This week, I want to put into context last week’s https://wp.me/p9wZQ4-7B post.
Remember that my investments in shares have so far been done without any analysis or review but has been based solely on my knowledge of the reputation of a company. So to put into perspective my last post, I will use two of the investments shown in this post https://wp.me/p9wZQ4-7g shown as generating significant losses (TSCO – 53% and LLOY – 69%) and review what some of their financial results and ratios indicate.
Based on historical financial results obtained from the platform I invest through, I have collated some figures and ratios for Tesco and Lloyds bank, and provided a very brief narrative of what the figures are saying.
Tesco’s turnover during the three years to February 2020 increased. Both its operating profits and profit after tax (PAT) increased in 2019, but both took a dip in 2020 and EPS and ROE also followed the same patter as (PAT). Dividend cover (i.e. the number of times it is able to cover dividend payments from earnings) even though took a dip, continued to be healthy. The debt-to-equity ratio shows debt is more than 100% of equity and again this increased in 2019, but has reduced in 2020.
My interpretation of these results is that even though sales has grown in the years to February 2020, profits dipped after 2019 implying either an increased level of operating expenditure. A decrease in the debt ratio implies either some debt has been repaid or an increase in equity.
Lloyds bank’s figures (see below) shows an increase in turnover for the years leading up to 2019 and while operating profit and PAT follow a similar pattern in 2018, they both took a dip in 2019, as is the case with EPS, ROE, dividend yield and dividend cover. Debt is less than 50% of equity and has continued to fall.
One of the things I would have wanted to know if I had done a review/analysis before purchasing these shares, is why the dips occurred and how this will impact future results. I would also have looked at their current financial year quarterly results and how both companies have fared, particularly during pandemic. I would also have reviewed the share price history.
It is important to recognise that these figures only tell how well the company has performed from one year to another. To determine whether the company’s performance is good or not, the figures will need to be compared with industry averages and with similar companies.
Also, even though it is often said that past performance is not an indication of future results (which is true), in my opinion past performance is often a good place to start. After a review of past performance has been conducted, the next step would be to review what the company’s future plans are e.g. what growth activities does it plan to embark on in the future and what impact does it project such activities will have on its figures.
This is where the individual decision then kicks in; do you believe the company’s projections (having seen past performance vs past projections), does the company have a good reputation, does it have values that align with yours, etc.
Overall, it is important to decide what investment strategy to pursue – value or dividend investor, short or long-term, high risk or not, etc. as this should guide one’s investment decisions – what shares to invest in, how long for, how often the investments will happen, when to sell/buy, etc. Once this decision is made, it is then important to stick to this and not make decisions in reaction to market movements.
The good news is that if you don’t have the time or inclination to do the sort of research I have tried to demonstrate in today’s post, you can still invest. As shown in below picture, “Index Funds” is another option – I haven’t got a clue what that is(I must say)!
In as much as I don’t know what ‘Index Funds’ are, based on the picture it seems to tick so many boxes (low risk, hands-off and no research required), so I shall sure be looking into it in due course, but for now, I would like to get a good feel for the market before going hands-off.
Oh, did I tell you about my dabble into cryptocurrency? Not that I understand it too well still… I will tell you a bit about that in future posts, but for now remember do your own research before making any investment decisions.
Like, share and comment. Let me know if you find this useful (and I would be interested to learn from you as well) – use the comment box.
📝 Originally shared under my first blog, bitalks; part of the journey that shaped Life’s Riches.
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