- Objective is to -

* Find companies that can earn profits in excess of their Cost of Capital.
* Find companies that can generate substantial cash relative to the amount of investment they make.
* Figure out if the company generate the Free Cash Flow?? If so, how much ?
Free CashFlow as a %

Test 1 : What portion (%age) of each dollar/rupee in the revenue the firm is able to convert into
excess profit ??
of Sales

Positive Free Cashflow (FCF) is an excellent indication that a firm might have some kind of economic
moat.
FCF as a Percentage Of Sales = [{FCF from operations - CapEx}/Revenue]x100

Bench Mark 1 -> FCF as a Percentage of Sales >= 5% (consistently for past 10 years year after year).
This is not a CAGR

Test 3 : What are firms Return on Equity (ROE) ?

ROE is net income as a percentage of shareholder's equity and it measures the profit per
dollar/rupee of capital shareholder have invested in the company.

ROE = Net Margin x Asset turnover x Financial Leverage

ROE

Bench Mark 3 -> ROE > 15 % (consistently for past 10 years year after year). This is not a CAGR

Marico (source: Screener)

Free Cashflow as a Percentage of Sales 2007 2008 2009 2010 2011
Sales (cr) 1,556.92 1,905.04 2,388.42 2,660.76 3,134.99
Cash Operations (cr) 192.38 142.88 184.70 202.12 243.90
Cap Expense (capex) cr 161.91 90.37 148.64 441.45
Free Cash Flow (cr) 192.38 -19.03 94.33 53.48 -197.55
FCF/Sales (%) 12.36 -1.00 3.95 2.01 -6.30

Net Margin as %age of Sales 2007 2008 2009 2010 2011

Operating Profit 198.56 246.22 288.96 365.36 387.67
Operating Margin (%) -
13% 13% 12% 14% 12%
Operating income (aka EBIT) /Net Sales
Net Margin (%) 7% 9% 8% 9% 9%
Asset Turnover (avg) -> higher the better 2.05 1.94 1.87 1.31
Return on Assets - ROA (%) 0% 18% 15% 16% 12%
Financial Leverage (avg)
Total Equity (E) 192.37 314.62 453.56 653.96 915.48
Total Debt (D) 250.97 357.94 374.27 445.88 774.15
D/E 1.30 1.14 0.83 0.68 0.85
Return on Equity - ROE (%) 67% 49% 42% 37%
of investment they make.
?

Test 2 : How much profit firm is making per dollar/rupee of sales ?

Net Margin as a Percentage Of Sales = [Net Income/Revenue]x100
Net Income = Net Profit = Bottom Line
as a % of Sales
ble to convert into
Net Margin

Bench Mark 2 -> Net Margin as a Percentage of Sales > 15 % (consistently for past 10 years y
me kind of economic after year). This is not a CAGR

ears year after year).

Test 4 : What are firms Return on Assests (ROA) ? Measure of Efficiency

profit per ROA is net income as a percentage of firm's assets and it measures how efficient the firm is at
translating its assets into profits

ROA = Net Margin x Asset turnover

ROA

s is not a CAGR Bench Mark 4 -> ROA ~ [6% - 7%] (consistently for past 10 years year after year). This is not a

(source: Screener)
2012 2013 2014 2015 2016 2017
3,979.67 4,596.18 4,686.52 5,732.98 6,017.32 5,917.79
397.13 431.86 660.47 664.84 817.62 611.57
114.49 1007.25 -849.1 271.29 103.07 69.02
282.64 -575.39 1,509.57 393.55 714.55 542.55
7.10 -12.52 32.21 6.86 11.87 9.17

2012 2013 2014 2015 2016 2017

482.65 606.58 747.69 870.05 1,051.38 1,159.27

12% 13% 16% 15% 17% 20%

8% 9% 10% 10% 12% 13%

1.18 0.91 0.92 1.46 1.41 1.41
9% 8% 9% 15% 17% 19%
1143.01 1981.5 1360.63 1824.78 2017.37 2325.68
784.8 871.87 679.79 427.92 331.32 238.8
0.69 0.44 0.50 0.23 0.16 0.10
31% 25% 29% 36% 37% 37%
tently for past 10 years year

ency
how efficient the firm is at

ar after year). This is not a CAGR

 Marico
P&L Statement Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12
Sales 1,556.92 1,905.04 2,388.42 2,660.76 3,134.99 3,979.67
Expenses 1,358.36 1,658.82 2,099.46 2,295.40 2,747.32 3,497.02
Operating Profit 198.56 246.22 288.96 365.36 387.67 482.65
OPM 12.75 12.92 12.1 13.73 12.37 12.13
Other Income 27.45 20.17 12.2 18.26 100.57 32.57
Interest 23.87 30.52 35.73 25.69 41.01 42.39
Depreciation 52.06 30.75 35.79 60.06 70.8 72.52
Profit before tax 150.08 205.12 229.64 297.87 376.43 400.31
Tax 37.19 35.95 40.93 64.33 84.98 78.25
Net Profit 112.89 169.07 188.72 231.67 286.44 317.11
EPS (unadj) 1.73 2.66 2.99 3.69 4.55 5.04
Dividend Payout 35.33 23.59 21.14 17.36 14.16 13.57

Balance Sheet Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12

Share Capital 60.9 60.9 60.9 60.93 61.44 61.49
Reserves 131.47 253.72 392.66 593.03 854.04 1,081.52
Borrowings 250.97 357.94 374.27 445.88 774.15 784.8
Other Liabilities 286.79 298.51 323.58 431.49 557.4 710.95
Total Liabilities 730.13 971.07 1,151.41 1,531.33 2,247.03 2,638.76
Fixed Assets (Tangible + Intangible) 187.27 276.83 338.46 371.81 822.65 857.16
CWIP 23.12 64.72 57.67 112.9 32.71 40.17
Investments 0.01 0.01 12.11 82.71 88.93 295.65
Other Assets 519.73 629.51 743.17 963.91 1,302.74 1,445.78
Total Assets 730.13 971.07 1,151.41 1,531.33 2,247.03 2,638.76

Cash Flow Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12

Cash from Operating Activity 192.38 142.88 184.7 202.12 243.9 397.13
Cash from Investing Activity -276.99 -158.59 -98.84 -207.37 -404.51 -352
Cash from Financing Activity 85.88 47.17 -71.73 28.11 273.98 -118.69
Net Cash Flow 1.27 31.46 14.13 22.86 113.37 -73.56
Marico
Mar-13 Mar-14 Mar-15 Mar-16 Mar-17 TTM
4,596.18 4,686.52 5,732.98 6,017.32 5,917.79 6322.18
3,989.60 3,938.83 4,862.93 4,965.94 4,758.52 5185.21
606.58 747.69 870.05 1,051.38 1,159.27 1136.97
13.2 15.95 15.18 17.47 19.59 17.94
89.94 58.2 58.89 92.8 96.31 85.27
58.02 34.45 22.95 20.62 16.58 16.16
86.62 76.86 84.34 94.86 90.3 89.07
551.88 694.58 821.65 1,028.70 1,148.70 1117.01
146.19 190.48 236.77 305.37 337.73 289.55
395.86 485.38 573.45 711.48 798.59 827.46
6.04 7.53 8.68 5 5.75
16.29 46.5 28.12 77.07 56.56

Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

64.48 64.49 64.5 129.02 129.05
1,917.02 1,296.14 1,760.28 1,888.35 2,196.63
871.87 679.79 427.92 331.32 238.8
890.95 957.2 909.41 1,074.94 1,075.42
3,744.32 2,997.62 3,162.11 3,423.63 3,639.90
1,670.28 887.61 1,075.92 1,050.43 1,054.72
147.68 4.39 3.03 36.73 11.16
151.63 310.53 283.8 543.86 638.19
1,774.73 1,795.09 1,799.36 1,792.61 1,935.83
3,744.32 2,997.62 3,162.11 3,423.63 3,639.90

Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

431.86 660.47 664.84 817.62 611.57
-829.88 -201.95 -186.15 -202.53 -96.81
442.25 -339.32 -625.47 -600.99 -573.95
44.23 119.2 -146.78 14.1 -59.19