Summary of 8 Pillar Analysis Explained! | 8 Pillars Everything Money | Stock Fundamentals
Main Financial Strategies and Analysis:
- Eight Pillar Framework: A systematic method to assess stocks, which includes metrics that indicate the financial health and growth potential of a company.
- Initial Screening Tool: The eight pillars serve as a starting point for deeper analysis, rather than definitive buy/sell indicators.
- Growth vs. Value: Understanding the importance of growth metrics in relation to valuation metrics like PE ratios.
- Cash Flow Importance: Emphasis on cash flow as a more reliable indicator of a company's financial health compared to net income.
- Market Conditions: Recognition of how market conditions can influence stock prices and the importance of timing in investment decisions.
The Eight Pillars Explained:
- Five-Year PE Ratio: Should be under 22.5 to indicate reasonable valuation.
- Five-Year Return on Invested Capital (ROIC): Should be greater than a specified percentage, indicating effective use of capital.
- Revenue Growth: Companies should show consistent Revenue Growth over the past five years.
- Profit Growth: Assessment of net income growth over five years to ensure profitability.
- Shares Outstanding: Monitoring the number of shares to avoid dilution of ownership.
- Total Long-Term Liabilities to Free Cash Flow: This ratio should be less than five, indicating manageable debt levels.
- Cash Flow Growth: Evaluating growth in free cash flow over five years.
- Free Cash Flow to Market Cap Ratio: This ratio should be under 20 to suggest a fair market valuation.
Methodology for Analysis:
- Analyze financial statements (income statement, cash flow statement, balance sheet).
- Look for consistency in growth metrics and understand the context behind numbers (e.g., acquisitions vs. organic growth).
- Consider market conditions and company fundamentals holistically rather than in isolation.
Presenters/Sources:
- Paul and Seth from Everything Money.
Notable Quotes
— 10:00 — « I call this the silent killer in investing. »
— 11:18 — « Everybody looks at the profit of a business and says this company is growing. Yes, but if they're issuing shares like crazy, they're not doing any benefit for you. »
— 16:10 — « Cash flow is the true lifeblood of the company in my opinion, and since most people don't look at cash flow, look at net income, it's often overlooked and an opportunity to find hidden value. »
— 16:47 — « The concept of moving from a normal person to someone who's somewhat qualified to be an investor is envisioning that I'm buying the entire company. »
— 20:11 — « If you can just increase your returns by one or two percent or decrease your losses by one or two percent a year, it will lead to hundreds of thousands if not millions of dollars in retirement. »
Category
Business and Finance