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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Australia's bestselling guide for smart investing in the sharemarket When it's time to invest your earnings, you need accurate and trusted guidance that will weather cycles, outlive fads, and stand the test of time. In this 30th anniversary edition of definitive bestseller Top Stocks, market expert Martin Roth gives you the essential knowledge you need to grow your portfolio and profits. An invaluable resource for novices and professionals alike, Top Stocks 2024 shares the clear, objective information and tried-and-tested techniques you need to make right picks -- and get more for your money. You'll learn how to use selection criteria and rigorous analysis to form a clear picture of the best -- low-risk, long-term value -- public companies to buy into. You'll see beyond the hype, the pricing, and the punditry. And you'll become an expert at evaluating the best of the Australian sharemarket, using concrete factors like profitability, debt levels, and dividends. * Detailed, unbiased analysis of the latest results from top Australian companies * Comparative sales and profits data as well as in-depth ratio analysis * Tables that rank all companies according to financial data * Comprehensive research exploring each company's overall outlook With numerous charts and tables that provide easy reference to essential company data points, Top Stocks 2024 is the jargon-free, up-to-date, go-to guide you need to make wise decisions for your wealth.
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Veröffentlichungsjahr: 2023
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Table of Contents
Cover
Table of Contents
Title Page
Copyright
Preface
Birth of a series
A book for its time
Small stocks
Sectors
What are the entry criteria?
Changes to this edition
Company in every edition of
Top Stocks
Introduction
PART I: THE COMPANIES
Accent Group Limited
Adairs Limited
Altium Limited
ANZ Group Holdings Limited
ARB Corporation Limited
Aristocrat Leisure Limited
ASX Limited
Australian Ethical Investment Limited
Baby Bunting Group Limited
Bapcor Limited
Beach Energy Limited
Beacon Lighting Group Limited
BHP Group Limited
BlueScope Steel Limited
Breville Group Limited
Brickworks Limited
Carsales.com Limited
Clinuvel Pharmaceuticals Limited
Clover Corporation Limited
Cochlear Limited
Codan Limited
Coles Group Limited
Collins Foods Limited
Commonwealth Bank of Australia
Computershare Limited
Credit Corp Group Limited
CSL Limited
CSR Limited
Data#3 Limited
Elders Limited
Enero Group Limited
Fiducian Group Limited
Fortescue Metals Group Limited
Grange Resources Limited
GUD Holdings Limited
GWA Group Limited
Hansen Technologies Limited
Harvey Norman Holdings Limited
IDP Education Limited
IGO Limited
Iluka Resources Limited
Insurance Australia Group Limited
IPH Limited
JB Hi-Fi Limited
Johns Lyng Group Limited
Jumbo Interactive Limited
Lifestyle Communities Limited
Lindsay Australia Limited
Lovisa Holdings Limited
Lycopodium Limited
Macquarie Group Limited
Magellan Financial Group Limited
Medibank Private Limited
Metcash Limited
Michael Hill International Limited
Mineral Resources Limited
Monadelphous Group Limited
National Australia Bank Limited
Netwealth Group Limited
NIB Holdings Limited
Nick Scali Limited
Nine Entertainment Company Holdings Limited
NRW Holdings Limited
Objective Corporation Limited
PeopleIn Limited
Pinnacle Investment Management Group Limited
Platinum Asset Management Limited
Premier Investments Limited
Pro Medicus Limited
PWR Holdings Limited
REA Group Limited
Reece Limited
Reliance Worldwide Corporation Limited
Ridley Corporation Limited
Rio Tinto Limited
Santos Limited
Seek Limited
Servcorp Limited
Smartgroup Corporation Limited
Steadfast Group Limited
Super Retail Group Limited
Supply Network Limited
Technology One Limited
Telstra Group Limited
Wesfarmers Limited
WiseTech Global Limited
Woodside Energy Group Limited
Woolworths Group Limited
PART II: THE TABLES
Table A
Market capitalisation
Table B
Revenues
Table C
Year-on-year revenues growth
Table D
EBIT margin
Table E
Year-on-year EBIT margin growth
Table F
After-tax profit
Table G
Year-on-year earnings per share growth
Table H
Return on equity
Table I
Year-on-year return on equity growth
Table J
Debt-to-equity ratio
Table K
Current ratio
Table L
Price/earnings ratio
Table M
Price-to-NTA-per-share ratio
Table N
Dividend yield
Table O
Year-on-year dividend growth
Table P
Five-year share price return
End User License Agreement
Guide
Cover
Title Page
Copyright
Preface
Introduction
Table of Contents
Begin Reading
End User License Agreement
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The author and publisher would like to thank Alan Hull (author of Active Investing, Revised Edition, Trade My Way and Invest My Way; www.alanhull.com) for generating the five-year share-price charts.
This thirtieth edition first published in 2024 by Wrightbooks, an imprint of John Wiley & Sons Australia, Ltd
Level 4, 600 Bourke Street, Melbourne VIC 3000
First edition published as Top Stocks by Wrightbooks in 1995
New edition published annually
© Martin Roth 2024
The moral rights of the author have been asserted
ISBN: 978-1-394-18867-3
All rights reserved. Except as permitted under the Australian Copyright Act 1968 (for example, a fair dealing for the purposes of study, research, criticism or review), no part of this book may be reproduced, stored in a retrieval system, communicated or transmitted in any form or by any means without prior written permission. All enquiries should be made to the publisher at the address above.
Cover design: Wiley
Cover image: Stock market graph © EdNurg/Adobe Stock Photos
Charts created using MetaStock
DisclaimerThe material in this publication is of the nature of general comment only, and does not represent professional advice. It is not intended to provide specific guidance for particular circumstances and it should not be relied on as the basis for any decision to take action or not take action on any matter which it covers. Readers should obtain professional advice where appropriate, before making any such decision. To the maximum extent permitted by law, the author and publisher disclaim all responsibility and liability to any person, arising directly or indirectly from any person taking or not taking action based on the information in this publication.
Preface
Welcome to Top Stocks 2024, the 30th edition of the book. It is a milestone for a publication that was never envisaged as a series.
The first edition, published back in 1995, was intended as a one-off book, designed to help independent investors find a basket of secure and promising companies that they could then evaluate further, to see if they met the needs of their portfolios.
But, with the number of individual investors in Australia growing rapidly, the book struck a chord, and it became an annual publication, rewritten each year.
A wave of major new stock market listings was a primary incentive for the growth in share ownership. In 1991 the Commonwealth Bank of Australia was listed, creating many new first-time shareholders. It was followed by the insurance company GIO in 1992 and then by Woolworths in 1993 and Qantas in 1995.
A surge in share prices in 1993 was another incentive; at the same time, some companies actually tried to encourage individuals to buy their shares. One of these was Coles Myer, whose very generous shareholders’ discount card led to a tripling of the number of holders of its shares over three years in the early 1990s.
By the end of 1994 some two million Australians owned shares directly (as opposed to indirectly through superannuation or some other kind of managed fund), nearly double the number of three years earlier.
Yet most investors still depended on the stockbroking industry for information about the market, with few outside sources providing independent and objective guidance. In addition, there were high levels of suspicion about financial markets. Several scandals, including the collapses of the State Bank of Victoria, Adelaide Steamship and the Bond Corporation, had soured the public. Many people — perhaps most — viewed the stock market as little more than a casino.
I saw a need for a book that could provide conservative investors with objective information on individual companies.
Birth of a series
I lived in Japan for 17 years until 1992, working first as a journalist and then as a securities analyst for British merchant banks. During the 1980s I witnessed first-hand what is now referred to as the Bubble Economy, when land prices soared into the stratosphere and the Nikkei stock market index more than tripled in just five years.
One consequence of this was an impressive infrastructure of Japanese investment publications that covered nothing but the stock market, including even several daily newspapers. There were also many regular books that introduced investors to the leading companies. I felt such a book might work well in Australia.
I approached Wrightbooks, then one of the leading publishers of investment and finance titles, and placed my proposal before them. The company saw promise in the idea, and Top Stocks was born.
My plan was to find 100 companies that met a range of financial criteria making them suitable for the conservative investor. In particular, each company should have strong profits and modest levels of debt (or no debt at all), and it should also have been listed for at least five years and have made a profit and paid a dividend for each of those five years.
In the event, I could find only 80 companies that more or less met the criteria, but I felt that was a sufficient number for a book.
The first three paragraphs of my preface for the initial edition summed up my intentions:
Increasing numbers of people wish to take their own decisions on stock market investing, instead of feeling forced to rely on high-fee (and sometimes poorly performing) financial planners, investment advisers or fund managers. They know there are many excellent stocks out there; they're just not sure which ones they are, apart from a few obvious names like BHP. But they are also well aware that danger awaits the unwary, or the unskilled. They have read too many stories in recent years of the corporate high-fliers who went bust, taking down their shareholders with them.
So they buy books that instruct them on the finer points of investment. But they find that somehow these books talk too much in generalities. They feel they are still sitting too far back in the investment arena; all the action in the centre is a little fuzzy.
That, then, is a primary goal of this book. To try to bring you a little closer to the action, to help you learn which stocks are the potential winners and to let you eavesdrop on what insiders in the market say about them.
A little further on I wrote about the recession and financial turmoil of the early 1990s:
Yet amidst the wreckage of plunging stock prices and spectacular corporate bankruptcies of that era there were a large number of quality companies that quietly continued to make good profits and to pay high dividends. Some of them were in businesses only marginally affected by the economic downturn; others used the problems to cut costs or to develop new export markets.
It is these firms that form the core of this handbook. They are the real stars of the Australian stock market, the solid achievers that have weathered the worst of financial storms and come through even stronger. They should be at the heart of the share portfolio of any conservative investor, for whom this book is written.
These companies are not run by flashy entrepreneurs. In fact, their general managers are for the most part little known to the general public. And though some of the firms are household names — like BHP, Woolworths and National Australia Bank — many … are scarcely ever in the news, and do their work in relative anonymity.
Do not expect their share prices to triple in a year. They are not that kind of company. Yet most of these recession-buster stocks delivered annual average returns (dividends plus capital gains) in double digits during the five years to mid-1995, and some have a substantially longer history of reward delivery.
That first edition sold just 2300 copies. Yet that was sufficient to make it one of the top books for several months on the bestseller lists of the Australian Stock Exchange bookstores and of Personal Investment magazine (neither the bookstores nor the magazine exists any longer).
A reprint was needed, but it seemed to make sense that I update all the figures first, as well as adding any new companies that now met the entry criteria, and removing those that did not match up any longer. The first edition of the book had been called simply Top Stocks. The new edition was called Top Stocks ’96. And so the series came into existence.
A book for its time
It proved to be very much a book of its time. Certainly I had noted the rise in the number of independent investors, thanks especially to the stock market listings of Commonwealth Bank, GIO, Woolworths and Qantas. This had been one of the reasons I wrote the book. But this proved to be just a foretaste.
The partial float of Telstra in 1997 created 559 000 first-time shareholders. Then in 1998 some 11 per cent of adult Australians received shares as part of the AMP demutualisation, including 730 000 first-time shareholders. A further 500 000 people entered the market in 2000 through receiving shares in the NRMA demutualisation.
A November 2000 survey found that around 40 per cent of adult Australians owned shares directly, one of the highest rates in the world. More than half of them had entered the market after 1995.
At the same time, Australians were being forced to make ever-growing contributions to their own superannuation. It led to a big increase in self-managed superannuation funds, along with the need for conservative investment advice.
Indeed, it is these two trends — the increase in individual share ownership and the growth in self-managed superannuation funds — that have helped spark the continuing strong demand each year for Top Stocks.
The book has certainly proven itself resilient. Each year, using roughly the same strict and objective entry criteria — my own subjective views count for nothing — the book fills, as if by magic, with between 80 and 115 companies.
It is surely a tribute to the strength of the Australian business world that we can boast so many strong companies, even in the midst of quite volatile economic conditions.
For example, COVID hit the world — and financial markets — in early 2020. Economies around the world wobbled, stock market indices plunged and Australia entered its first recession in 29 years. Yet the majority of companies in Top Stocks continued to report higher profits and in 2020 around half of them also boosted their dividend payouts.
Small stocks
Over the years the books have been able to help investors in many ways. For example, it is often useful to check out some of the new entries to the book each year. In some cases these are companies that are now big enough to be included among the 500 largest stocks in Australia (which is one of the criteria for entry to the book). However, they are still so small that they are not generally known by many investors, and are also too small to be of interest to fund managers.
The classic example, which I have cited several times in my introductions to the books, is that of the Perth engineering and mining support company Monadelphous. It first appeared in Top Stocks ’99, at a share price (adjusted for a subsequent share split) of $0.66. It has subsequently been as high as $28.48.
Here are some more recent examples. Specialist software house Objective Corporation first appeared in Top Stocks 2016 at a price of $1.61. It appears in the latest edition at $12.22.
In Top Stocks 2017 medical imaging software specialist Pro Medicus entered at $6.29. In Top Stocks 2024 it appears at $72.80. Also in Top Stocks 2017 design software house Altium entered at $9.63. In the latest edition it is $48.00.
A final example: little-known truck components provider Supply Network first appeared in Top Stocks 2020, priced at $3.99. It is in Top Stocks 2024 at $15.35.
Sectors
It is also possible to discern trends in sectors. For example, initial editions of the book contained very few companies in the high-tech or healthcare businesses. Computershare was one of the former; F.H. Faulding (a drugs manufacturer) was one of the latter. There were not many others.
But steadily a steam of such companies entered the book, often when they were still small and little known. Today they are strongly represented, and corporations like Cochlear, CSL and the aforementioned Pro Medicus, Objective and Altium have provided some superb returns to investors.
And though the book was always intended for the fairly conservative investor, an intriguing development is that it is also bought regularly by market traders. These are sometimes people who know little about the companies whose shares they are buying — they mainly examine charts for their guidance — but they do want companies that are safe and are unlikely to go bankrupt. So the companies in Top Stocks are very attractive to them for their trading activities.
What are the entry criteria?
The criteria for inclusion in Top Stocks are strict:
All companies must be included in the All Ordinaries Index, which comprises Australia's 500 largest stocks (out of more than 2000). The reason for excluding smaller companies is that there is often little investor information available on them and some are so thinly traded as to be almost illiquid. In fact, the 500 All Ordinaries companies comprise, by market capitalisation, around 90 per cent of the entire market.
It is necessary that all companies be publicly listed since at least the end of 2018, and have a five-year record of profits and dividend payments.
All companies are required to post a return-on-equity ratio of at least 10 per cent in their latest financial year.
No company should have a debt-to-equity ratio of more than 70 per cent.
It must be stressed that share price performance is NOT one of the criteria for inclusion in this book. The purpose is to select companies with good profits and a strong balance sheet. These may not offer the spectacular share-price returns of a high-tech start-up or a promising lithium miner, but they should also present less risk.
There are several notable exclusions. Listed managed investments are out, as these mainly buy other shares or investments. Examples are Australian Foundation Investment Company and all the real estate investment trusts.
Foreign-registered stocks listed on the ASX are also excluded. There is sometimes a lack of information available about such companies. In addition, their stock prices tend to move on events and trends in their home countries, making it difficult at times for local investors to follow them.
Changes to this edition
A total of 13 companies from Top Stocks 2023 have been omitted from this new edition.
Two corporations, OZ Minerals and Pendal Group, were acquired during the year.
Two other companies, IRESS and McMillan Shakespeare, saw their debt-to-equity ratios rise above the 70 per cent limit for this book.
The remaining nine excluded companies had return-on-equity ratios that fell below the required 10 per cent:
Alumina
Ansell
AUB Group
Aurizon Holdings
Globe International
Healius
Perpetual
Schaffer Corporation
Sonic Healthcare
There are eight new companies in this book (although five of them have appeared in earlier editions of the book, but were not in Top Stocks 2023).
The new companies in this book are:
Accent Group
Coles Group
*
Insurance Australia Group
Lindsay Australia
*
Lovisa Holdings
*
Lycopodium
Santos
Woodside Energy Group
* Companies that have not appeared in any previous edition of Top Stocks.
Company in every edition of Top Stocks
Just one company has appeared in all 30 editions: Commonwealth Bank of Australia.
Once again it is my hope that Top Stocks will serve you well.
Martin RothMelbourneSeptember 2023
Introduction
The 88 companies in this book have been placed as much as possible into a common format, for ease of comparison. Please study the following explanations in order to get as much as possible from the large amount of data.
The tables have been made as concise as possible, though they repay careful study, as they contain large amounts of information.
Note that the tables for the banks have been arranged a little differently from the others. Details of these are provided later in this Introduction.
Head
At the head of each entry is the company name, with its three-letter ASX code and the website address.
Share-price chart
Under the company name is a long-term share-price chart, to September 2023, provided by Alan Hull (www.alanhull.com), author of Invest My Way, Trade My Way and Active Investing.
Small table
Under the share-price chart is a small table with the following data.
Sector
This is the company's sector as designated by the ASX. These sectors are based on the Global Industry Classification Standard — developed by S&P Dow Jones Indices and Morgan Stanley Capital International — which was aimed at standardising global industry sectors. You can learn more about these on the ASX website.
Share price
This is the closing price on 4 September 2023. Also included are the 12-month high and low prices, as of the same date.
Market capitalisation
This is the size of the company, as determined by the stock market. It is the share price multiplied by the number of shares in issue. All companies in this book must be in the All Ordinaries Index, which comprises Australia's 500 largest stocks, as measured by market capitalisation.
Price-to-NTA-per-share ratio
The NTA-per-share figure expresses the worth of a company's net tangible assets — that is, its assets minus its liabilities and intangible assets — for each share of the company. The price-to-NTA-per-share ratio relates this figure to the share price.
A ratio of one means that the company is valued exactly according to the value of its assets. A ratio below one suggests that the shares are a bargain, though usually there is a good reason for this. Profits are more important than assets.
Some companies in this book have a negative NTA-per-share figure — as a result of having intangible assets valued at more than their net assets — and a price-to-NTA-per-share ratio cannot be calculated.
See Table M, in the second part of this book, for a little more detail on this ratio.
Five-year share price return
This is the approximate total return you could have received from the stock in the five years to September 2023. It is based on the share price appreciation or depreciation plus dividends, and is expressed as a compounded annual rate of return.
Dividend reinvestment plan
A dividend reinvestment plan (DRP) allows shareholders to receive additional shares in their company in place of the dividend. Usually — though not always — these shares are provided at a small discount to the prevailing price, which can make them quite attractive. And of course no broking fees apply.
Many large companies offer such plans. However, they come and go. When a company needs finance it may introduce a DRP. When its financing requirements become less pressing it may withdraw it. Some companies that have a DRP in place may decide to deactivate it for a time.
The information in this book is based on up-to-date information from the companies. But if you are investing in a particular company in expectation of a DRP, be sure to check that it is still on offer. The company's own website will often provide this information.
Price/earnings ratio
The price/earnings ratio (PER) is one of the most popular measures of whether a share is cheap or expensive. It is calculated by dividing the share price — in this case the closing price for 4 September 2023 — by the earnings per share figure. Obviously the share price is continually changing, so the PER figures in this book are for guidance only. Daily newspapers often publish each morning the latest PER for every stock.
Dividend yield
This is the latest full-year dividend expressed as a percentage of the share price. Like the price/earnings ratio, it changes as the share price moves. It is a useful figure, especially for investors who are buying shares for income, as it allows you to compare this income with alternative investments, such as a bank term deposit or a rental property.
Company commentary
Each commentary begins with a brief introduction to the company and its activities. Then follow the highlights of its latest business results. For the majority of the companies these are their June 2023 results, which were issued during July and August 2023. Finally, there is a section on the outlook for the company.
Main table
Here is what you can find in the main table.
Revenues
These are the company's revenues from its business activities, generally the sale of products or services. However, it does not usually include additional income from such sources as investments, bank interest or the sale of assets. If the information is available, the revenues figure has been broken down into the major product areas.
As much as possible, the figures are for continuing businesses. When a company sells a part of its operations the financial results for the sold activities are separated from the core results and reported as a separate item. This can mean that the previous year's results are restated — also excluding the sold business — to make year-on-year comparisons more valid.
Earnings before interest and taxation
Earnings before interest and taxation (EBIT) is the firm's profit from its operations before the payment of interest and tax. This figure is often used by analysts examining a company. The reason is that some companies have borrowed extensively to finance their activities, while others have opted for alternative means. By expressing profits before interest payments it is possible to compare more precisely the performance of these companies.
You will also find many companies using a measure called EBITDA, which is earnings before interest, taxation, depreciation and amortisation.
EBIT margin
This is the company's EBIT expressed as a percentage of its revenues. It is a gauge of a company's efficiency. A high EBIT margin suggests that a company is achieving success in keeping its costs low.
Gross margin
The gross margin is the company's gross profit as a percentage of its sales. The gross profit is the amount left over after deducting from a company's sales figure its cost of sales: that is, its manufacturing costs or, for a retailer, the cost of purchasing the goods it sells. The cost of goods sold figure does not usually include marketing or administration costs.
As there are different ways of calculating the cost of goods sold figure, this ratio is better used for year-to-year comparisons of a single company's efficiency, rather than in comparing one company with another.
Many companies do not present a cost of goods sold figure, so a gross margin ratio is not given for every stock in this book.
The revenues for some companies include a mix of sales and services. Where a breakdown is possible, the gross profit figure will relate to sales only.
Profit before tax/profit after tax
The profit before tax figure is simply the EBIT figure minus interest payments. The profit after tax figure is, of course, the company's profit after the payment of tax, and also after the deduction of minority interests. Minority interests are that part of a company's profit that is claimed by outside interests, usually the other shareholders in a subsidiary that is not fully owned by the company. Many companies do not have any minority interests, and for those that do it is generally a tiny figure.
As much as possible, I have adjusted the profit figures to exclude non-recurring profits and losses, which are often referred to as significant items. It is for this reason that the profit figures in Top Stocks sometimes differ from those in the financial media or on financial websites, where profit figures often include significant items.
Significant items are those that have an abnormal impact on profits, even though they happen in the normal course of the company's operations. Examples are the profit from the sale of a business, or expenses of a business restructuring, the write-down of property, an inventory write-down, a bad-debt loss or a write-off for research and development expenditure.
Significant items are controversial. It is often a matter of subjective judgement as to what is included and what excluded. After analysing the accounts of hundreds of companies while writing the various editions of this book, it is clear that different companies use varying interpretations of what is significant.
Further, when they do report a significant item there is no consistency as to whether they use pre-tax figures or after-tax figures. Some report both, making it easy to adjust the profit figures in the tables in this book. But difficulties arise when only one figure is given for significant items.
In normal circumstances most companies do not report significant items. But investors should be aware of this issue. It sometimes causes consternation for readers of Top Stocks to find that a particular profit figure in this book is substantially different from that given by some other source. My publisher occasionally receives emails from readers enquiring why a profit figure in this book is so different from that reported elsewhere. In virtually all cases the reason is that I have stripped out a significant item.
It is also worth noting my observation that a growing number of companies present what they call an underlying profit (called a cash profit for the banks), or even a so-called normalised profit, in addition to their reported (statutory) profit. This underlying profit will exclude not only significant items but also discontinued businesses and sometimes other related items. Where all the relevant figures are available, I have generally used these underlying figures for the tables in this book.
As already noted, when a company sells or terminates a significant business it will now usually report the profit or loss of that business as a separate item. It will also usually backdate its previous year's accounts to exclude that business, so that worthwhile comparisons can be made of continuing businesses.
The tables in this book usually refer to continuing businesses only.
Earnings per share
Earnings per share is the after-tax profit divided by the number of shares. Because the profit figure is for a 12-month period the number of shares used is a weighted average of those on issue during the year. This number is provided by the company in its annual report and its results announcements.
Cashflow per share
The cashflow per share ratio tells — in theory — how much actual cash the company has generated from its operations.
In fact, the ratio in this book is not exactly a true measure of cashflow. It is simply the company's depreciation and amortisation figures for the year added to the after-tax profit, and then divided by a weighted average of the number of shares. Depreciation and amortisation are expenses that do not actually utilise cash, so can be added back to after-tax profit to give a kind of indication of the company's cashflow.
By contrast, a true cashflow — including such items as newly raised capital and money received from the sale of assets — would require quite complex calculations based on the company's statement of cashflows.
However, many investors use the ratio as I present it, because it is easy to calculate, and it is certainly a useful guide to approximately how much funding the company has available from its operations.
Dividend
The dividend figure is the total for the year, interim and final. It does not include special dividends. The level of franking is also provided.
Net tangible assets per share
The NTA per share figure tells the theoretical value of the company — per share — if all assets were sold and then all liabilities paid. It is very much a theoretical figure, as there is no guarantee that corporate assets are really worth the price put on them in the balance sheet. Intangible assets such as goodwill and patent rights are excluded because of the difficulty in putting a sales price on them, and also because they may in fact not have much value if separated from the company.
As already noted, some companies in this book have a negative NTA, due to the fact that their intangible assets are so great, and no figure can be listed for them.
Where a company's most recent financial results are the half-year figures, these are used to calculate this ratio.
Interest cover
The interest cover ratio indicates how many times a company could make its interest payments from its pre-tax profit. A rough rule of thumb says a ratio of at least three times is desirable. Below that and fast-rising interest rates could imperil profits. The ratio is derived by dividing the EBIT figure by net interest payments. Some companies have interest receipts that are higher than their interest payments, which turns the interest cover into a negative figure, and so it is not listed.
Return on equity
Return on equity is the after-tax profit expressed as a percentage of the shareholders' equity. In theory, it is the amount that the company's managers have made for you — the shareholder — on your money. The shareholders' equity figure used is an average for the year.
Debt-to-equity ratio
This ratio is one of the best-known measures of a company's debt levels. It is total borrowings minus the company's cash holdings, expressed as a percentage of the shareholders' equity. Some companies have no debt at all, or their cash position is greater than their level of debt, which results in a negative ratio, so no figure is listed for them.
Where a company's most recent financial results are the half-year figures, these are used to calculate this ratio.
Current ratio
The current ratio is simply the company's current assets divided by its current liabilities. Current assets are cash or assets that can, in theory, be converted quickly into cash. Current liabilities are normally those payable within a year. Thus, the current ratio measures the ability of a company to repay in a hurry its short-term debt, should the need arise. The surplus of current assets over current liabilities is referred to as the company's working capital.
Where a company's most recent financial results are the half-year figures, these are used to calculate this ratio.
Banks
The tables for the banks are somewhat different from those for most other companies. EBIT and debt-to-equity ratios have little relevance for them, as they have such high interest payments (to their customers). Other differences are examined below.
Operating income
Operating income is used instead of sales revenues. Operating income is the bank's net interest income — that is, its total interest income minus its interest expense — plus other income, such as bank fees, fund management fees and income from activities such as corporate finance and insurance.
Net interest income
Banks borrow money — that is, they accept deposits from savers — and they lend it to businesses, homebuyers and other borrowers. They charge the borrowers more than they pay those who deposit money with them, and the difference is known as net interest income.
Operating expenses
These are all the costs of running the bank. Banks have high operating expenses, and one of the keys to profit growth is cutting these expenses.
Non-interest income to total income
Banks have traditionally made most of their income from savers and from lending out money. But they are also working to diversify into new fields, and this ratio is an indication of their success.
Cost-to-income ratio
As noted, the banks have high costs — numerous branches, expensive computer systems, many staff, and so on — and they are all striving to reduce these. The cost-to-income ratio expresses their expenses as a percentage of their operating income, and is one of the ratios most often used as a gauge of efficiency. The lower the ratio drops the better.
Return on assets
Banks have enormous assets, in sharp contrast to, say, a high-tech start-up whose main physical assets may be little more than a set of computers and other technological equipment. So the return on assets — the after-tax profit expressed as a percentage of the year's average total assets — is another measure of efficiency.
PART ITHE COMPANIES
Accent Group Limited
ASX code:
AX1
www.accentgr.com.au
Sector: Consumer discretionary distribution & retail
Share price ($)
2.04
12-month high ($)
2.63
12-month low ($)
1.18
Market capitalisation ($mn)
1127.0
Price/earnings ratio (times)
12.6
Dividend yield (%)
8.6
Price-to-NTA-per-share ratio
~
5-year share price return (% p.a.)
9.0
Dividend reinvestment plan
No
Sydney company Accent Group is a nationwide footwear wholesaler and retailer that has grown rapidly through a series of mergers and acquisitions. It owns nine brands and distributes 17 others. These include The Athlete's Foot — established in 1976 — Hype DC, Platypus, Skechers, Merrell, CAT, Vans, Dr. Martens, Saucony, Timberland, Palladium and UGG. The company's wholesale division distributes footwear and apparel. Accent also operates in New Zealand.
