Compounding Quality

Founder

Compounding Quality is an investment newsletter with more than 500,000 subscribers.

This is what you can expect:

- Every Tuesday you’ll receive 5 investment insights
- Every Thursday you’ll receive a deeper investment article full of wisdom

"The best thing a human being can do is to help another human being know more." - Charlie Munger

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50 Financial Ratios

The 50 Ratios Every Smart Investor Knows

Some examples: 
- Quick Ratio
- Dividend Yield
- PEG Ratio
- ROIC

Source: Rimjhim Dubey

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Pieter Slegers

Investment newsletter with over 500,000 subscribers | Forbes30U30 | Volkswagen Ambassador

50 most important financial ratios

Fundamental Analysis

This e-book is everything you need to know

🙏 Help me spread the word: like, share and comment!

• Introduction to Financial Statements
• Balance Sheet
• Income Statement
• Cash Flow Statement
• Key Financial Ratios
• SWOT Analysis
• Industry and Economic Analysis
• Discounted Cash Flow 

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Investment newsletter with over 500,000 subscribers | Volkswagen Ambassador

Fundamental analysis 

Mergers & Acquisitions

A crash course with everything you need to know

- Module 1: Introduction
- Module 2: Strategic Focus
- Module 3: Why mergers fail
- Module 4: Valuation
- Module 5: Bid tactics
- Module 6: Due diligence
- Module 7: The Concept of Implementation
- Module 8: Project management
- Module 9: Developing the Implementation Plan
- Module 10: Executing the Implementation Plan

Credits for Professor Alexander Roberts, Dr William Wallace & Dr Peter Moles

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M&A 101

Basic Financial Accounting Formulas

Master these formulas to improve your knowledge

- Current Assets
- Net Fixed Assets
- Total Assets
- Current Liabilities
- Shareholder’s Equity
- Total Liabilities & Equity
- Cost of Goods Sold (COGS)
- Gross Profit
- Operating Expenses (Opex)
- Income from Operations
- Net Income
- Retained Earnings
- Net Cash Flow
- Depreciable Base
- Operating Cash Flow (Direct Method)
- Operating Cash Flow (Indirect Method)
- Investing Cash Flow
- Financing Cash Flow
- Net Working Capital
- Straight Line Depreciation

Source: Abdelsalam Elshourbagy, CMA®, FMVA®, CMSA®, CBCA®, FPWM™ 

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20 Most important accounting formulas

I struggled reading annual reports

You know what was a game changer?

The 6-step framework from Aswath Damodaran

You can steal it here:

Have clear goals

Always know why you are reading an annual report. What's your purpose?

Here are 5 essential things:

- Cash Flows
- Investments in Future Growth
- Operational Efficiency
- Quality of Earnings
- Risk

1️⃣ Cash Flows

- How much revenue is translated into cash flow?
- How much capital does the company need to generate these cash flows?

Free Cash Flow per share growth is one of the main drivers for stock prices.

2️⃣ Investments in Future Growth

- How much growth is generated by increased productivity?
- How much growth CAPEX does the company use?

3️⃣ Operational Efficiency

- How efficiently does the company allocate capital?
- Does management put a lot of emphasis on operational efficiency?

The better the capital allocation skills of management, the better for you as an investor.

4️⃣ Quality of Earnings

Not all earnings are created equal

Look for:
- Amount reinvested
- Return on invested capital (ROIC)

5️⃣ Risk

There are two primary concerns regarding risk:

- Operational risk involves issues related to the core business activities of the company.
- Financing risk pertains to challenges associated with the company's funding methods.

Now you know what you're looking for and why, you can start using Damodaran's 6-step approach.

Step 1:

Confirm the timing and currency

- What period is covered?
- What currency are they reporting in?

Step 2:

Map the business mix:

- In which segment does the company operates?
- What does the geographic breakdown look like?

Step 3:

Find the base inputs for valuation

From the Balance Sheet:

• How much debt the company have?
• Does the company have more current assets and current liabilities?
• Does the company have a lot of goodwill on its balance sheet Image
From the Income Statement

• Are revenues steadily increasing over time?
• Does the company need a lot of COGS to sell its products?
• How much revenue is translated into net income?

From the Cash Flow Statement

• Are most earnings translated into operating cash flow?
• Does the company have a positive free cash flow (operating cash flow – CAPEX)?
• Did the company manage to increase its cash position compared to last year?

Step 4:

Keep digging

In the footnotes look for:

- Does the company use a lot of SBCs?
- When does the company's debt mature?
- ...

Step 5:

Confirm The Units

- How many shares outstanding does the company have?
- Does the company have preferred shares?
- Are acquisitions paid with stocks?

Step 6:

Corporate Governance

- Do insiders get special priveleges?
- Does management have a lot of skin in the game?

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Compounding Quality | Investment newsletter with more than 210,000 subscribers

Neha Singh

The 25 best quotes of Charlie Munger

1. 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.

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