Saturday, January 21, 2012

Top Down: Industry and Sector Fundamentals

My recent posts have described how you can compare and visualize fundamentals across companies.  The advanced version of Valuation Tutor (Windows version only for now), lets you do the same across sectors and industries.  In fact, it essentially creates sector and industry financial statements, and then lets you apply all the comparison and visualization power that you have with stocks.  You can also compare a subset of stocks to all sectors or all industries and so on.

As an example, after you download the current dataset, on the initial screen look at the top left, where I have checked Industries:

Now, instead of stocks in the dropdown, you can select which industry to analyze.  The basic charts now have different initial settings, but you can do all the usual comparisons for any of the topics covered by Valuation Tutor.  The numerical values are shown in the middle for the selected industry. 

The advanced comparisons work in the same way as with stocks.  Let me show you something interesting that I have not described before: you can look at relationships between two fields.  For example, consider a top line item like sales and a bottom line item like net income.  You could ask: across industries, what is the relationship between net income and sales across industries?  The relationships tab in the advanced comparison window shows this to you, for example:

The red line is the regression line.  For the current dataset, you can see that the relationship is not a simple one.  You can plot any two fields against each other.  Note that these relationship can be studies between individual stocks as well.

The advanced visualization works in the same way as stocks.  For example, here I am looking at the Aircraft industry against another industry:

The aircraft industry is in purple, the other in green.   You can see that purple has more than three times the sales of green, but relatively much greater cost of goods sold.  You have to be careful how interpret the charts: each chart shows you the relative proportions of one field only.  So the fact that sales are more than three times bigger which COGS is almost thirty times bigger does not mean that the gross margin will be smaller.  The numbers behind the charts reveal that purple sales (normalized by assets) are 88, while green sales (normalized by assets) are 17, a ratio of of just over 5.  So the green slice in the Sales chart is about one fifth of the pie.  Purple COGS are 28 times higher than green COGS (70.5 and 2.5 respectively).  So the green slice is 1/28 of the pie.  From these numbers, gross margins are 88-70.5=17.5 and 17-2.5=14.5, and so in the gross margin chart, the purple piece is slightly bigger.  The last chart shows you that bottom line, purple’s net income is three times that of green’s.



Jack said...


Jack said...

Its smart way of comparing and visualize fundamentals across companies. I enjoyed your till last. I liked your way of explaining the whole thing through example. Appreciable job !
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viluvalu real estate said...

brillant piece of information, I had come to know about your web-page from my friend hardkik, chennai,i have read atleast 9 posts of yours by now, and let me tell you, your webpage gives the best
and the most interesting information. This is just the kind of information that i had been looking for, i'm already your rss reader now and i would regularly watch out for the new posts, once again hats off to you!
Thanx a million once again,
Valuation of Industry

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