Q&A: Amortization, Time needed for Stock Analysis, Lumpsum vs Staggered Investments

Modified: 01-Jul-20

The current article in this series provides responses related to:

  • How amortization is calculated?
  • How change in balance sheet reporting format impacts financial data
  • How much time we invest in stock analysis
  • Lumpsum vs. Staggered Investments
  • Does poor short-term performance means management has become incompetent?
  • Getting Inventory Turnover Ratio, Receivables days and Market Capitalization

 

How amortization is calculated?

Analysis: Emami Limited (Emami, Himani and Zandu brands)

Dear Vijay,

Thanks a lot again for educating us.

I need to understand the treatment of amortization by Emami Limited with your help:

  1. Can you please help me understand how the amortization calculation is done? I am unable to link changes in reserves & surplus in balance sheet and changes in P&L statement for amortization?
  2. What is the advantage of this operation? If amortization amount is added back to profits, would it not have an implication on taxes paid out?

Thanks again!

Regards

Author’s Response:

Hi,

Thanks for your feedback & appreciation! I am happy that you found the articles useful!

1) Amortization is to goodwill/intangible assets what depreciation is to fixed assets/tangible assets. Emami has explained its amortization policy in its annual report. I advise you to read the annual report of Emami Limited to get further clarity on the policy it follows.

2) For linking amortization charge in P&L, changes in the reserves & surplus, advantages of transferring amount from reserves to P&L, I suggest that you prepare an excel file with calculation of P&L and balance sheet. You should try putting different values for the amortization charge, transfer from general reserve in the P&L and see its impact on profit before tax. You would come to know the impact it would have on the tax outgo in P&L.

This would be a good learning exercise for you.

All the best.

Regards,

 

How change in balance sheet reporting format impacts financial data

Hi Vijay,

I just want to clarify how total debt of a company is calculated from balance sheet?

I looked at your views on FIEM Industries Limited and got stuck at calculating total debt! It was mentioned 87cr total debt for yearend Mar-14 in article:

Analysis: FIEM Industries Limited

But when I looked at Balance Sheet at screener, I am not able to get – how you got 87cr as total debt for Mar-14?

Please clarify me – how I can calculate total debt of a company from balance sheet?

Author’s Response:

Hi,

Thanks for writing to me!

You would notice that the debt figures from March 2012 onwards are different from the ones mentioned in the article and the ones presented by screener now. The data presented in the article was taken from screener in June 2015.

In August 2015, the screener website has undergone a change and it has changed the way it presents/classifies the data on its website.

From 2012, the presentation of financial statements had undergone a change on account of change in Schedule VI. From August 2015, screener has updated its data presentation and has factored in the changes in presentation of financial statements from FY2012 onwards. Before August 2015, it seems to be calculating data as per its template which was prepared in the older format of annual reports.

The changed presentation of data by screener is the reason that you are not able to find debt data of March 2014 as ₹87cr.

It is advised that before taking any investment decision, an investor should check the financial figures from the annual report of the company as annual report is the most authentic sources of data.

Hope it clarifies your query!

Regards,

 

How much time we invest in stock analysis

Lumpsum vs. Staggered Investments

Hi Dr Malik,

  1. Typically how many hours of research do you do on a stock before deciding whether to add to your portfolio or not?
  2. Do you buy stocks in lump sum or staggered manner? If staggered, please can you explain your methodology?

Author’s Response:

Hi,

Thanks for writing to me!

1) It may take few seconds/minutes to a few hours to decide if I decide not to invest in a stock. However, it may take a few week while I analyse, get convinced and invest in a stock.

2) I prefer investing the entire surplus available at any time in a stock, when I find an attractive stock. It’s another story that I keep on buying it from my monthly savings until its valuation is within my buying range.

Hope it clarifies your queries.

Regards,

 

Does poor short-term performance means management has become incompetent?

Analysis: Kaveri Seed Company Limited

Most of the positive features of this company was due to management’s efforts during the period of 3-5 years or before, while all the negative features are recent developments. Does it mean that the management has changed for bad and the company is in a declining mode?

Author’s Response:

Hi,

Assessment of management is very subjective just like assessment of one’s friends.

Therefore, it is advised that the investor takes due care while analysing the management of any company as it is the most important parameter of stock investment.

You may take further help from the following article on management analysis of a company:

How to do Management Analysis of a Company

All the best for your investing journey!

Regards,

 

Getting Inventory Turnover Ratio, Receivables days and Market Capitalization

Hi Vijay,

Thanks a lot for your view and guidance. Please help me to know, how to get below 3 parameters .I am not getting it from screener/balance sheet.

  1. Inventory turnover ratio
  2. Receivable days
  3. Market Capitalization (M-Cap) of last 10 yrs.

Thanks again in advance.

Regards,

Author’s Response:

Hi,

Thanks for writing to me! I am happy that you found the article useful.

You may find the calculation of ITR and Rec. days in the following article:

5 Simple Steps to Analyse Operating Performance of Companies

Gain in M-Cap of last 10 years is the change in market cap from 1st April 2005 to current date. Historical share price (adjusted for splits and bonuses) can be found at BSE, NSE websites.

Regards,

P.S.

 

DISCLAIMER

  • The above discussion is only for educational purpose to help the readers improve their stock analysis skills. It is not a buy/sell/hold recommendation for the discussed stocks.
  • I am registered with SEBI as an Investment Adviser under SEBI (Investment Advisers) Regulations, 2013.
  • Currently, I do not own stocks of the companies mentioned above in my portfolio.

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