The freefincal automated stock analyzer (screener.in edition) now has now auto-generates Hewitt Heiserman Jr.'s Earnings Power Box, thanks to efforts of R. Srivatsan, who explained how to identify good business from bad one using it: It’s Earnings That Count: Forget the next Infy; Can you identify the next Satyam? I had previously published a version that uses morningstar financials.
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If you have not read Srivatsan's post, please do so before reading any further. In order to ensure the calculation is based on data from a single source, Srivatsan has made some reasonable modifications to the formulae mentioned in his post. Although the earnings power box can be generated with data from morningstar in under 20 seconds, the tool is only meant for users who spend a lot longer in studying and interpreting the data.
Like any stock analysis, this tool comes with assumptions and it is important to understand them and change them as per sector or company.
Earnings Power Box
This is a plot of two the Defensive EPS (earnings per share) vs Enterprising EPS
The idea is to spot where a company falls in.
This is based on: Earnings Power Valuation ModelOpens in a new window (doc file).
Srivatsan has defined enterprising and defensive EPS as follows:
Enterprising EPS = (Enterprising Income)/(Shares Outstanding)
Defensive EPS = (Defensive Income)/(Shares Outstanding)
Enterprising Income = Net Income - (15% x total capital)
15% here is the weighted average cost of capital (WACC) and is an expected return. You can modify this for each FY and for each stock.
15% x total capital = enterprising interest.
Defensive Income = cash flow from operating activity -capital expenditure
Srivatsan will explain more about these assumptions and limitations (everything has them) in a follow-up post.
Earnings Power Box Gallery
Please remember that this tool is not for those who do not understand what the above definitions stand for. Do not take the graphs at face value. Context matter and always evaluate a stock in multiple ways.
Features of the stock analysis spreadsheet
- pulls financials from screener.in excel files (to be downloaded by the user)
- pulls adjusted stock price history from money control, and
- calculates intrinsic value six different ways!
Previous editions which pulled financials from morningstar and annual (standalone/consolidated) and quarterly financials from Value Research online are also available (use links below).
Valuation models available:
1) Price Multiple Model
2) Sustainable Growth Rate
3) Book Value Growth Rate (Buffett’s approach to valuation)
4) Discounted Cash Flow (DCF): Not yet available as free cash flow data is missing in screener.in
5) Reverse DCF Valuation : Not yet available, same reason above.
6) Graham formula and Graham number
7) Piotroski Score for the last 9 financial years
8) Earnings Growth Estimate.
9) Automated Return on Equity Analysis with the Dupont Formula
- Get an account from screener.in
- Choose a stock and download the balance sheet data using the "export to excel" option on the top right of the stock page.
- Open both the analysis spreadsheet and the screener file.
- Go to the screener-inputs page and follow the instructions (run a couple of macros).
CAUTION: Screener has the ability to upload custom modified templates so that the next time you download the balance sheet data of another stock, the formulae would be intact.
DO NOT TRY TO UPLOAD THIS SPREADSHEET BACK INTO SCREENER
This has macros and hopefully, their server will reject it seeing the file extension.
I shall release a macro-free template which can be uploaded in a day or two. This will not have any macros and stock price history from moneycontrol will not be available.
Screenshots of the stock analysis spreadsheet
Automated Return on Equity Analysis with the Dupont Formula
Automated Stock Analysis with the Piotroski Score
Stock Analyzer with Graham Formula and Graham Number
Valuation with price multiple model
Valuation using sustainable growth rateValuation using Book Value Growth Rate (Buffett's method)
Please share this sheet among stock investors so that it can be made better.
Download the May 2017 freefincal stock analyser scr edition This is a windows file.
Mac Version: Automated Stock analyser with screener.in data (this does not have the earnings power box feature. Will update if there is a demand)
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