Complete Fundamental Analysis

[Plateau]

Long time lurker here....love the site, guys like Barron, SM etc are all much appreciated.

Anyways, for a finance class of mine I have to do a complete top down fundamental analysis of a a company. I thought it would be interesting to show the entire process of valuation all the way through. The first step for me is looking at general Economic Indicators both Internationally and Domestic(stuff like GDP,inflation,exchange rates etc). If you guys are interested in seeing a complete valuation in its entirety, I would be happy to post and would love the feedback.

By the way the company I am analyzing is Fuel Tech. (FTEK)

[adios]

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The first step for me is looking at general Economic Indicators both Internationally and Domestic(stuff like GDP,inflation,exchange rates etc).

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Why is this your first step?

[DesertCat]

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Anyways, for a finance class of mine I have to do a complete top down fundamental analysis of a a company. I thought it would be interesting to show the entire process of valuation all the way through. The first step for me is looking at general Economic Indicators both Internationally and Domestic(stuff like GDP,inflation,exchange rates etc).

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If you were doing this to make an actual investment decision, instead of for a finance class, I'd suggest you skip all the macro top down stuff like economic indicators. Primarily you want to understand the business inside and out first. Occasionally at that point you might want to take a crack at some macro issues that directly affect the valuation, i.e. expectations for future oil prices for an energy business.

But usually you can just ignore all that stuff. There are a couple reasons why. One is that you prefer to buy businesses that will be able to ride out and prosper in varying economic conditions. Two is that you will have little ability to accurately forecast economic trends, inflation rates, currency rates, etc, so any investment that requires an accurate economic forecast should probably immediately go into your round circular "too hard" file (i.e. the garbage). Instead you want investments where you have a substantial margin of safety to protect you from areas you have trouble forecasting.

A good example would be an oil producer right now. You might find one with good management, great reserves, low production costs, etc that is making tons of money. Instead of forecasting oil prices, the better approach is to buy it at a price that gives you a large margin of safety. Buy it at a price you would value it at if oil drops to a worst case scenario price, say $30 per barrel. That way if oil prices stay stable, you'll have a very good investment, and if they go up, you'll have a great investment.

Warren Buffett has only made two large macro predictions I can remember. The most recent was that the U.S. dollar would continue to declne, and he made a ton of money off of that. The first was that silver was trading below it's production cost and would have to increase dramatically, and he lost money there. His partner, Charlie Munger wasn't happy with either position, but as he put it "at least it keeps him out of bars", i.e. not smart investments, but not as dumb as some other options.

Buffett is still riding the depreciating dollar bandwagon, primarily by looking to invest internationally, like he did a few years ago Petrochina and Korea. But he bought in both situations because the companies were incredibly cheap in relation to actual asset values and cash flow. Even though his macro opinion (and the handcuffs his huge portfolio provides him) led him to look overseas, the actual decision to make each investment benefited from a large margin of safety to help compensate for the risk that he might be wrong with his macro prediction, i.e. the dollar might actually appreciate.

[SlowHabit]

Why didn't you choose something simple like NIKE?

[SuperWhale]

I'd like to see what you come up with. Also DesertCat = qft.

[whyherro]

I second forgetting about macro concerns for the time being. The first thing you need to do is open up some 10ks and qs.

[Plateau]

To answer all the questions regarding looking at general Economic Indicators.This is pearly Academic! DC makes the obvious point that 99.99% you wont find anything worth while and even if you did that info would could be much better used for other investments then in valuing a single stock. Starting with Economic Indicators is simply the first step in a complete Top Down approach analysis.

I decided to look at Fuel Tech because the company interest me. I first read about them in Barron's a few weeks ago and I thought it would be fun analyzing them, not to mention the fact that I am a big fan of green business. Just taking a quick glance at them, you can see they are prime for tremendous growth and carry tons of cash which is pretty promising.

It seems like you guys are much more interested in just seeing a pure financial analysis of the company, if that is what you guys want I would be happy to post that stuff when I get there and spare the other details...

[john voight]

plz post it, as it will be very valuable to the guys who dont know jack [censored] about economics (like myself)

[DesertCat]

Post the entire thing. My advice was just for your personal financial decisions. The complete report will be interesting, esp. for anyone who will have to take similar classes in the future. And if you end up on Wall Street you may have to write similar reports as clients think they are very neat and shiny. And after you post we can discuss your macro analysis and debate how useful it is for analysing this particular company.