Compounding Wisdom on LinkedIn: How to select stocks Select stocks using a simple 5-step framework: 1️⃣… (2024)

Financial Ratios you should knowHere are 27 ratios everyone should know:1. Current ratio = Current assets ÷ Current liabilities2. Quick ratio = (Cash + Short-term marketable investments + Receivables) ÷Current liabilities3. Cash ratio = (Cash + Short-term marketable investments) ÷ Current liabilities4. Defensive interval ratio = (Cash + Short-term marketable investments +Receivables) ÷ Daily cash expenditures5. Receivables turnover ratio = Total revenue ÷ Average receivables6. Days of sales outstanding (DSO) = Number of days in period ÷ Receivablesturnover ratio7. Inventory turnover ratio = Cost of goods sold ÷ Average inventory8. Days of inventory on hand (DOH) = Number of days in period ÷ Inventoryturnover ratio9. Payables turnover ratio = Purchases ÷ Average trade payables10. Number of days of payables = Number of days in period ÷ Payables turnover ratio11. Cash conversion cycle (net operating cycle) = DOH + DSO – Number of days of payables12. Working capital turnover ratio = Total revenue ÷ Average working capital13. Fixed asset turnover ratio = Total revenue ÷ Average net fixed assets14. Total asset turnover ratio = Total revenue ÷ Average total assets15. Gross profit margin = Gross profit ÷ Total revenue16. Operating profit margin = Operating profit ÷ Total revenue17. Pretax margin = Earnings before tax but after interest ÷ Total revenue18. Net profit margin = Net income ÷ Total revenue19. Operating return on assets = Operating income ÷ Average total assets20. Return on assets = Net income ÷ Average total assets21. Return on equity = Net income ÷ Average shareholders’ equity22. Return on invested capital (pre-tax) = Earnings before interest and taxes ÷(Average Interest-bearing debt + Average Shareholders’ equity)23. Return on invested capital = [(Earnings before interest and taxes) x (1- Effective Tax Rate)] ÷ (Average Interest-bearing debt + Average Shareholders’ equity)24. Return on common equity = (Net income – Preferred dividends) ÷ Averagecommon shareholders’ equity25. Tax burden = Net income ÷ Earnings before taxes26. Interest burden = Earnings before taxes ÷ Earnings before interest and taxes27. EBIT margin = Earnings before interest and taxes ÷ Total revenueSource: CFA Institute📚 You want to learn more? Download a full Financial Ratios Cheat Sheet here: https://lnkd.in/eXBkEW3W

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How to analyze a balance sheet1️⃣ Working CapitalThismeasures a company's ability to meet its short-term obligations. Apositive working capital indicates that the company has enough assets tocover its liabilities.2️⃣ Current RatioThis measures a company's ability to pay its current liabilities with its current assets. A ratio of 1:1 is considered ideal.3️⃣ Quick RatioThis is a more stringent measure of a company's liquidity, as it only includes highly liquid assets in the calculation.4️⃣ Debt to Equity RatioTheproportion of a company's financing that comes from debt versus equity.A high ratio may indicate that a company is taking on too much debt.5️⃣ Debt to Assets RatioTheproportion of a company's assets that are financed through debt. A highratio may indicate that a company is taking on too much debt.6️⃣ Asset Turnover RatioThis measures a company's ability to generate revenue from its assets. A higher ratio indicates more efficient use of assets.7️⃣ Return on Assets (ROA)Theefficiency with which a company generates profits from its assets. Ahigher ROA indicates that the company uses its assets more effectively.8️⃣Return on Equity (ROE)Theprofitability of a company in relation to the equity invested in it. Ahigher ROE indicates that the company generates more profits for itsshareholders.9️⃣ Days Sales Outstanding (DSO)Theaverage number of days a company takes to collect payment from itscustomers. A lower DSO indicates a more efficient collection of accountsreceivable.🔟 Inventory Turnover RatioThespeed at which a company sells its inventory. A higher ratio indicatesthat the company is efficiently managing its inventory and generatingsales.This beautiful visual was made by Christian Wattig. He's a great follow for FP&A! __📚 You liked this? Sign up to my newsletter and receive a course which helps you to analyze Financial Statements like a professional: https://lnkd.in/ewnHQ_Sw

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Ratios everyone should know to be a successful investor.1️⃣ Liquidity and efficiency▪️Current ratio: short-term debt-paying ability▪️Acid-test ratio: immediate short-term debt-paying ability▪️Accounts receivable turnover: Efficiency of collection▪️Inventory turnover: Efficiency of inventory management▪️Days' sales uncollected: Liquidity of receivables▪️Days' sales in Inventory: Liquidity of inventory▪️Total asset turnover: Efficiency of assets in producing sales2️⃣ Solvency▪️Debt ratio: Creditor financing and leverage▪️Equity ratio: Owner financing▪️Debt-to-equity ratio: Debt versus equity financing▪️Times interest earned: Protection in meeting interest payments3️⃣ Profitability ▪️Profit margin ratio: Net income in each sales dollar▪️Gross margin ratio: Gross margin in each sales dollar▪️Return on total assets: Overall profitability of assets▪️Return on common shareholders' equity: Profitability of owner investment▪️Book value per common share: Liquidation at reported amounts▪️Basic earnings per share: Net income per common share4️⃣ Market Prospects▪️ Price-earnings ratio: Market value relative to earnings▪️ Dividend yield: Cash returns per common share📚If you enjoyed this piece, please hit the “Like” button. Thank you for your support!__💡Download 50 more investment insights like this one here: https://lnkd.in/epJNgDvz

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The 25 best quotes of Charlie Munger1. Investing is where you find a few great companies and then sit on your ass.2. The big money is not in buying or selling, but in the waiting.3. Like Warren, I had a considerable passion to get rich, not because I wanted Ferrari's - I wanted the independence. I desperately wanted it.4. We have a passion for keeping things simple.5. Assume life will be really tough, and then ask if you can handle it. If the answer is yes, you've won.6. Think of the basic intellectual dishonesty that comes when you start talking about adjusted EBITDA. You're almost announcing you're a flake.7. If investing wasn't hard, everyone would be rich.8. You don't have to be brilliant, only a little bit wiser than the other guys, on average, for a long, long time.9. The desire to get rich fast is pretty dangerous.10. Those who keep learning will keep rising in life.11. There is no way you can live an adequate life without making mistakes.12. Acknowledging what you don't know is the dawning of wisdom.13. No wise pilot, no matter how great his talent and experience, fails to use a checklist.14. There is no better teacher than history in determining the future. There are answers worth billions of dollars in 30$ history books.15. A lot of people with high IQs are terrible investors because they've got terrible temperaments.16. It's waiting that helps you as an investor and a lot of people just can't stand to wait. If you didn't get the deferred -gratification gene, you've got to work very hard to overcome that.17. You don't have to be brilliant, only a little bit wiser than the other guys, on average, for a long, long time.18. One of the greatest ways to avoid trouble is to keep it simple... the system often goes out of control.19. Knowing what you don't know is more useful than being brilliant.20. If a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you’ll end up with a fine result.21. Forgetting your mistakes is a terrible error if you’re trying to improve your cognition. Reality doesn’t remind you. Why not celebrate stupidities in both categories?22. You need patience, discipline, and agility to take losses and adversity without going crazy.23. Everywhere there is a large commission, there is a high probability of a rip-off.24. It takes character to sit with all that cash and to do nothing. I didn't get to the top where I am by going after mediocre opportunities.25. We both (Warren Buffett) insist on a lot of time being available almost every day to just sit and think. That is very uncommon in American business. We read and think.__📚 Sign up here if you want to receive my free Financial Analysis course and plenty of other free investment resources: https://t.co/cwPWWDTvzO

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Investing versus tradingAre you a trader or an investor?Investors make money for themselves.Traders make money for their brokers."In investing, always remember that Rome was not built in a day.""In trading, always remember that Hiroshima and Nagsaki were destroyed in a day."Here are 10 essential lessons to always keep in mind:1️⃣Let your winners runSelling your winners too early is a big mistake.Selling companies that are doing well and purchasing ones that are faring poorly is like watering the weeds and cutting the flowers.2️⃣ Don't invest in disruptive sectorsDisruption is the worst enemy of every quality investor. Invest in companies that will still be in business 10 years from now.3️⃣ Run your own raceDon't compare yourself to others.Every investor is unique and has its own goals.4️⃣ Focus on the moatA sustainable competitive advantage is essential for quality investors.You avoid a lot of value traps when you only invest in wide moat stocks.5️⃣ Valuation mattersEven the most beautiful companies can be terrible investments if you pay too much for them.Try to buy wonderful businesses at fair prices.6️⃣Focus on managementYou don't want to invest in companies where management puts their own interest above the one of shareholders.Focus on companies with high integrity.7️⃣ Never panic buy or sellAlways try to stay rational.The worst time to make an investment decision is when you're panicking.8️⃣ Always take responsibilityNever blame others or external factors for your investment mistakes.Focus on process over outcome and take responsibility.9️⃣ Be patientThe best investors trade very little.Don't be in a rush to get wealthy.🔟 Focus on the fundamentalsMost stock prices fluctuate with more than 50% each year.But this doesn't mean the value of the company fluctuates with 50% per year.Always focus on the evolution of the intrinsic value of the companies you own.__📚 Sign up here if you want to receive my free e-book about investing and Financial Analysis course: https://t.co/cwPWWDTvzO

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100 Great business booksThese books are full of wisdomHere are my favorite ones:1."The Lean Startup" by Eric Ries2."Good to Great" by Jim Collins3."Start with Why" by Simon Sinek4."Zero to One" by Peter Thiel5."The Innovator's Dilemma" by Clayton Christensen6."Thinking, Fast and Slow" by Daniel Kahneman7."The 7 Habits of Highly Effective People" by Stephen R. Covey8."The Tipping Point" by Malcolm Gladwell9."Built to Last" by Jim Collins and Jerry I. Porras10."Influence: The Psychology of Persuasion" by Robert B. Cialdini11."Originals: How Non-Conformists Move the World" by Adam Grant12."Blue Ocean Strategy" by W. Chan Kim and Renée Mauborgne13."The Hard Thing About Hard Things" by Ben Horowitz14."Leaders Eat Last" by Simon Sinek15."How to Win Friends and Influence People" by Dale Carnegie16."Delivering Happiness" by Tony Hsieh17."Thinking in Bets" by Annie Duke18."The Art of War" by Sun Tzu19."Grit: The Power of Passion and Perseverance" by Angela Duckworth20."Leadership and Self-Deception" by The Arbinger Institute21."The E-Myth Revisited" by Michael E. Gerber22."Measure What Matters" by John Doerr23."Creativity, Inc." by Ed Catmull and Amy Wallace24."Made to Stick" by Chip Heath and Dan Heath25."The Power of Habit" by Charles Duhigg26."Thinking, Fast and Slow" by Daniel Kahneman27."The One Thing" by Gary Keller and Jay Papasan28."Rework" by Jason Fried and David Heinemeier Hansson29."The 4-Hour Workweek" by Timothy Ferriss30."Lean In" by Sheryl Sandberg31."The Warren Buffett Way" by Robert G. Hagstrom32."The Art of Possibility" by Rosamund Stone Zander and Benjamin Zander33."The Culture Code" by Daniel Coyle34."Originals" by Adam Grant35."Deep Work" by Cal Newport36."Hooked: How to Build Habit-Forming Products" by Nir Eyal37."The Innovators" by Walter Isaacson38."The Thank You Economy" by Gary Vaynerchuk39."The Wealth of Nations" by Adam Smith40."The Start-Up of You" by Reid Hoffman and Ben Casnocha41."The Lean Product Playbook" by Dan Olsen42."Multipliers" by Liz Wiseman43."Sapiens: A Brief History of Humankind" by Yuval Noah Harari44."The Goal" by Eliyahu M. Goldratt45."The Psychology of Money" by Morgan Housel46."The Effective Executive" by Peter F. Drucker47."Measure What Matters" by John Doerr48."The Design of Everyday Things" by Don Norman49."Shoe Dog" by Phil Knight50."Mindset: The New Psychology of Success" by Carol S. Dweck📚If you enjoyed this piece, please hit the “Like” button. Thank you for your support!__💡If you liked this, you'll LOVE my free Investing E-book. Grab it here: https://lnkd.in/e-nD57RA

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50 Books to change your life1. How to Talk to Anyone2. Atomic Habits3. Rich Dad Poor Dad4. The 5 AM Club5. Thinking Fast and Slow6. The 48 Laws of Power7. Make Your Bed8. The Subtle Art of Not Caring9. How to Win Friend and Influence People10. Think and Grow Rich11. The Power of Habit12. The 7 Habits of Highly Effective People13. The Power of Positive Thinking14. 12 Rules for Life15. The 80/20 Principle16. The 4-Hour Body17. Never Get a Real Job18. Quiet19. Girl, Stop Apologizing20. Girl, Wash your Face21. How to Stop Worrying22. Act Like a Lady23. Talking to Strangers24. Deep Work25. The Four Agreements26. The Love Languages 27. Getting Things Done28. Who Moved My Cheese29. The 4-Hour Workweek30. The Power of Now31. Think and Grow Rich32. Man's Search For Meaning33. The Alchemist34. The Power of Now35. Awaken the Giant Within36. The Miracle Morning37. Sapiens38. The Power of Habit39. Outliers40. The Art of Happiness41. The Magic of Thinking Big42. Essentialism43. 10% Happier44. Yes You Can!45. The Lover46. Zero to One47. Never Split the Difference48. Getting to Yes49. A Kiss Before Dying50. The Subtle Art of Not Giving a F*ck__📚 Sign up here if you want to receive my free e-book about investing and Financial Analysis course: https://t.co/cwPWWDTvzO

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80 Great investing booksHere are my favorite ones:- Stocks for the Long Run by Jeremy Siegel- The Most Important Thing by Howard Marks- The Intelligent Investor by Benjamin Graham- One Up On Wall Street by Peter Lynch- The Outsiders by William Thorndike- The Boglehead’s Guide to Investing by Mel Lindauer- The Alchemy of Finance by George Soros- Margin of Safety by Seth Klarman- The Little Book of Value Investing by Christopher Browne- Common Stocks and Uncommon Profits by Philip Fisher- The Dhando Investor by Mohnish Pabrai- Mastering the Cycle by Howard Marks- Too Big to Fail by Andrew Ross Sorkin- The Investment Checklist by Michael Shearn- Deep Value by Tobias Carlisle- You Can Be a Stock Market Genius by Joel Greenblatt- A Random Walk Down Wall Street by Burton Malkiel- The Joys of Compounding by Gautam Baid- Where Are the Customers' Yachts? by Fred Schwed- Richer, Wiser, Happier by William Green- The Man Who Solved the Market by Gregory Zuckerman- Expectations Investing by Michael Mauboussin- The Education of a Value Investor by Guy Spier- Security Analysis by Benjamin Graham- Reminiscences of a Stock Operator by Edwin Lefevre- What Works on Wall Street by Jim O’Shaugnessey- When Genius Failed: The Rise and Fall of LTCM by Roger Lowenstein- The Big Secret from the Small Investor by Joel Greenblatt- Seeking Wisdom - From Darwin to Munger by Peter Bevelin- How to Make Money in Stocks by William O’Neil- The Four Pillars of Investing by William Bernstein- Beating the Street by Peter Lynch- The Art of Execution by Lee Freeman-Shor- The Little Book that Still Beats The Market by Joel Greenblatt- The Simple Path to Wealth by JL Collins- The Smart Money Method by Stephen Clapham- The Little Book that Builds Wealth by Pat Dorsey- 100 Baggers by Chris Mayer- The Little Book of Common Sense Investing by John Bogle- Five Rules for Successful Stock Investing by Pat Dorsey____💡 Receive my free Financial Analysis Course: https://lnkd.in/ewnHQ_Sw📚Get my free e-book which will be published on Amazon soon: https://lnkd.in/ebvU2Exh

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Investing versus spendingAre you an investor or a spender?Investing is all about delayed gratification.Imagine you have a magical money tree in your backyard. Every day, this tree grows shiny, golden coins. Now, you have two choices: you can pick the coins every day as soon as they appear, and you'll have a little bit of money to spend right away. This is like getting a treat or a toy every day.But, there's another option. Instead of picking the coins right away, you can choose to leave them on the tree for a while. When you do this, something amazing happens. Those coins start to multiply and grow even more! So, if you wait for some time without picking the coins, you'll have a lot more money to spend later on.Investing is a bit like that second option. Investing is about being patient and waiting for your money to grow, like waiting for those magical coins to multiply on the tree. You want another example?Person A:- Spends $4/day on buying coffee at Starbucks- Result: spends $19,200 (!) on buying coffee over 20 yearsPerson B:- Invests $4/day in stocks of Starbucks- Result: makes $161,396 over 20 yearsThe conclusion? Start buying stocks of the companies you love instead of their products.📚If you enjoyed this piece, please hit the “Like” button. Thank you for your support!__💡Download 50 more investment insights like this one here: https://lnkd.in/epJNgDvz

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