara Prae MU Lm RC 1 HI ors bi Ll Stock Study Guide SECTION 5 USER LEVEL ADVANCED ANALYSIS A Introduction The material in this Section describes the operation of the Guide when the functionality is set at the Advanced Level The Advanced Level introduces users of the Guide to a selection of financial and operating data from the company s balance sheet and income statement It s these additional fundamental data that can provide investors with a more informed basis for developing their best judgments about a company s future revenue and EPS growth rates To access the Guide s Advanced Level functionality for studying a stock click on Edit Preferences and select the Advanced
63. d go up to 25 for small companies in emerging industries 3 Straight The Revenue Profile of a Great Company is quite straight The straighter the profile the more consistent the revenue growth These characteristics of the company s Revenue Profile support the view that historically the company has had Great Revenues Grief Revenue Profiles Companies with Grief Revenue Profiles are fairly easy to spot The Profiles are often short less than 5 years long flat choppy or they trend down to the right These are the stocks that most private investors want to avoid The accompany ing illustration provides examples of what some Grief Revenue Profiles look like ears Ago Year Forward Stock Study Guide 3 Reading the Compound Growth Table The Compound Growth table in Section 1 of the screen reports the compound rate of growth in revenues for up to 10 consecutive years For example the top line of the table reports the growth rate for the most recent one year of growth namely 13 6 This growth rate is derived from revenues two years ago 819 million and last year s revenues 930 million JM Mie Yew Dua Werk Help laj xl Great Rewenees Great EPS Great Price Great Retera Groat RISK Semesary L lorara Revenue Growth Historical Projected Conmpustrd 1 SM Oc iane Yee
64. e Hoi m s P Meus Prec fi Draad tere 104 4Ocd Lew Ursi Beet Won lys 1 77 nM 0 Zye 187 nam imh gt Syse 13 NAI 44 720 FM AM im Syse nN ams base NM 700 imh ATH Tms MX ih 72 Of imh ms Sysop 718 OM ir ms f wsago im am 10 vw Average Dividend wem 1 15 n Asm eye Dredcird Rote LE 1 Projected Upside Rate of Retera wu nn her Upe Rete ul PB 3 3 Hi Crtderets 275 P5 enc high amp oce Ph cen 11 tos An tk Suri ees SES Prol ul Br sj Visual Analysis The growth chart available on the Great Return screen helps you to see if growth in the company s share price is getting ahead or behind growth in its annual cash dividend 3 The Projected Upside Total Rate of Return The Guide calculates an Upside Total Rate of Return 15 9 from the stock during the next five years by adding the Compound Annual Price Return 15 and the Average Dividend Yield 0 9 Great Return or Grief Return Once again during the study process you decide whether or not to continue with this stock If the projected Upside Total Rate of Return is attractive you continue to study the stock if it isn t you don t Stock Study Guide Guideline In general investors expect a typical Great Stock to provid
65. e an Upside Total Rate of Return of about 15 or more At 15 9 Sample Inc offers what could be characterized as a Great Return Caution You should exercise caution when assigning the Great or Grief label to a stock s rate of return The greatness of a stock s rate of return is a function of many factors unique to the company as well as those influencing the entire economy most notably the riskiness of the company s business and the level of interest rates A detailed discussion of these factors is available in Discover the Great Stocks to Buy Please proceed to the Great Risk screen by clicking on the tab at the top of screen Finding Stocks in the Buy Zone 59 60 H The Great Risk Screen After finding a Great Company trading at a Great Price and with a Great Rate of return the Guide continues by investigating whether or not a great deal of risk is involved in owning the stock In particular the Guide focuses on estimating how much money you might lose your risk if you buy the stock and it subse quently goes down rather than up Great Risk is indicated when there is much more downside potential in the stock s price than upside reward JE rhe ew Werk Hel al xi Great Revermes Great EPS Great Price Great Retera Great RISK Serrmary A Downsin Evam X Hoc Prices Historical Values amp Future Zones Provision for 5 devise kun Exc nerui prev
66. e90 usse Uu bysg ue w UE v By oon us inthe 192 iDywsago tatios 129 0 pee 7 indir tems i PN bed end X ques b ga gn 1n 5 6 Current Year 1 Year 3 Prajected EPS Morc Parder ha 15 and 1 Profe Projected Gerth Mata 338 yew bad Ant Creesrese ADOS yaw Projected PPS Garant Vane le H Projected 1 pakin Fran inen Forani oe 211 1 11 Years Lat Am Yen ust Mevena Prot ut eiim a a Stock Study Guide 2 Character of the EPS Profile The EPS Profile of a Great Company has the same characteristics as a Great Revenue Profile That is a Great EPS Profile is long steep and straight Furthermore the EPS Profile and growth rate of a Great Company generally tracks its Revenue Profile and growth rate You can observe that the EPS Profile for Sample Inc is somewhat choppy during the oldest part of the study period beginning 11 years ago and continuing for about five years two of the five years were down years Choppiness is typically associated with low quality growth In addition the EPS growth during this period was slower i e less steep than revenue growth However during the last five years the EPS Profile has become i quite steep and ii quite straight Furthermore EPS growth has been significantly faster i e steeper than revenue growth During the last five years Samp
67. ease write Customer Sales and Service at computing ShareOwner com or at 4 King Street West Suite 806 Toronto ON MSH 1B6 Contents Section Discovering the Great Stocks to Buy The Great Stock Strategy eee eee teen hh The Investing Principles B Great Stocks vs Grief Stocks i pua sea E 3 The Fundamentals of Returns nn 3 Great Companies and Great Stocks 4 C Implementing the Great Stock 5 5 The Stock Study Guide s 5 Step Process for Recognizing a Great Stock 6 Step 1 Great Revenues Screen 6 Step 2 Great Earnings Screen 6 Step 3 Great Price Screen 7 Step 4 Great Returns Screen 7 Step 5 Great Risk Screen 7 Section 2 Getting Started A B Installation Requirements 9 Installation InStr ctlOTls 5 n Cea oe e e Roe x Poe e e cad 10 Section 3 User Level Introductory Analysis A
68. ed significantly during about the first half of the study period to 70 of revenues for every 100 of assets but then returned to the 100 level quite steadily during the latter part of the period Stock Study Guide 3 Revenue or Net Efficiency measures the company s capacity to convert revenues into net earnings also called profits after all costs of making and selling products interest expenses on bor rowed money and after income taxes Revenue Efficiency is computed as Net Earnings x 100 96 or for descriptive purposes Revenues KA Mc Wen Dus Werke Mp xl Sustamatle Growth Serrenary tysiy Arsi Neve us Wet Components of Return en Equity ry Uey by ey SAMPLE Oct 10h mE cured y tos fF tm amet yt atye k me tye mi we cu 39e Sik i pan am mi i h fmt FRctancy Sram my meg ehh Gya 35 m 42262 mi die Z rn TOP 3 whey seh 7 howa Cunt true Acacia woe we me Uy m we nae yeas nm Sw vnn cs asset Efficiency 9100 eh om ses ean of amey vrns 4 m dcm bem BOOK 46 97 ct at Caring tum ean BIOS of as 7m 1988 esse Dort Most recently Sample Inc generated 6 97 of earnings from every 100 of revenues This efficiency in gen
69. erating earnings from rev enues is a 17 improvement from the start of the study period when only 5 98 was being generated from every 100 of rev enues Finding Stocks in the Buy Zone 93 All other things being equal the higher the Revenue Efficiency the higher the Return on Equity and the Sustainable Growth Rate Accordingly growth oriented investors look for a Revenue Efficiency Profile that is at a high level with a flat or rising trajec tory A review of the annual data and the Revenue Efficiency Profile indicates that Revenue Efficiency declined significantly during about the first half of the study period to 3 74 of earnings for every 100 of revenues but then returned to the 6 7 level quite steadily during the latter part of the period 4 Return on Equity It is worth observing that of the three efficiency Profiles the shape of the Revenue Efficiency Profile is reflected the most in the earlier noted Return on Equity Profile whose shape is reflected strongly in the company s Sustainable Growth Profile Thus the driving force behind the resurgence in the company s Sustainable Growth Rate during the last five years has been improvements in the effi ciency with which the company makes and sells its products and or its ability to increase selling prices Stock Study Guide Vw Cote Winds up Raiantinn Raum an _ Sustainahia Ratings S 7 Groseth S ery cures yc Q3
70. ernatives are available to you Before You Call for Technical Support There are three important steps you should take before seeking FAX Mail or Telephone Support Performing these steps can solve many problems and often eliminate the need for telephone assistance 1 Review What s New from the Help Menu For last minute information not included in this Manual see the What s New section available by clicking on the Help Menu then What s New Finding Stocks in the Buy Zone EN APPENDIX C 2 Check for any Program Updates From time to time new versions of the Guide will be made available on our website to fix bugs or add new functionality To access these updates you need to a connect to the internet as you normally would b start your Guide Software c click on Help Menu then World Wide Web then Software Updates as shown below Stoy Gerd Wen te Werden lain Fk t d this takes your internet browser to the following webpage Stock Study Guide Upgrades Upgrade to the latest version ef Steck Stodv Guide by dowmbeading and installing the update patch 112 Stock Study Guide e click on the Upgrade link and select the directory where you want to save the Update exe file on your hard drive f click on your Windows Start button and select the Run option By araire PL kerra ran mert WE Onan Era Turpe m ga Gemma fire Daha din Tj Iam pam
71. et menu items The Recent Price is used to calculate the Recent P E Ratio for the stock You should interpret the Recent P E Ratio as follows At today s price of 28 50 per sbare investors are willing to pay 20 70 to buy 1 of Sample Inc s expected EPS for the current year Stock Study Guide JM Mic vew Dua Werk Ho la x Great Revermes Great EPS Great Price Great Retera Groat RISK Semesary race PA Price amp EPS Historical Relationship SMART Aw 730 sa 1 sa w mE 1059 Tyee s nik bme Z2 5 5 mok bream o 59 UR 25 6 53 UA 63 ale i Price 10 Ycu Awrey E Muny HA Orci ull eyes ME Hew 8 2 Current Year i U Roce ma MI Rain PT 118 a HI Low Yam 174 L 3 Proected Unside PE tor Pive Years Forward aor 11 Yours Sarl rcc ul Es Also observe the Relative P E ratio This ratio is calculated as Relative P E Recent P E 20 7 Average P E 17 3 1 19 You should interpret the result of this calculation as follows Today s price for 1 of the company s expected EPS is 19 higher than the average price for 1 of EPS during the last 10 years When the Relative P E Ratio equals 1 0 the recent price for 1 of the company s EPS is
72. ever 3211 1 11 Yours Lat 5 Years o Your Feraast iro 4 rivo ot FD E 3 Reading the Compound Growth Table The data in the Compound Growth Table report the compound rate of growth in EPS for the last 10 consecutive years along with the quality statistic R2 for each period The choppiness of the EPS Profile is reflected in the low R val ues ranging from 0 83 to 0 92 6 to 10 years ago Note that the recent straightness of the EPS Profile is reflected in the very high R2 values for the last five years of growth 4 The Default Projected EPS Profile The Next Five Years The dotted line extending from last year s EPS 1 15 is the pro jected EPS Profile for the next five years This Profile results from projecting the company s EPS to grow at the average growth rate during the last 10 years namely 12 9 This growth rate results in estimates for Sample Inc s EPS for the current year and in 5 years of 1 30 and 2 11 respectively Stock Study Guide JA Mic EM Won Dua Wink 4 1 GrestRewemues Great EPS Great Price Great Return Great Risk Summary 3 Hip us read bernas Pra Sisan PS EPS Growth Historical amp Projected m SAMPI T Oct mms Your Rete kra yew usk 23 232 t usefv tiye ms Symon usele indie 245 uwe i 7 ys 890 baryo to
73. f ysigo ssak CEPTE sak we Li yee ash 13 125 hist Tz Hysa MIF 125 me Madran 072 143 25 Return on Esty Averages 805 102 2 Or Mrimun 523 T Dasti erzi Zcenaries Dasad cn max Inin atficanciar fent as 201 78 wwa MS 1n8 27 viri 4a Sustainable Growth Cove 2 tee 1000 Nia 4 Summary Estimates of the Sustainable Growth Rate The Maximum Average and Minimum values for all of the annual Sustainable Growth Rates calculated during the study period are reported in this screen Stock Study Guide In addition the theoretical Best Average and Worst values for the company s Sustainable Growth Rate are also reported These values are based upon data available on the Efficiencies screen discussed in detail below which is accessible through the Efficiencies tab at the top of the screen 2 The Efficiencies Screen Just as the value for a company s Sustainable Growth Rate is driv en by the value of its component fundamentals so too is the value of one of those fundamentals the Rate of Return on Equity driven by several additional fundamentals JA Wen Dus Were Mp la xl Sustainable Growth EMounctex Sorrenery Ars Neve ur Wet Components of Return en Equity py Uey teop emy SAMPLE 0 v nai cu cd y Q2 337 57 tosh 54 yew wl
74. g on the Great EPS tab at the top of the screen Stock Study Guide E The Great EPS Screen After finding a company with a Great Revenue Profile the Guide s process for discovering a Great Stock continues by focusing on the company s earnings per share EPS Now the Guide s analysis focuses on the company s historical EPS to see if they merit being described as Great EPS As with revenues Great EPS are generally evident when a company has a long history of growing EPS at a high rate consistently from year to year That is Great EPS are reflected in an EPS Profile that is long steep and straight The EPS Profile for Sample Inc and related information are pre sented below Together the EPS Profile and its related information help you decide if a company has Great EPS JA Dua Wind Hop le Groat Revenues Great EPS Great Price Great Return Great Risk Summary 1 hod bareng Pre Seen PS EPS Growth Historical E Projected rv Gow 2 SAMPLE Oct osm Yous Bec R A kra yew rash Rayo 2 uml it per istiy 732 dy usefv ms Un yon itsi Un fy von ume iste wm 7 ys o uss bysg tty ws Uum Byron us indie 3 0407 tatios 129 0 7 11 yrange 5 7 shena i bor bed vend 3 gcn xc 2 gm 10 775 nere Correct Year Lave Year om 2 gt
75. is available from the illustrative study of a specific stock Sample Inc contained in this Section and those that follow The illustrative study is based upon a set of company data contained in a ssg file samp ssg in the Guide s directory created by the installation Wizard during the installation process To begin your study of the Sample Company double click on the Guide s icon that is available on your computer s Desktop Stock Study Guide Please note that upon start up the Guide operates at the Introductory Level of data and analysis It is recommended that you master this Introductory Level before operating the Guide at the Intermediate Level or Advanced Level Accordingly the mate rial in this Section of the Manual is based solely on Introductory functionality Sections 4 amp 5 of the Manual discuss the Guide s functionality at the Intermediate and Advanced Levels Next click on File and then on Open and you will be pre sented with the Open window for the contents of the Guide s directory Click once on the file named Samp ssg and then on the Open but ton and you will be presented with the Worksheet for Sample Inc Finding Stocks in the Buy Zone 17 C The Worksheet When the Guide is launched at the Introductory Level you are presented with the Worksheet a window with three tabs These tabs are Basic Information Annual Data and Quarterl
76. ists of all the money ever raised from the sale of shares to the public plus all of the money that the com pany has ever earned and retained in the business rather than paying cash dividends The profitability of the incremental assets which the company pur chases with the incremental retained earnings is defined as Net Earnings x 100 for descriptive purposes Equity Finding Stocks in the Buy Zone 83 84 In the trailing four quarters Sample Inc had a Return on Equity of 13 6 That is last year every 100 of equity money that shareowners had invested in the company produced 13 60 of net earnings That Return on Equity was almost 9 higher than the Return earned at the beginning of the study period 12 5 JA EM vow Dua wew Hop zi xi Growth tfhcienziex Summary Reenstion Rahim Sastalnahln Sustainable Growth amp Its Components re 4 Growth f SAMPLE ImC oct yos m7 an 1 cunc y Q2 137 1 umwtyot sale 129 3 wal 132 ny Ty wa we 88 85 nx 97 awe ha 7h yupa i PTS m ju t zn T ace Petr den Pale Y Trem 79 eg sak we I6 uem 85h 143 5 Hysa MIF 125 4 Medran 143 5 a Average 252 103 34 513 8s 460 Dasts erzi Scenarios Dasad on max Irin atficanciat fert LII 201 182 w A 1 a4 4a as
77. lates an estimate of earnings for the current year and for five years in the future A Great Company has both Great Revenues and Great Earnings Stock Study Guide After discovering a Great Company your next interest is determin ing if its stock is currently trading at a Great Price Please note that if a company does not qualify as a Great Company then there is little reason to pursue studying it any fur ther In particular you would have no interest in determining whether or not the company was trading at an attractive price Instead you would use your valuable stock study time to seek out another company to study Step 3 Great Price Screen The Great Price screen lets you study the stock s recent price in relation to the company s earnings to determine if the recent price for 1 of earnings is low or high in relation to historical prices for 1 of earnings A relatively low price for 1 of earnings suggests a Great Price Next the Guide provides you with the opportunity to estimate the price for 1 of the company s earnings in five years Step 4 Great Return Screen The Great Return screen provides an estimate of the stock s price in five years and the related rate of return This return reflects both the potential for capital gains as well as dividend income A relatively high rate of return generally 15 or greater suggests a Great Return Step 5 Great Risk Screen The Great Risk
78. le Inc has had an EPS Profile that is typical of a Great Company The choppiness in its earlier EPS record has been replaced with a consistently high rate of growth Grief EPS Profiles T ans Companies with Grief EPS Profiles are also fairly easy to spot The profiles are flatter less steep than the Revenue Profile choppy or they trend down to the right The accompanying illustration provides examples of what some Grief EPS Profiles look like Finding Stocks in the Buy Zone 39 40 JE Mic EM Wo Duis wke dp 1915 Groat Revenues Great EPS Great Price Great Return Great Risk Summary 1 Mined um acad E ow rong Ever Soen PN EPS Growth Historical E Projected Cumpoued SAMPLE mc Oct ors d Yous Belem R 2 kra task 25 10 gt 1 2 pwd 2 UN a dum son tiye m5 un uwek esy Un behy XD um 7 Ws 90 uasiv pat we um by ago us ties 192 un amp By von um inte 132 Dyess istiOya 129 s 11 az ux fv 5 7 simen 1 bar balni 42 2 Current Voar Lave Year a gt Prajected EPS Merc 12 Progactad Mate 1258 pa sow Crearea 3006 per yaw i Projected PPS Garant Vase be t Projected 1 pakia TPA Fran ww For
79. little likelihood of significantly improving its per formance The Fundamentals of Return The size and consistency of a stock s rate of return is ultimately determined by the extent to which its price increases or decreases after it is purchased There is a well established relationship between growth in a com pany s share price and growth in two of the company s so called fundamentals namely growth in the company s revenues and growth in the company s earnings This relationship is expressed in the following quotation The Fundamental Relationship Over the long term Growth in a stock s price is driven by Growth in the company s earnings which is driven by Growth in the company s revenues Almost Everyone Everywhere The above quote while hypothetical reflects a relationship that would be affirmed by almost all stock market theoreticians port folio managers security analysts and gurus Of course a stock s price will fluctuate in the short term in response to all sorts of emotions principally fear and greed and Finding Stocks in the Buy Zone economic noise But over the longer term enduring growth in a company s revenues and earnings produces an enduring increase in the stock s price Awareness of this fundamental relationship is the key to under standing why the Guide is so helpful for identifying Great Stocks and Grief Stocks Great Companies and Great Stocks Great Companies have a l
80. lue with a flat or declining tra jectory Such a Profile indicates little reliance on debt a high like lihood of surviving business adversity and high interest rates and the presence of unused debt capacity which could be called upon to finance asset expansion e g inventories receivables equipment etc to support revenue growth 90 Stock Study Guide A review of the annual data and the Equity Efficiency Profile indi cates that Equity Efficiency has varied somewhat throughout the study period from a low of 164 for every 100 of equity to a high of 248 Generally though no significant trend in Equity Efficiency is evident from the profile other than what might be characterized as normal fluctuations Wem Wu 1 x Sustamatle Growth Sorrenary Oct anety oS 912 7 107 7 nat amaya tos 4 Em umet rot sy 7 c evi yw Em 3 ah sak 2i we mk u wR nF sar Win 24 116 es es dt Average 5 wann m dm bows BOOK Revesuc Efficiency 40 97 ctt Camisgr tum every FS of Faure as TT 1088 IURE Ray Dort 2 Asset Efficiency measures the company s capacity to generate sales from its assets by having the right amount of inventory credit policies physical facilities etc available to generate and satisfy demand for its products and services
81. mber 31 some companies have fiscal years end ing in other months Sample Inc is one of those companies with an October 31 year end This means that its fiscal year spans from November 1 to October 31 of the following year Market Data Current Fiscal Year Recent Price Typically the most recent price available to you from the latest newspaper listings or one of the internet portals such as Yahoo The recent price and all other market prices used in this program are from the principal stock exchange on which the company s shares are traded If you assume that today s date is September 15 and the Recent Price of 28 50 is today s closing price for Sample Inc High and Low Prices These data are for the company s fiscal year that is in progress For Sample Inc the High and Low prices are for the period beginning with the start of the current fiscal year last November 1 until today September 15 Indicated Annual Dividend This is the total cash dividends in dollars expected to be declared payable to shareowners as a result of Sample Inc s operations during the current fiscal year last November 1st to the upcoming October 31st Finding Stocks in the Buy Zone 19 20 Notes This area on the right hand side of the Basic Information screen is available for recording any notes that you wish to make about your analysis of Sample Inc These notes may also be made at any time during your study of Sample Inc
82. me ex w wo uw wi euk 3s ego 5 6 tW mi a Smm mE my Gya naw mE nw Gan PAD at n 2 ren whe 7 from whe uk nwm 167 Hymags OU ge 243 116 e2 Asset EMckacy Average ses evum PIDO of Are Mem E m dcm 17 bey TOOK 40 97 of Net Cariog tum ean 9100 of as 179 rw 1062 The Rate of Return that a company earns on its equity money is driven by a the company s efficiency in using that equity as a base for bor rowing money that can also be used to acquire assets that can generate revenues Equity Efficiency Finding Stocks in the Buy Zone 87 b the company s efficiency in generating revenues from its assets Asset Efficiency c the company s efficiency in converting its revenues into earn ings Revenue Efficiency or Net Efficiency The Rate of Return on Equity is calculated as Equity Efficiency X Asset Efficiency X Revenue Efficiency Components of Return on Equity 1 Equity Efficiency measures the company s capacity to generate assets from its equity by bringing in additional money in the form of some sort of loan bb Wen Dus Werke Hoy zl xj Sustamadle Growth EF Momectes Sermary Ars Revo ur Vet Components of Return en Equity Ulery Hl eeemy SAMPLE Imc Oct amiyos v 17 2 na
83. n access the Software over that network 4 after written notice to CSA Computing Inc transfer the Software on a permanent basis to another person or entity pro vided that you retain no copies of the Software and the transferee agrees to the terms of this agreement and 5 if a single person uses the computer on which the Software is installed at least 80 of the time then after returning the completed product registration card which accompanies the Software that person may also use the Software on a single home computer YOU MAY NOT 1 copy the documentation which accompanies the Software 2 sublicense rent or lease any portion of the Software 3 reverse engineer decompile disassemble modify translate make any attempt to discover the source code of the Software or create derivative works from the Software or 4 use a previous version or copy of the Software after you have received a disk replacement set or an upgraded version as a replacement of the prior version All copies of the prior version must be destroyed LIMITED WARRANTY CSA Computing Inc warrants that the media on which the Software is distributed will be free from defects for a period of sixty 60 days from the date of delivery of the Software to you Your sole remedy in the event of a breach of this warranty will be that CSA Computing Inc will at its option replace any defective media returned to CSA Computing Inc within the warranty period
84. n its principal stock exchange during each fiscal year Finding Stocks in the Buy Zone 21 Add or Remove One Year of Data You can add a new year of data to the analysis simply by accessing the Details menu item and selecting the Add Year option This feature is particularly handy when updating your study of a company based upon a press release reporting the company s results for a recently completed fiscal year Similarly you can remove the oldest year of data from the analysis through the Remove Year option Adjust Per Share Data for Stock Splits amp Stock Dividends When a company splits its stock e g 2 for 1 3 for 2 etc all data for prior fiscal periods that are reported on a per share basis e g earnings dividends share price etc must be adjust ed to reflect the stock split The Guide lets you make this adjust ment easily through the Details item in the menu for the Worksheet screens The screens below illustrate the effect of a 2 for 1 stock split on the data in Sample Inc s Annual Data screen C Werkstrcct SAMLE INL Fin Tr Vw Dee ln Basic Intermahan Date quactrsiy Ihaa Placa y EE s EEE 170 gt ed ayam a nm nf 15 Ayr n vus Ul wus 32 359 657 nm A18 2 AME us wus 2 Pe iD gt nm ax
85. n the recent price and the estimated future price Upside Reward The Upside Reward for a stock is calculated as Upside Reward Upside Price Recent Price 57 20 28 50 28 70 Finding Stocks in the Buy Zone 6l 62 The Reward Risk Ratio This ratio is calculated as _ Reward _ Upside Reward _ 28 70 _ 5 04 Risk Downside Risk 5 70 JM ric vew Du Wedow jei xj Great Revenues Groat EPS Great Price Great Retera Great Risk Sermary A X Hodie Prices Historical Values amp Future Zones IC Provision ter a f n bore Pe reverd prev Itwrct 504 ulpa Heveurd or each 1 ort Peres Fine 4 f E n Cimon Pres Priis 11 years m tk Suet Mees Prae ult pr s Guideline In general Great Risk is present for risk adverse investors when there is less than 3 of Upside Reward for every 1 of Downside Risk Great Risk is not apparent for Sample Inc because there is 5 04 of Upside Reward for every 1 of Downside Risk Stock Study Guide 4 Price Zones The price range defined by a stock s Upside and Downside Prices can be divided to identify three price zones for a stock namely the Buy Zone the Maybe Zone and the Sell Zone The stock s Buy Zone is calculated as the lower third of the price range defined by the Upside Price and the Downside Price The stock s Sell Zone is
86. nd the Revenue Profile so steep that not all of the data is visible on the Growth Chart By changing the value in the Start Revenue Profile at box locat ed beneath the Growth Chart you can relocate the Revenue Profile towards the top or bottom of the Chart so that all of the revenue data can be seen Change the value in the Start Revenue Profile at box by clicking on the and arrows or by key entering values in the box povided There is no need to start the Sample Inc Revenue Profile at any value other than the default 10 2 Character of the Revenue Profile You should next observe that the Revenue Profile for the historical period is i long ii quite steep and iii quite straight Revenue Profiles with these characteristics are typical of Great Companies Note that 11 years of data include only 10 growth periods Finding Stocks in the Buy Zone 27 1 Long The Revenue Profile of a Great Company is long Most prudent investors want to see that a company has been growing revenues for at least five years before giving con sideration to buying a stock 2 Steep The Revenue Profile of a Great Company is steep and rising from left to right The steeper the line the faster the growth rate Great revenue growth rates Ago Tit Manara Prts at Revenue Growth Historical amp Projected SAMPLE IMC 1 start around 5 10 for large companies in mature industries an
87. nd CFPS Where avail able a company s CFPS data are recorded in the Annual Data screen that is accessible through Data Worksheet JE rk erdum Recent Yutanmante Sample Inc is not a company that you would study using CFPS So for illustrative purposes two screens for Cable Communications Inc are presented on the following page one illustrates revenues and EPS the second shows the effect of switching to CFPS Finding Stocks in the Buy Zone 73 74 JEDE O Ven Dex dm dk Se CPET Gal lec Ur c Piha Geol rok IT 20 1 Ub uds HEHE Yp ag nu aD m Jg LaF mariya xI uni dpm LEG midiya am H pega aF Ll pe Le fei ht Hi Treen eve eri ty priam FUE mie m E pr oq RU Rm bl Res a ar Wurm 21 1l pr ona rai 2 arim TPA Pur fad 2 garir Lara yer LAC HAT J Peau Insti o ir Serene Arabi cmacmsur 1 Por cr Rear Tec rica ET iuo zar be Eur Te rh d Tieki Eh re rm Ha Libr a lE owh Hines ical amp Frzpectwd CADUC IR STER PE ET i 1 i E E E z 34 kh a a E E E Fave rade 07 cde i EMEN Dm 1 hel e BFN I a kk A Aik Ven Dex bim ik mni CTI cal Prec Dri Di
88. ng wth the analysts Your Choices are 6 Revise last year EPS C Project form the curert year s estimated EPS Estimate Awwlsbie F Project fam the laat posite EPS enter S poste EPS valeto revise the best yoy Your Choizes um E Reien hal yar FPS fw C Pret him the cumant yerk FPS C Pryect tom the last poztwe LPS x Your Chakcez are C Howse last year LPS C Proqect tom the curent years ezbmated LES Lztmate f Pret hom the lest EPS Fleck J Pene Finding Stocks in the Buy Zone 45 The Power of Revenue and EPS Profiles The visual analysis of a company s fundamentals available in the Revenue Growth and EPS Growth screens is very powerful These Profiles let you easily comprehend management s success in grow ing revenues and EPS at a high rate consistently for a long time This visual analysis is a principal input to your decision to charac terize a company as having Great or Grief Profiles The power of this visual analysis is particularly evident when com paring the Revenue and EPS Profiles of companies in the same industry The accompanying illustrations contain the revenue and EPS Profiles for eight stocks in the Retailing sector Of the eight Home Depot and Wal Mart have the best looking historical fun damentals namely the best revenue and EPS Profiles If you wanted to own only one company from the Retailing sector whi
89. o perform a search click on File and then Find to open the Find window stedy Gerd Yew D Werden ma 108 Stock Study Guide The Find window below defaults to the most common type of search which is the search by company name To choose a different search press the drop down button to see the list of available criteria 215 Saared Critario amp lacation fats Ivy Corpo Kone Cregary hara as st i Lt m pupuh vA Clery uy Os ii Using the example of searching by company name enter all or part of the company s name we ll search for Sample Inc in the Company Name Field that is currently blank Finally specify the folder to search in by clicking on the Browse button For maximum search power select your root folder on your hard drive e g CX or D V Click Find Now to start the search The search will result in a listing of all SSG or GR8 files containing the company name you have specified in our example Sample Inc Search Criteria 1 cation roro Twd Comers hare Compari Maw Fasem Maw Sanch Lock Crug ZA Oepie Dat uud Cate taht E utei Prerana ael mte Set comer Etage rezar Poe wem esu SNP Borne lnc E3 Med Lab 3100 Finding Stocks the Buy Zone 109 110 Double click on the file that you wish to open
90. on the Sustainable Growth screen i e 2 48 Stock Study Guide x 1 16 x 6 99 20 1 due to rounding This theoretical Best Return on Equity is the best that the company could have earned during the study period if its financing and operations had all been at maximum efficiency When the Maximum also the Best Retention Ratio of 100 is multiplied by the Best Return on Equity 20 1 the Best Sustainable Growth Rate results Alternatively the Worst Sustainable Growth Rate 3 5 results from a multiplication of the Minimum also the Worst Retention ratio of 81 3 and the Worst Return on Equity of 4 3 Why Sustainable Growth May Not Actual Growth Sustainable Growth Rate Earnings Retention Ratio x Rate of Return on Equity The sustainable growth rate resulting from the application of the above formula assumes that the company is operating in a steady state condition and at full capacity If these assumptions are unre liable and they typically are the company s actual revenue and EPS growth rates will differ from the calculated sustainable growth rate for that year For example suppose a firm follows the practice of retaining all of its earnings and using them to buy more inventory and lend more money to customers i e more accounts receivable Using data from the last fiscal year you can calculate the firm s sustainable growth rate for the current fiscal year However if the firm changes one or
91. ong history of generating a high rate of growth in both revenues and earnings consistently That is the management of a Great Company finds or develops products and services with lots of demand Then management makes and sells these products effi ciently to produce profits The result is a record of revenues and earnings growing at a high rate consistently for a long time Companies that do not qualify as Great Companies are significant ly deficient in one or more of the characteristics of a Great Company That is the company s history of generating revenues and earnings may be short the growth rates may be generally small or the growth rates may be erratic Any of these characteris tics of historical revenue or earnings growth can cause a company to be denied the Great label When the shares of a Great Company are trading at a sufficiently low price to provide a suitably high rate of return over the next five years with minimum risk you have a Great Stock The typical history of revenue and earnings growth that are characteristic of Great Stocks and Grief Stocks are illustrated below Great Stock Grist Stork Stock Study Guide C Implementing the Great Stock Strategy The essential requirement for implementing the strategy of buying only Great Stocks is a stock study tool that empowers you to readily identify and distinguish between a Great Stock and a Grief Stock This Section of the Manual teaches
92. open C Introductory Show Summary on open bile edes 7 Diaahie Jncigment warnings Pai meer v Always Show Motr Canes Preferences Default Settings Two new functionality options are available on the General screen You may change these preferences by clicking on the applicable check box 1 The Show Summary Screen on Open preference is unchecked This preference is available because the program provides users with a Summary screen at the Intermediate Level in addition to those screens available at the Introductory Level The Summary screen contains all of the key data and judgment boxes needed to complete an initial study of a stock Once you ve studied a number of stocks at the Introductory Level and are familiar with the program s stock study process you may find it convenient to study a stock initially from the Summary screen with reference as needed to the detailed screens available at the Introductory Level Simply click on the check box to enable access to the Summary screen when the program is opened Stock Study Guide 2 The Disable Judgment warnings preference is unchecked This preference is available to users who have learned the various Guidelines for judgment available at the Introductory Level that are an integral part of the stock study process Simply click on the check box to disable the appearance of these judgment warnings Once you have selected yo
93. or refund the money you paid for the Software CSA Computing Inc does not warrant that the Software will meet your requirements or that operation of the Software will be uninterrupted or that the Software will be error free The above warranty is exclusive and in lieu of all other warranties whether express or implied including the implied war ranties of merchantability fitness for a particular purpose and non infringement This warranty gives you specific legal rights You may have other rights DISCLAIMER OF DAMAGES Regardless of whether any remedy set forth herein fails its essential purpose in no event will CSA Computing Inc be liable to you for any special consequential indirect or similar damages including any lost profits or lost data arising out of the use or inability to use the Software even if CSA Computing Inc has been advised of the possibility of such damages In no case shall CSA Computing Inc s liability exceed the purchase price for the Software The disclaimers and limitations set forth above will apply regardless of whether you accept the Software GENERAL This Agreement will be governed by the laws of the Province of Ontario This Agreement may only be modified by a license addendum which accompanies this license or by a written document which has been signed by both you and CSA Computing Inc Should you have any questions concerning this Agreement or if you desire to contact CSA Computing Inc for any rea son pl
94. r up to 11 fiscal years depending upon availability You can move the cursor through out these data items by using 1 the arrow keys to move left right up down or 2 the mouse to point and click on the data item of interest To edit one of these data items simply go to the cell in question and enter the new number in the cell then press Enter or move off the cell with an arrow key Revenues millions The revenue data generally include the total of cash and other considerations received by the company from the sale of goods and the rendering of services Industry practice typi cally varies with respect to reporting gross revenues or rev enues net of various taxes royalties returns etc The numbers reported in ssg files generally reflect the convention practiced in the company s industry Earnings Per Share EPS The EPS data are fully diluted EPS These EPS are calculated by the company on the assumption that any and all convertible securities are converted into common shares and that any and all outstanding rights warrants options and other contingent share issues are exercised The EPS data are generally before any extraordinary items discon tinued operations or unusual items Dividend Per Share DPS The cash distributed by the com pany each fiscal year to its shareholders Fiscal Year High Low and Close Stock Prices The high price and the low price for the company s stock o
95. rences eee ehh B Other Preferences Graph Colors and Options Appendix B A Key Entering Data nee dene ete ee etre e ee a etel pg nta B Finding an SSG or GR8 file ccc ee eee eens Appendix C Service and Support Solutions Product Support 222 RE ace RU e e ed Ue reca a Also available from Canadian ShareOwner Discover the Great Stocks to Buy The Stock Selection Manual Use a Club to Beat the Market The Investment Club Manual SECTION 1 DISCOVERING THE GREAT STOCKS TO BUY A The Great Stock Strategy This Manual identifies the proven strategy or plan of action for obtaining truly superior returns consistently from stocks while minimizing risks over the longer term The strategy is the product of a great deal of research and experi ence by expert educators who are also seasoned investors in com mon stocks Furthermore the strategy has its roots in a set of investment principles that have been proven to provide long term investors with reliable guidance for making investment decisions under all manner of market conditions These principles were first formulated in 1951 by the U S based National Association of Investment Clubs NAIC and adapted by ShareOwner for its educational programs The Investing Principles The proven investing principles for investors to practice in the pursuit of consistently superior ret
96. rld Federation of Investors I am particularly indebted to Kenneth S Janke Sr President amp Chief Executive Officer of NAIC and to Thomas E O Hara Chairman of NAIC for their years of generous encourage ment and wise counsel I wish to acknowledge and thank several people for their considerable assistance in producing the Stock Study Guide software and User s Manual The process has been arduous and at times torturous but in the end a superb team effort pro duced a very powerful program for discovering the few Great Stocks to buy while rejecting the many Grief Stocks offered in the marketplace David Cusson was especially helpful in determining the content of the program s various screens and always provided imaginative suggestions as the program developed David also made many other significant contributions throughout completion of the project Oliver Sutherns provided a great deal of very efficient and diligent assistance in the writing editing and layout of the User s Manual Notwithstanding all of our collective creativity and effort we would still be with out our powerful little piece of software if it were not for the exceptional pro gramming talent of Rowan Beasley Rowan took our vision for the stock study process and turned it into a very fast robust and user friendly program in a remarkably short period of time Thank you all for a wonderful effort and significant achievement John Bart zi July 1 1999
97. ssign the Great or Grief label to a stock that comes to their attention from any number of sources eg friends brokers the print and electronic media chat rooms on the Internet etc The process for assigning one or the other label is quite direct First you study the company s revenues then its earnings then its market price then its rate of return and then its risk At each step of this process you test history and prospects for greatness or grief Step 1 Great Revenues Screen The Great Revenues screen provides a chart of a company s historical revenues so that you can see if its Profile reflects a long history of consistent growth at a high rate Then you study the company s prospects for continuing to grow revenues Finally you make a judgment about the likely growth rate for revenues during the next five years Based on that growth rate the Guide automatically calculates an estimate of revenues for the current year and for five years in the future Step 2 Great Earnings Screen The Great Earnings screen lets you study the company s histori cal earnings to see if their Profile reflects a long history of consis tent growth at a high rate Then you study the company s prospects for continuing to grow earnings Finally you make a judgment about the likely growth rate for earnings during the next five years Based on that growth rate the Guide automatically cal cu
98. t about the stock s risk based on a low price for the stock during the next five years then you compare that risk to the earlier projected reward Please note that at the Introductory Level only a minimum of attention is given to the art and science of developing judgments about a company s future growth rates prices P E Ratios etc At this Level users of the Guide will generally employ judgments based upon some sort of extrapolation of past performance into Finding Stocks in the Buy Zone 15 the future More meaningful judgments will be possible with the additional information and analysis provided at the Guide s Intermediate Level Section 4 of this Manual and at the Guide s Advanced Level Section 5 So for now users of the Guide should focus on learning the basic sequential process for studying a stock s investment merit Sample Inc For convenience the material discussed in this Section refers to a specific company called Sample Inc and its ssg data file called SAMP ssg That ssg file was loaded into the Guide s program and can be accessed through the File Open option available through the main menu Please note that Appendix B contains instructions for studying a company by key entering data directly into the Guide s various data screens rather than by loading a ssg file Stock Study Guide B Studying The Sample Company A quick understanding of Guide s process for studying a stock
99. te 5 Your Own Revenue Growth Projection At this stage in the process of studying a stock you decide for the first time whether or not to continue with the study If the histori cal Revenue Profile looks like that of a Great Company you con tinue your study if it doesn t you don t The Sample Inc Revenue Profile looks like that of a Great Company i e it s long steep and straight so you would continue your analysis of the company s revenue history and develop a judgment about the future rate of growth in revenues Stock Study Guide Please Note There is no definitive process or set of information to consult when developing a judgment about a company s future revenue growth The information available at the Guide s Introductory Level is described below and more information and analysis is available at the Guide s Advanced Level As well the publication Discover tbe Great Stocks to Buy provides further dis cussion and lots of illustrations for developing judgments about future revenue growth Introductory Level Judgment To begin developing a judgment about the future rate of revenue growth for Sample Inc you would review the data in the Compound Growth table and note that revenue growth rate had generally declined from 19 5 to 13 6 during the study period You would also review the Interim Revenue data in Section 2 of the screen and note that for the first three quarters of the current year revenues were up 6 2
100. th Rate Next 5 Yrs and type in the number 15 Be sure to right click on the data entry box to view other func tionality available in data entry boxes throughout all of the Guide s screens Finding Stocks in the Buy Zone 35 36 JE rk Duk Wirm Hop Great Revermes Great EPS Great Price Great Revere Groat RISK Semesry Revenue Growth Historical amp Projected AMAA BC 3 ace lornar Hi Aane bra yew JA au veni 4 yon ony tmn ou fy oon anv Tyso By 251 Dm wE Ie mi Conpuard 1 22 armi hie band panle s Correri Year e Year L Projected Revesue Projected Rate 5 re T 15 par yar Iranti Peas m Cura Your ra Prejactad Fran nmn Foevowr oc oye 138 tw tot 2 re wa ted yee 13 uS lad tyre us Us tot ym ted w un 27 lunt 192 inet UW lust Oye 125 ux Ghia Music u m 1175 v Sua Protic ut 10 11 Years os Resnis 1 ube 6 Excluding Revenue Data From the Calculated Growth Rate You can remove any year of Revenue data from the analysis by unchecking the check box adjacent to each Revenue number Please proceed to studying the company s growth in Earnings per Share EPS by clickin
101. the same price that has prevailed in the past for 1 of the company s EPS Finding Stocks in the Buy Zone 5 52 Great Price or Grief Price At this stage in the process of studying a stock you decide for the third time whether or not to continue with this stock If the Relative P E Ratio indicates that the recent price is more like a Great Price than a Grief Price you continue to study the stock if it doesn t you don t Guidelines for a Great Price That is a relative P E of about 80 or less is a Great Price in the absence of 1 a definite trend in the company s P E Ratio during the study period or 2 a recent significant development affecting the company s earn ings potential A Grief Price is indicated when the Relative P E is greater than about 1 2 With a Relative P E of 1 19 buyers of Sample Inc are paying somewhat more than the average price for 1 of EPS over the last ten years But not an excessive amount particularly if you were to remove the perhaps unrepresentative P E ratios for 3 4 and 10 years ago Accordingly at the recent price of 28 50 the stock is neither on sale nor over priced in relation to historical prices and so you would continue studying the stock Caution Considerable caution should be exercised in characteriz ing a stock s Relative P E Ratio as reflecting either a Great Price or a Grief Price A stock s price and P E ratio are influenced by many company spe
102. ult Projected Revenue Profile The Next Five Years The dotted line extending from last year s revenues 930 million is the Projected Revenue Profile for the next five years This Projected Profile results from projecting Sample Inc revenues to grow at the average growth rate during the last 10 years namely 19 5 Finding Stocks in the Buy Zone 3l 32 JE Mew Du Wedon Hp le xi Great Revermes Great EPS Great Price Great Retera Great RISK Semesary 4 ured loran Revenue Growth Historical amp Projected Conmucrd uw 2 SAMPLE Sane Yea R 2 bya wale ayo 159 110 int Pe we uw Myron wr istiy UW tma wn ind te sap indie 159 d thye Profile 7 ys aoo av baie Sysop 2 wa ze tie uw 1D yrs sgo 2 nih ted Oye p 175 ux ym age nw Projected Pate Met 7 Pruti Horane m Cured You ra Projected Frons um Fran Yanar Foret doen Current Year 11 Years Lane m dual I n Sj The resulting estimates of Sample Inc s revenues for the current year and in five years are 1 111M and 2 266M respectively These values are recorded on the Growth Chart and in Section 3 of the screen Of course every investor must make his or her own judgments about a company s future revenue growth ra
103. ur preferences at the Intermediate Level click the Apply amp Close button Finding Stocks in the Buy Zone 69 70 B Using the Summary Screen When operating at the Intermediate Level the Summary screen is available through the tab to the right of the Great Risk tab The process for studying a stock via the Summary screen is the same as that used with the detailed screens First you make a judgment about the company s revenue growth during the next five years then about its EPS growth then about its P E Ratio in five years and finally you develop a judgment about the stock s potential downside price The Summary screen is also a convenient place to test the sensi tivity of the Total Rate of Return and Buy Zone to alternate judg ments about the company s future growth rates and P E Ratios You should note that the Summary screen contains the same default values for growth rates and P E Ratios that are found on the detailed screens However you cannot exclude data for a par ticular year from the analysis at the Summary screen you must visit the detailed screens to do so JE rhe Yew Werk Hep Great Revermes Great EPS Great Price Great Retera Great Risk Sammy 1 Groat Revesues 5 EPS Oct 5j R ladie 185 DA 10 178 OM IRS DA dS 178 006 P last Yow IRS n2 Leet Year 17 52 1 0
104. urns with a minimum of risk are as follows Principle 1 Invest regularly regardless of the market outlook Principle 2 Reinvest all gains and earned dividend income Principle 3 Invest in growth companies Principle 4 Diversify to reduce risk The foregoing set of investing principles are great guidelines for deciding how to act during a lifetime of investing in common Finding Stocks in the Buy Zone stocks Furthermore the principles lead to a systematic plan of action an investing strategy to guide specific stock selections and purchases The first component of that strategy is as follows To maximize returns and minimize risk buy only the Great Stocks while avoiding the many many Grief Stocks that will be offered to you Despite what some experts say or would have you believe it s really quite easy to tell the Great Stocks from the Grief Stocks when you know what to look for But first it s necessary to develop an understanding of the terms Great Stocks and Grief Stocks Stock Study Guide B Great Stocks vs Grief Stocks Generally a Great Stock has a long history of providing investors with a consistently superior rate of return and solid prospects for continuing to do so during at least the next five years A Grief Stock has no such record or prospects Instead in the past it has provided long term investors with relatively low and erratic returns and has
105. y 192 Byron use indie n2 iDymssgo 04017 127 pord oe Projected EPS Profile lorma Priddis Coresreus 10h O06 por ya i Projected PRS in Garant Vaw le 190 Projected 1 pakin Fran Youre Forani ie 3211 1 Years Lane 5 Years o Your Forwext Sanl Revere Proc ot S Buiu 0 sj 5 Your Own EPS Growth Projection At this stage in the process of studying a stock you decide for the second time whether or not to continue If the EPS Profile looks like that of a Great Company you continue to study the stock if it doesn t you move on and find another stock to study The Revenue Profile and the recent segment of the EPS Profile for Sample Inc look like those of a Great Company In reflecting on the historical growth in the company s EPS you would notice the following 1 the EPS growth rate has generally increased during the study period and 2 the EPS growth rate has generally exceeded the Revenue growth rate throughout the study period Finding Stocks in the Buy Zone 41 42 Because of these situations most investors would continue their analysis and develop a judgment about the EPS growth rate during the next five years Please Note Once again you should note that there is no defini tive process or set of information to consult when developing a judgment about a company s future growth in EPS The informa tion available at the Guide s Introductory Level
106. y Data 1 Basic Information Screen This screen contains basic information about Sample Inc and mar ket data about its shares You are presented with this screen to give you the opportunity to ensure that the information and data are accurate In particular you will wish to update the data about the stock s market price and annual dividend FP reete SAAT inj bM Wen wab Mel Busa Dota Data Save ond Chere nennen beboemwtue hela Mare 5 1 LUN Costa restated estimated for 84 93 92 Thiemo OM ef o9 Eos nd cnm e Mat oer capai 100007 Tad Datu nan En ia Dota Fiscal You Hagh Pri 5 EL Heri mew 5 mau Lim ince 5 Irstazeberi Linatend 014 Curnerd Yisdri 4 Company Information Most Recently Completed FY This field identifies the latest complete fiscal year FY for which financial statement data have been reported by Sample Inc Stock Study Guide Month of FY End This field identifies the month in which Sample Inc s fiscal year ends This month serves as a benchmark date for anticipating the availability of the company s press releas es that report its results for the complete fiscal year and fiscal quarters While the fiscal year for most companies corresponds with the cal endar year Dece
107. y Profile that is at a high value with a flat or rising trajectory Possible reference points for defining a prudently high value are the historical values for the company s Equity Efficiency and the Equity Efficiency values achieved by comparable firms Finding Stocks in the Buy Zone 89 JA Mk t wem Dus Werke Hd Growth FMomectex Sermary tysiy Araci Bewoews uw Wet ry Ulery themy temy Oct yos 120 mE nm cunc y Q2 1097 ameti sy v wt yew me me 7wwwe wi tak ae Sik Wn v mie Syaa mw me Gym ago sav Trem uk ah sak Serve we amb we nF ymago say ver 29 116 t2 LL ud ses Wenn 7 D sa Components of Return en Equity SAMPLE IC Han pe Fatty QC incon Sub te svety 100 of Equity dioe Z ter Te fono Cust from Arata m2 007 asset Efficiency OT ot Ramer om evan 912 of Amt dmm e BOO Efficiency 6 37 of Net Caring tum every BIOS of urea as 179 1082 unm Royalty Ont However a high value for Equity Efficiency indicates the pres ence of a high level of debt which could prejudice the company s ability to survive a decline in its business or a significant rise in interest rates Accordingly growth oriented investors may prefer an Equity Efficiency Profile that is at a low va
108. you how to use the Stock Study Guide computer program to readily discover the few Great Stocks worth buying and the many many more Grief Stocks that must be avoided in order to earn consistently superior returns with a minimum of risk The Stock Study Guide computer program is based upon the print ed Stock Selection Guide first developed by the late George Nicholson Jr of Detroit in the early 1940s for use by his invest ment club When George helped form NAIC in 1951 his pioneer ing work was incorporated into its educational programs Today George s stock analysis tools in various adaptations are used by hundreds of thousands of investors in North America and Europe In 1987 Canadian ShareOwners Association and ShareOwner magazine adapted George s work for their educational programs The Stock Study Guide computer program hereafter the Guide reflects the adaptation and incorporates an intuitive sequential process for identifying Great Stocks and Grief Stocks Evidence of the Guide s power in helping to identify Great Stocks that provide consistently superior returns over the longer term is available in the Table of Contents page of each issue of ShareOwner magazine There the returns from the magazine s cover stocks after being featured as Stocks to Study are compared to the TSE 300 Index Finding Stocks in the Buy Zone The Stock Study Guide s 5 Step Process Investors use the Guide to quickly and easily a

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