Reviewing basic of value investing

1. Value investing (for beginner)
Price you pay, value you get
You should not invest until you can say “I will buy this share because …”

2. What is asset and liability?
• Assets = keep putting money on your pocket
• Liabilities = keep taking money out your pocket
house
Patent
Car Apartment building

3. What is asset and liability?
• Assets = keep putting money on your pocket
• Liabilities = keep taking your money out your pocket
house
Patent
Car Apartment building
Liability Liability
Asset
Asset

4. What is asset and liability?
• Assets = keep putting money on your pocket
• Liabilities = keep taking your money out your pocket
Music instrument
Books
Gold
Fashion bags

5. What is asset or liability?
• The Rich • The Poor
Asset Liability Asset Liability
To be rich, your monthly salary does not matter much!!

6. How about shares?
• Assets = keep putting money on your pocket
• Liabilities = keep taking money out your pocket
Shares of company
The asset has price at market.
Your job as investor is to value the asset
to decide to buy or not!
You pay price but you get the value!

7. Owner
BusinessCustomer
You own the business!!
Let’s value the business
Who involves?

8. ①Revenue
$100
Cost#1
$20 salary employee
Cost#2
$40 ingredient or
tea machines
Cost#3
$10 rent
③Income = Revenue – Costs of revenue = $30
④Net income = Income – tax($10) = $20
Business in an hour
②Costs of revenue
④Net income

9. ①Revenue
$100
Cost#1
$20 salary employee
Cost#2
$40 ingredient or
tea machines
Cost#3
$10 rent
③Income = Revenue – Cost of revenue = $30
④Net income = Income – tax($10) = $20
Business in an hour
②Costs of revenue
④Net income
Owner has 2 choices
1. Put the money back
to business (equity)
2. You can pay yourself
(dividend)
④Net income
⑤-1:dividend
⑤-2:equity

10. ①Revenue
$100K
Cost#1
$20K salary employee
Cost#2
$40K ingredient or
tea machines
Cost#3
$10K rent
③Income = Revenue – Cost of revenue = $30K
④Net income = Income – tax($10) = $20K
Business in a year
②Costs of revenue
④Net income
Owner has 2 choices
1. Put the money back
to business (equity)
2. You can pay yourself
(dividend)
④Net income 20K
⑤-1:dividend
⑤-2:equity

11. ①Revenue
$100K
Cost#1
$20K salary employee
Cost#2
$40K ingredient or
tea machines
Cost#3
$10K rent
③Income = Revenue – Costs of revenue = $30K
④Net income = Income – tax($10) = $20K
Business in a year
②Costs of revenue
④Net income
Owner has 2 choices
1. Put the money back
to business (equity)
2. You can pay yourself
(dividend)
④Net income 20K
⑤-1:dividend
⑤-2:equity
So if you owned this business,
you would get 20K in a year!!

12. ①Revenue
$100K
Cost#1
$30K salary employee
Cost#2
$50K ingredient or
tea machines
Cost#3
$20K rent
③Income = Revenue – Costs of revenue = -$20K
④Net income = Income – tax($0) = -$20K
Business in a year
②Costs of revenue
④Net income
Owner has 2 choices
1. Put the money back
to business (equity)
2. You can pay yourself
(dividend)
④Net income -20K
⑤-1:dividend
⑤-2:equity
So if you owned this business,
you would lose 20K in a year!!

13. ①Revenue
$100K
Cost#1
$20K salary employee
Cost#2
$40K ingredient or
tea machines
Cost#3
$10K rent
③Income = Revenue – Cost of revenue = $30K
④Net income = Income – tax($10) = $20K
Business in a year
②Costs of revenue
④Net income
Owner has 2 choices
1. Put the money back
to business (equity)
2. You can pay yourself
(dividend)
④Net income 20K
⑤-1:dividend
⑤-2:equity
The board of directors
Company
Employee including CEO

14. The question is
how much do you want to pay
for this business??

15. ①Revenue
$100K
Cost#1
$20K salary employee
Cost#2
$40K ingredient or
tea machines
Cost#3
$10K rent
③Income = Revenue – Cost of revenue = $30K
④Net income = Income – tax($10) = $20K
Value the price of this business
②Costs of revenue④Net income 20K
⑤-1:dividend
⑤-2:equity
The board of directors
Company
Employee including CEO
Net income $20K
This is what you get in a year (and
you don’t need to work at all)
= the question is
How much do you want to pay for
this business
Pay $400K 5 percent return/year
Pay $200K 10 percent return/year
Pay $100K 20 percent return/year

16. Where you can find information??
Three Must Have
• Income statement
• Company : Net income
• Share : Earnings
• Balance Sheet
• Company : Equity
• Share : Book Value
• Cash Flow Statement
• Don’t worry about this right now.

17. Income statement
Three Must Have
• Income statement
• Company : Net income
• Share : Earnings
• Balance Sheet
• Company : Equity
• Share : Book Value
• Cash Flow Statement
• Don’t worry about this right now.

18. Balance Sheet
Three Must Have
• Income statement
• Company : Net income
• Share : Earnings
• Balance Sheet
• Company : Equity
• Share : Book Value
• Cash Flow Statement
• Don’t worry about this right now.
Equity = how much can the business leave if you close
the business down right now.
Total assets –
#1 : Cash in corporate account $12K
#2: Equipment, instrument $10K
#3: Land $35K = Total = $57K
Total liability
#1 : Salary has not paid $2000
#2 : Equipment, instruments (loan) $5K
#3 : Land $20K (loan) = Total = $27K
Equity = Total assets -Total liability
If the equity is substantial amount compared to
Market price, the investment is safer. Same apply your own equity
Equity = Total assets -Total liability
= $57K - $27K = $30K

19. Market price $100K
Company : Equity $30KCompany : Net income $20K
Income
statement
Balance Sheet
Now we are going to look into share!
What is share?

20. What is share (of business)?
Share of outstanding :10000
Market price = $100K Share price = $10

21. What is share?
Share of outstanding : 10000 (I just show 100 but..)
Net income
=$20K
Equity
=$30K
????
Income
statement
Balance Sheet Cash flow

22. What is share?
Share of outstanding : 10000
Net income
=$20K
Equity
=$30K
????
Income
statement
Balance Sheet Cash flow
= Earning per share
(EPS) = $2
= Equity (per share)
=PBR = P/BV
= $3
…Term changes
????
Earnings Book value Cash flow (later)
1 Share

23. What is share?
Share of outstanding : 10000
1 Share
The business worth $100K
Share of outstanding 10K(10000)
Each share cost $10
= That share you trade.
= Earning per share
(EPS) = $2
= Equity (per share)
=PBR = P/BV
= $3
????
Earnings Book value Cash flow (later)
Net income
=$20K
Equity
=$30K
????
Income
statement
Balance Sheet Cash flow

24. Market price $100K
Share price $10
Company : Equity $30K
Share : Book Value $3
Company : Net income $20K
Share : Earnings per share $2
Income
statement
Balance Sheet
Would you buy this share??
What is share?

25. To value the share (as the first thing we should do)
• P/E = Price of Share/Earning(EPS) = x
 Every $x dollar you invest you will get $1 in profit in a year
 Average P/E ratio in Australian company is about 15 so, on average, you
invest $15 into share you will get in profit $1 in a year
• PBR =P/BV = Price of Share/Book Value = y
 Every $y dollar you invest you will have $1 as equity
 So if this number is lower, your investment is safer

26. Market price $100K
Share price $10
Company : Equity $30K
Share : Book Value $3
Company : Net income $20K
Share : Earnings per share $2
Income
statement
Balance Sheet
Let’s calculate! P/E = ??, PBR = P/BV = ??
What is share?

27. Practice with trading platform
• Net income - check out at least last 10 years
• Equity – check out how they are handling equities
• P/E = Price of Share/Earning(EPS) = x
 Every $x dollar you invest you will get $1 in profit in a year
 Average P/E ratio in Australian company is about 15 so, on average, you
invest $15 into share you will earn $1 dollar in a year
• PBR =P/BV = Price of Share/Book Value = y
 Every $y dollar you invest you will have $1 as equity
 So if this number is lower, your investment is safer

28. To value the share (as a beginner)
• P/E = Price of Share/Earning(EPS) = x
 Every $x dollar you invest you will get $1 in profit in a year
 Average P/E ratio in Australian company is about 15 so, on average, you
invest $15 into share you will earn $1 dollar in a year
Lower is more profitable (not necessary good)
• PBR =P/BV = Price of Share/Book Value = y
 Every $y dollar you invest you will have $1 as equity
 So if this number is lower, your investment is safer
Lower is safer (not necessary good)
P/E = 4 return 25 % in year
P/E = 10 return 10 % in year
P/E = 15 return 6.7 % in year
P/BV = 0.5 You have 200 % on what you invest
P/BV = 1 You have 100 % on what you invest
P/BV = 2 You have 50 % on what you invest

29. First quick valuation (as a beginner)
• P/E = Price of Share/Earning(EPS) = x
 Every $x dollar you invest you will get $1 in profit in a year
 Average P/E ratio in Australian company is about 15 so, on average, you
invest $15 into share you will earn $1 dollar in a year
Lower is more profitable (not necessary good)
• PBR =P/BV = Price of Share/Book Value = y
 Every $y dollar you invest you will have $1 as equity
 So if this number is lower, your investment is safer
Lower is safer (not necessary good)
P/E = 4 return 25 % in year
P/E = 10 return 10 % in year
P/E = 15 return 6.7 % in year
P/BV = 0.5 You have 200 % on what you invest
P/BV = 1 You have 100 % on what you invest
P/BV = 2 You have 50 % on what you invest
x*y < 22.5 ex. (P/E =15)*(P/BV)=1.5 = 22.5

30. Now what?
• P/E = Price of Share/Earning(EPS) = x
 Every $x dollar you invest you will get $1 in profit in a year
 Average P/E ratio in Australian company is about 15 so, on average, you
invest $15 into share you will earn $1 dollar in a year
Lower is more profitable (not necessary good)
• PBR =P/BV = Price of Share/Book Value = y
 Every $y dollar you invest you will have $1 as equity
 So if this number is lower, your investment is safer
Lower is safer (not necessary good)
The share is in good shape!!
So you start looking into the business!!

31. Questions??

32. Next…??
• Bonds
• What is a bond?
• What is the relation with shares
• Money in 21th century
• How the economic machine
works etc…
• Other book reviews on
investment books
• Valuation techniques
• What is market?
Bond or Share?
Bond or Share?
Bond or Share?