What's competitive advantage and how to find it? We went over major value based ratio and margins. Just keep on mind two rules of competitive advantage it never lives alone and it is created over time(consistency).

1. What is competitive
advantage and how to find
it?
Vienna Value Investing Meetup #5

2. Why this meetup?
CREATE VALUE INVESTING HUB IN VIENNA
SHARE IDEAS AND EXPERIENCE AMONG MEMBERS
DOING INVESTMENT RESEARCH TOGETHER
THIS IS AN OPEN DISCUSSION MEETUP, PLEASE ASK
WHENEVER YOU LIKE

3. Who am I?
MARTIN BODOCKY
CEO OF MINT AI
AI AND FINTECH GEEK

4. Disclaimer
WE ARE NOT INVESTMENT ADVISORS.
WE DO NOT RECOMMEND TO BUY OR SELL.
WE ARE NOT TAX ADVISORS.
ANY DECISION YOU CONCLUDED FROM THIS SESSION
IS YOURS NOT OURS, YOU ARE IN CONTROL.

5. Agenda
1. WHAT IS COMPETITIVE ADVANTAGE
2. ISOLATION AND CONSISTENCY
3. FINANCIAL STATEMENTS
4. RATIOS/MARGINS
5. WHAT’S NEXT

6. What is competitive advantage?
A COMPETITIVE ADVANTAGE IS THE ATTRIBUTE THAT
ALLOWS AN ORGANIZATION TO OUTPERFORM ITS
COMPETITORS.
A COMPETITIVE ADVANTAGE MAY INCLUDE ACCESS TO
NATURAL RESOURCES, A LOW-COST POWER SOURCE,
HIGHLY SKILLED LABOUR, GEOGRAPHIC LOCATION,
HIGH ENTRY BARRIERS, AND ACCESS TO NEW
TECHNOLOGY.

8. Isolation and consistency
COMPETITIVE ADVANTAGE DOESN’T WORK IN
ISOLATION, ALWAYS INSIDE PARTICULAR
INDUSTRY(STANDARD INDUSTRIAL CLASSIFICATION)
COMPETITIVE ADVANTAGE IS OUTCOME OF
CONSISTENT WORK AND FINANCIAL RESULTS.

9. Value of patience

10. Financial statements
INCOME STATEMENT – SHOWS COMPANY EARNINGS
FOR QUARTER OR FISCAL YEAR
BALANCE SHEET – SNAPSHOT OF COMPANY CASH
RESERVES, LIABILITIES AND ASSETS IN A PARTICULAR
POINT IN TIME
CASHFLOW STATEMENT – TRACE CASH IN AND OUT
OF COMPANY, SHOWING SNAPSHOT OF SPENDING

11. Balance sheet
• STATEMENT OF NET WORTH OF BUSINESS OF TIME OF
PUBLISHING
• CONTAINS THREE ELEMENTS
• ASSETS ARE WHAT COMPANY HOLDS, LIABILITIES WHAT
IT NEEDS TO PAY AND EQUITY WHAT VALUE IT CREATES
Assets Liabilities Equity

12. Income statement
• STATEMENT OF NET WORTH OF BUSINESS OF TIME OF
PUBLISHING, IT CAN HAVE QUARTERLY OR ANNUALLY
FASHION
• PROVIDES REVENUES – HOW MUCH WAS SOLD
• GROSS PROFIT
• OPERATING EXPENSES
• NET INCOME

13. Cash flow statement
• THE CASH FLOW STATEMENT IS DISTINCT FROM THE
INCOME STATEMENT AND BALANCE SHEET BECAUSE IT
DOES NOT INCLUDE THE AMOUNT OF FUTURE
INCOMING AND OUTGOING CASH THAT HAS BEEN
RECORDED ON CREDIT.
• THEREFORE, CASH IS NOT THE SAME AS NET INCOME,
WHICH ON THE INCOME STATEMENT AND BALANCE
SHEET, INCLUDES CASH SALES AND SALES MADE ON
CREDIT.

14. Gross Profit Margin
INCOME STATEMENT
• REVENUE
• GROSS PROFIT
• MARGIN = GROSS PROFIT / REVENUE
ABILITY TO ADD VALUE TO GOODS
MORE THAN 20 %; GREAT MORE THAN 60%
(COCA COLA 60%, MOODY’S 73%)

15. Selling General & Administration Margin
INCOME STATEMENT
• SELLING GENERAL & ADMINISTRATION(SGA)
• GROSS PROFIT
• MARGIN = SGA / GROSS PROFIT
COMPANY’S OPERATION EXPENSES LIKE MANAGEMENT
SALARIES, MARKETING, LEGAL FEES AND SUCH. INDICATES
YOUR EFFECTIVITY OF RUNNING
LESS THAN 80 %; GREAT LESS THAN 40%
(COCA COLA 60%, MOODY’S 25%)

16. Research & development Margin
INCOME STATEMENT
• RESEARCH & DEVELOPMENT(R&D)
• GROSS PROFIT
• MARGIN = R&D / GROSS PROFIT
THIS IS INNOVATION EXPENSE. INDICATES YOUR
EFFECTIVITY OF BRINGING NEW INNOVATION
LESS THAN 50 %; GREAT LESS THAN 25%
(COCA COLA 0%, MOODY’S 0%)

17. Net Income Margin
INCOME STATEMENT
• NET INCOME
• REVENUE
• MARGIN = NET INCOME / REVENUE
PROFITABILITY OF BUSINESS AFTER ALL EXPENSES
MORE THAN 15 %; GREAT BETTER THAN 25%
(COCA COLA 21%, MOODY’S 31%)

18. Cash Margin
BALANCE SHEET
• CASH & EQUIVALENT
• TOTAL ASSETS
• MARGIN = CASH & EQUIVALENT / TOTAL ASSETS
COMPANY LIQUIDITY
GREAT BETWEEN 10-20 %; OTHERWISE NOT SO GREAT
(COCA COLA 9.8%, MOODY’S 3%)

19. Property/Plant/Equipment Margin
BALANCE SHEET
• PROPERTY/PLANT/EQUIPMENT (PPE)
• GROSS PROFIT
• MARGIN = PPE / GROSS PROFIT
HOW MUCH EQUIPMENT COMPANY NEEDS TO MAKE
PROFIT
LESS THAN 40%; BETTER LESS THAN 20%
(COCA COLA 41%, MOODY’S 12%)

20. Return on assets
BALANCE SHEET
• NET INCOME
• TOTAL ASSETS
• RETURN ON ASSETS = NET INCOME / TOTAL ASSETS
HOW EFFECTIVE THE COMPANY IS IN PUTTING ITS ASSETS
TO USE
MORE THAN 10%; GREAT MORE THAN 20%
(COCA COLA 12%, MOODY’S 43%)

21. Equity burden ratio
BALANCE SHEET
• SHAREHOLDERS’ EQUITY
• TOTAL LIABILITIES
• RATIO = TOTAL LIABILITIES / SHAREHOLDERS’ EQUITY
INDICATES USE OF DEBT LEVERAGE TO SUPPORT
COMPANY GROW
LESS THAN 0.8; GREAT LESS THAN 0.6
(COCA COLA 0.53, MOODY’S 0.63)

22. Long term debt ratio
BALANCE SHEET
• SHAREHOLDERS’ EQUITY
• LONG TERM DEBT
• RATIO = LONG TERM DEBT / SHAREHOLDERS’ EQUITY
INDICATES POTENTIAL FUTURE RISK FOR COMPANY
LESS THAN 60%; GREAT LESS THAN 30%
(COCA COLA 34%, MOODY’S 57%)

23. Return on shareholders’ equity
BALANCE SHEET
• SHAREHOLDERS’ EQUITY
• NET INCOME
• RETURN = NET INCOME / SHAREHOLDERS’ EQUITY
INDICATES EFFECTIVITY OF COMPANY OPERATION
MORE THAN 15%; GREAT MORE THAN 25%
(COCA COLA 28%, MOODY’S 5.1%)

24. Growth of retained earnings
BALANCE SHEET(CURRENT AND PAST YEAR)
• RETAINED EARNINGS(CAPITAL SURPLUS)
• GROWTH = PAST YEAR / CURRENT YEAR
SHOWING IF COMPANY BENEFITING TO HAVE
COMPETITIVE ADVANTAGE. INCREASING ITS
SHAREHOLDERS’ EQUITY
MORE THAN 5%; GREAT MORE THAN 15%
(COCA COLA 9.77%, MOODY’S 0.5%)

25. Free cash flow Total Assets ratio
CASH FLOW/INCOME STATEMENT/BALANCE SHEET
• CAPITAL EXPENDITURE(CAPEX)
• OPERATION INCOME
• TOTAL ASSETS
• FREE CASH FLOW = OPERATION INCOME - CAPEX
• RATIO = FREE CASH FLOW/ TOTAL ASSETS
COMPANY’S CASH GENERATION POWER
MORE THAN 7%; GREAT LESS THAN 15%
(COCA COLA 7.2%, MOODY’S 9.8%, APPLE 14.7%)

26. Capital expenditure Net Income ratio
CASH FLOW/INCOME STATEMENT
• CAPITAL EXPENDITURE(CAPEX)
• NET INCOME
• RATIO = CAPEX / NET INCOME
HOW MUCH COMPANY NEEDS TO RUN THEIR OPERATIONS
LESS THAN 40%; GREAT LESS THAN 20%
(COCA COLA 34%, MOODY’S 43%, APPLE 27%)

27. Information from examples
• MOODY’S ANNUAL STATEMENT, OR YAHOO
FINANCE
• COCA COLA’S ANNUAL STATEMENT, OR YAHOO
FINANCE

28. Any questions?

29. Next is Intrinsic value!

30. Next sessions – July/August
• HOW TO FIND STOCK VALUE? – DCF SESSION
• BEGINNER'S SESSION