Module Units
- 1. Introduction
- 2. The World Of Investing
- 3. Equities Don't Outperform All Asset Classes All The Time
- 4. Attributes Of A Full Time Investor
- 5. The Pain Of Losing
- 6. Buy What You See
- 7. Intrinsic Value – Theory And Practice
- 8. Bull Market, Trends And Economic Bubbles
- 9. Identifying Tops And Bottoms
- 10. Identifying The Next Big Trend
- 11. Company And Financial Analysis
- 12. Acquisition
- 13. Evaluating The Management Of A Business
- 14. Dividend - The Only Sure Thing From A Stock
- 15. Operating Leverage
- 16. Stocks To Avoid
- 17. Drivers Of P/E Ratio
- 18. Buying And Selling Strategies
- 19. When To Catch A Falling Knife And When Not To?
- 20. The Ones I Saw And Missed
- 21. When To Sell And When Not To?
- 22. Analyzing Sectors And Industries
- 23. Commodity Cyclicals Are Not Long Term Bets
- 24. Analyzing Holding Companies
- 25. Analyzing Secular Growth Stocks
- 26. Portfolio Construction Strategies
- 27. When And How To Leverage And When Not To?
- 28. The Final Word- Checklist
Operating Leverage
Looking for Margin Expansion & How Companies Cook Books of Accounts:
This section discusses how a company is set up for operating leverage and the key triggers for it, while the following section discusses how companies cook their books of accounts and how an astute investor can spot them without doing too much analysis.
Operating leverage: When a company increases output, it adds less to its fixed costs, resulting in a more than proportionate increase in profits. Companies with a high gross margin but a low net margin are more likely to see their margins expand. A company that manipulates its financial statements will typically show lower revenues, higher expenses, or a larger block of fixed assets. Because of asset over invoicing, fixed assets are valued at a higher rate.
Dividends and taxes are good indicators of earnings quality because they must be paid in hard cash.
Keep an eye out for frequent equity dilutions. The rate of increase in inventory and receivables should not be faster than the rate of increase in revenue. A change in auditor or an excess of related party transactions are also red flags.
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