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Introduction:
- Buy a company and not the stock market.
- Look for growth in earnings and sales, if they meet the criteria,
then look at pre-tax profit margin and earnings on invested capital.
Compare it with the competitors and select those that are in the top half of the industry.
The SSG is the key to determining these factors.
Information:
- Graph presents compound growth rates.
- SSG designed to analyze manufacturing, sales and similar businesses. Banks, utilities
and insurance firms have different names for operating figures.
- Helpful to note the trends of each revenue source, to see which areas are growing
and which are not. One segment may dominate and determine the course of business.
- Inspection or best judgement method, let your eye direct you in drawing a line that seems
to best represent the plotted data.
- Mid-point method, divide 10 yr period into 2 five year periods, average the 5 sales figures
and place in on the third line, repeat the procedure for the next five year period and draw a line
through the 2 points.
- Peak method, connect all the peaks. best used for cyclical companies.
- Area method, inspect the plotted data and attempt to draw the trend line so that the
plotted data encloses equal areas of space above and below the drawn line.
Points to note:
- SSG does not make reference to the balance sheet items, it is up to you to decide the financial
strength of the company.
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