Automated Stock Analysis with the Earnings Power Box

Published: April 15, 2017 at 9:48 am

Last Updated on

The 13th edition of the freefincal stock analyzer now auto-generates Hewitt Heiserman Jr.’s Earnings Power Box, thank to efforts of Rs. Srivatsan, who explained how to identify good business from bad one using it in yesterdays guest post: It’s Earnings That Count: Forget the next Infy; Can you identify the next Satyam? The automated stock analyzer pulls financials from morningstar, stock price history from moneycontrol and calculates intrinsic value in six different ways, along with Dupont analysis, Graham number, Piotroski and Altman Z-scores for financial health.

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.

Earnings Power Box

This is based on: Earnings Power Valuation Model (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 = Free Cash Flow – change in working capital since last FY.

Srivatsan will explain more about these assumptions and limitations (everything has them) in a couple of days.

Earnings Power Box Gallery

I went crazy and fooled around with the sheet. Here are a few examples. Please remember that this tool is not for those who do not understand what the above definitions stand for. Do not take the graphs on face value. Context matter and always evaluate a stock in multiple ways.














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Other Features

The automated stock analysis sheet

  • pulls financials from morningstar and analyzes them
  • pulls adjusted stock price history from money control, and
  • calculates intrinsic value six different ways!

It also pulls annual (standalone/consolidated) and quarterly financials from Value Research online.

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)

5) Reverse DCF Valuation

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

10) Altman Z-score

Download version 14th of the freefincal stock analyzer June 16th, 2019 <== latest!

Download the freefincal stock analyzer V14 with Earnings Power Box June 2018

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Pattabiraman editor freefincalM. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. since Aug 2006. Connect with him via Twitter or Linkedin Pattabiraman has co-authored two print-books, You can be rich too with goal-based investing (CNBC TV18) and Gamechanger and seven other free e-books on various topics of money management. He is a patron and co-founder of “Fee-only India” an organisation to promote unbiased, commission-free investment advice.
He conducts free money management sessions for corporates and associations on the basis of money management. Previous engagements include World Bank, RBI, BHEL, Asian Paints, Cognizant, Madras Atomic Power Station, Honeywell, Tamil Nadu Investors Association. For speaking engagements write to pattu [at] freefincal [dot] com

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19 Comments

  1. Sir, there is lot of problem in Morningstar data.
    First of all there are lot of stocks whose financial data are not completely available at morningstar and that is causing frequent error “Data is not available for all financial years. So the earnings power box is incorrect. You can look at the data bellow and replot it manually”

    Moreover, many stocks have not been added in the your worksheet (e.g. UFO moviez India Ltd.)
    I checked Morningstar and it has no financial data available for it.
    But when i checked Money Control India, all the data for UFO moviez India was available.

    I would request you to modify this worksheet to fetch financial data from Money Control or any other reliable resources but not from MorningStar.
    Thank you,

  2. Getting a runtime error 1004 every time I click on the button for getting the data from Value Research.
    Also can’t understand the message ‘You need to login into Value Research via Data – -> from web See post for details’

  3. First of all open valueresearchonline in your web browser. Login into the website using your user ID and password.
    Then open the worksheet and try to get data from Value Research.
    Am I right, Pattu Sir ?

  4. In mobile, only google sheet version works and this is not the google sheet version. The data fetching from web site will not work in mobile. Is it right, Pattu Sir?

  5. Thanks for sharing wonderful tool. Is it possible to add this to stock screener tool? So that we can filter out good business companies.

  6. Dear Pattu,

    A few thoughts:
    1. In the enterprising income calculation, you seem to be applying the 15% (WACC) charge to total capital (i.e. debt + equity). To be fair, you should compare the cost that emerges to the total returns (net profit + interest paid). Alternately, take only the equity capital, apply your 15% charge to it, and compare to the net profit
    2. In your tab “Earnings Power Box”, can you re-look at the calculation in row #46? I feel that the debt gets overstated here. Because you only need to pull the debt from the your “Analysis” tab, but you seem to be doing some more complex calculation with this

    Thank you for putting this together, and for taking time out to build so many sheets, and sharing with people at large. It is indeed a pleasure to see passion in action – in any field.

    Best,
    Parakh Nazar

    1. Yes, you are right about the debt part. I shall post a revised version tomorrow. The 15% is an input and can be varied depending on the company and the person’s outlook. Thank you.

  7. Hello! Yes, I understand that the 15% is an input that may be tweaked.

    What I’m saying in point #1 in my earlier comment is this:
    1. At the core, the approach here is to “charge” a cost (say, 15%) to capital. Then compare this charge to the returns on that capital
    2. If the capital in question is defined as total capital (debt + equity) then the 15% charge should be applied to that total capital. This should then be compared to returns on that total capital. Return to debt capital = interest paid (which is the amount that accrues to debt holders). Return to equity capital = net profit (which is the amount that accrues to shareholders). So the total returns here = Net profit + Interest
    3. If the capital in question is only equity, then the 15% charge should be applied to equity caitaly only (book value of equity). This should then be compared to returns that accrue to that form of capital i.e. to net profit
    4. Currently, the way you have done it is not apples to apples. You have defined capital as total capital (debt + equity), and applied the 15% charge to this total. But you have compared that with only net profit (which is returns that accrue to only equity capital). So it’s a mish-mash of two things. To be consistent, you need to follow either the method stated in my point #2 above, or the one in point #2

    Hope that makes it clear. I can also do a call with you if you want.

    P. S: My only intent is to help, and make the tool more powerful / refined. Please ignore if you find the inputs annoying!

  8. Hi,
    Really cool tool… It is working for big companies only. It can’t find following stocks eg. sysco industries, commercial syn bags, ujjivan etc

  9. Very much surprised to see some companies graphed on straight vertical line on Y axis.
    Scary….:) and completely confused.
    Guru, expecting the same article with your language which is very easy for non financing people.

  10. Hi Pattu Sir,

    I am using Excel 2016 on Mac, and earning power sheet doesn’t seem to be working. Eg I tried getting date for SunPharma, and data retrieval for both morningstar and value research failed with error.

    MoneyControl step:
    Was able to get the Symbol right, but get data again failed with “runtime error 438”

    If possible, kindly take a look.

    Thanks,
    Naman

  11. Hello Sir,

    Thank you for writing this awesome post. However, while trying to fetch data from morningstar using v13 and v14 of the spreadsheet, I’m receiving Run-time error ‘1004’ : Method ‘open’ of object ‘Workbooks’ failed. Kindly assist.

    Regards
    Roy

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