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Friday, February 4, 2011

My improved Fundamental Analysis(FA) checklist

I would like to implement a stars rating system to access any potential fundamental strong counters and only invest into those counters which are able to pass the minimum 11 stars criteria:

Criteria2 Stars1 StarsMax. Stars
Revenue Growth (5 yrs)constant growthmost yrs show growth
2
Net Profit Growth (5 yrs)constant growthmost yrs show growth
2
Gross Profit Margin (5 yrs)>= 25%15% to 24.99%
2
Cash flow from Ops (5 yrs)constant growthall show positive
2
ROE (5 yrs)>= 15%10% - 14.99%
2
Quick Ratio  (recent)>= 1.51 - 1.49
2
Debt / Asset Ratio (recent)<= 0.2<= 0.4
2
P/E ratio (current)*<= 66 - 12
2
Max.
16

* for US stock <= 8 (2 stars), 8 - 15 (1 star).

Now I use China Gaoxian as an example to illustrate how it works:

Revenue growth - 1 star
Net profit growth - 2 star
Gross profit margin  - 2 stars
Cash flow from operations - 1 star
ROE - 2 stars
Quick ratio 1.13 - 1 star
Debt / Asset ratio 0.13 - 2 stars
P/E ratio 5.5 - 2 stars
--------------------------------------------------------
Total star points: 13

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