Beardstown Ladies Investment Guide

Beardstown Ladies Common Sense Investment Guide
by the Beardstown Ladies Investment Club and Leslie Whitaker

Scrutinizing the Annual Report of a stock

shareholders equity = assets - liabilities
current assets = convertible to cash within a year (cash, A/R, inventories)
fixed assets = property, plants and equipment not being converted to cash in a year
net property, plants and equipment = fixed assets minus scheduled yearly depreciation
current assets + net property/pl/equp = total assets

current liabilities = debts due within a year
accounts payable = debts owed to creditors now
current liabilities + long-term debt = total liabilities
preferred shareholders have prior claim to assets over common stock holders

Analysis:
Determine working capital = current assets - current liabilities
? is there a reserve if things go dry for awhile?
current ratio = current assets/current liabilities ; > 2:1 ??
acid test is a telling ratio: current assets (exclude inventories here) / current liabilities;
a big decrease here shows that high inventories may by tying up the cash/too much merchandise

Now check the Income Statement: to evaluate profitability over time
Net income after taxes = Income before taxes(sales - operating costs + other income) - taxes
Inventory Turnover: higher is better; = cost of goods sold/ inventory costs; (1x, 5x, etc.)
Plant turnover: higher is better; = sales/property,plant, equipment; should increase over time
Gross Margin = profit/net sales (>60% is good)
Return on equity = net income/book value

You want growth over time, and you want better profiling than competitors.

Top 10 factors to buy a Stock by Beardstown Ladies:
1. Is in the top third of its industry as ranked by Value Line
2. Timeliness rating of 1 or 2 by Value Line
3. Safety rating is 1 or 2 by Value line
4. Total debt is < by =" (current" shares =" book/share">
5. Beta falls between 0.9 and 1.10
6. Five years of growth in sales & earnings, projected growth of 12-15% in next few years.
7. less than 25$/share if possible to buy 100 shares or more
8. P/E is below 5 year average for the stock
9. Its upside down ratio is at least 3:1.
10. Competent and experienced management


Picks:
1. Use Value Line as a guide for solid earnings/future outlook
2. Buy below the 5 year average, think twice if at 5 year high
3. Value Line "Annual rates" box will tell you if profits rate of increase are in line with rates of sales increases
4. A good buy may have a sum of its earnings over the next five years close to the sale price of the stock now
5. Book value comparison to present price: book value should be higher than present price, calculate by = (current assets - current liabilities) / shares = book/share value
or just check calculation done by Value line.
6. P/E: avoid the stock if current P/E is higher than average P/E for the past 5 years
7. the growth rate of the stock is a good yardstick for P/E; if sales are not growing, P/E should be low also (or half the growth rate in the P/E is a bargain, twice the Growth rate is overpriced).

8. selling a stock: reevaluate holding a stock when it hits your target of double the price; if it has a lot of growth and strong fundamentals, hold th stock, if the fundamentals are now weak, its time to bail. Consider now : changes in management, new competition, lack of diversity, sudden increases in debt, employee strikes, etc. Stay strong with the shares while the company appears strong, sell when they're weakened.