[thriftyPinoy]

Here's my take on CEU... profitability-wise, it's been earning double-digits roe since 2005, ranging between 11 to 13%. Really not bad. But how is it's leverage? Just looking at its ROA (alongside its ROE) would reveal that it's not really burdened by too much debt.

Return on Equity (ROE) vs Return on Assets (ROA)
2005: 13.37% vs 11.45%
2006: 12.74% vs 11.01%
2007: 11.99% vs 9.66%
2008: 12.98% vs 10.01%
2009: 13.01% vs 10.11%

The equity-debt comparison below does confirm my suspicion. A very liquid company. No need to worry about bankruptcy or insolvency. Its equity dwarfs what it owes.

Equity vs Liabilities (in millions)
2004: 1,987.30 vs 345.50
2005: 2,001.90 vs 280.30
2006: 2,059.40 vs 318.70
2007: 2,150.90 vs 642.30
2008: 2,268.40 vs 587.80
2009: 2,246.25 vs 628.66

Going back to its profits, however, are they realized in cash? And are these cash profits just sucked by capex?

Net Income vs Operating Cash Flow vs Capital Expenditures (in millions)
2005: 250.00 vs 266.13 vs 35.72
2006: 243.20 vs 293.04 vs 71.09
2007: 238.20 vs 264.21 vs 206.69
2008: 269.30 vs 342.02 vs 96.00
2009: 275.80 vs 415.03 vs 78.50
5-year Total: 1,580.43 vs 1,276.5 vs 488

We can observe that CEU is indeed milking its profits in cash! I'd consider these compelling signs, and would so far say it's in a very good business. Its students are paying their tuition well. In addition to that, its capital expenditures are way below its cash profits. It's one healthy cash cow.
Posted on: Jan 26, 2010, 09:24 PM@freefront: is ceu really that bad? no offence buddy, but after crunching the numbers, i find ceu a rare case of a good find. i still haven't tackled it from a dividend perspective, but dividend-wise, had you gotten this one early last year at around Php 6, you could have earned around 18% just in dividend yield (it issued a total of 1.2 in cash divs per share in 2009; that's a net of 1.08 if you less withholding tax). Just in dividends buddy, not yet considering capital gains from price appreciation (it's now trading at 8.5). Also, from a hard core book value approach, this stock's cheap even at the price it's trading! damn!

[freefront]

Here's my take on CEU... profitability-wise, it's been earning double-digits roe since 2005, ranging between 11 to 13%. Really not bad. But how is it's leverage? Just looking at its ROA (alongside its ROE) would reveal that it's not really burdened by too much debt.

Return on Equity (ROE) vs Return on Assets (ROA)
2005: 13.37% vs 11.45%
2006: 12.74% vs 11.01%
2007: 11.99% vs 9.66%
2008: 12.98% vs 10.01%
2009: 13.01% vs 10.11%

The equity-debt comparison below does confirm my suspicion. A very liquid company. No need to worry about bankruptcy or insolvency. Its equity dwarfs what its owes.

Equity vs Liabilities
2004: 1,987.30 vs 345.50
2005: 2,001.90 vs 280.30
2006: 2,059.40 vs 318.70
2007: 2,150.90 vs 642.30
2008: 2,268.40 vs 587.80
2009: 2,246.25 vs 628.66

Going back to its profits, however, are they realized in cash? And are these cash profits just sucked by capex?

Net Income vs Operating Cash Flow vs Capital Expenditures (in millions)
2005: 250.00 vs 266.13 vs 35.72
2006: 243.20 vs 293.04 vs 71.09
2007: 238.20 vs 264.21 vs 206.69
2008: 269.30 vs 342.02 vs 96.00
2009: 275.80 vs 415.03 vs 78.50
5-year Total: 1,580.43 vs 1,276.5 vs 488
@freefront: is ceu really that bad? no offence buddy, but after crunching the numbers, i find ceu a rare case of a good find. i still haven't tackled it from a dividend perspective, but dividend-wise, had you gotten this one early last year at around Php 6, you could have earned around 18% just in dividend yield (it issued a total of 1.2 in cash divs per share in 2009; that's a net of 1.08 if you less withholding tax). Just in dividends buddy, not yet considering capital gains from price appreciation (it's now trading at 8.5). Also, from a hard core book value approach, this stock's cheap even at the price it's trading! damn!

Nainis ako dyan. I traded it 3x. Twice ako nag dividends. Boredom overcame reason on that stock.
 But my point is, I don't have their FS. Tapos nagkalat ang FS ng SMC. Para sana masabayan namin kayo. Alam mo yung, "gotcha" feeling kapag nakasabay ka sa lesson? Yun!

[thriftyPinoy]

FS can easily be accessed through the PSE website well i have to give it to you, buddy; for boring, unexciting stocks like ceu, its profitable rewards are worth reaping had you given it a longer time horizon. that's the play in "slow moving" stocks.

[freefront]

FS can easily be accessed through the PSE website well i have to give it to you, buddy; for boring, unexciting stocks like ceu, its profitable rewards are worth reaping had you given it a longer time horizon. that's the play in "slow moving" stocks.

Yep. Bit me twice in the bleep. Learned my lesson, i tell you.
But you have to know I'm kinda jurassic in the sense that I work well with pencil and paper and like the substantial feel of paper between my fingers. I have a huge notebook beside my pc to take down notes. Improvement can be had, I'm sure. Sigh...hardwork. Carry on then.

[ric_TNT]

i have to apologize in advance should my approach appear very quantitative, too general, rigid, or mechanical to the readers. i also understand that this approach is not applicable to all industries (e.g. banks, other financials, closed-end fund).

I do FS analysis with the aim of quickly identifying the best businesses so i can buy them when i see or feel they're already fairly priced. So what are the features of a good business? Here's my take: it should be consistently profitable, makes good use of its debt, and has a healthy cash flow. These three should always be taken together since just looking at one aspect is very deceiving as we'll see.

Profitability is easy to detect, just look at return on equity. Basing on experience, finding companies that accomplish 13% up roe consistently in 5 to 10 years is very rare, so when you see one, have your eye on it! Simply reject companies that are habitually incurring net losses since those are just making you poorer--why invest in those when you can invest on profitable ones? Do not be deceived by profitability alone though, since a company maybe achieving it at the expense of overleveraging or taking on too much debt--that's prone to the risk of bankruptcy! But of course, debt in itself is not bad. If the company is taking on debt and is able to derive profit from it, then debt is acceptable. Return on assets is my check against these deceptions of roe. If you find a company achieving a very high roe but a measly roa (e.g. 1 or 2%), be careful! In the case of a consistently good roe (say 30%) and roa (say 6.5%), the company must be very good in deploying its asset (despite being inflated because of debt) for the enrichment of the shareholders.

Next stop, a healthy cash flow--one should always look at the operating cash flow (this can be found under the cash flow statements) of the business. For me, the best business is one that realizes its profits in cash and keeps on milking it without incurring too much capital expenditures (i.e. investments on depreciable assets such as expensive equipments, factories/plants, etc.)--it just keeps on hoarding cash and dwells more on the problem (a good problem i might say) on where to put its money to have it produce more money. Rule of thumb: it should be realizing its profits in cash. I try to validate this by summing up operating cash flow in a time horizon of say 5 years, and compare it to the sum of net income in 5 years as well. Now these two figures should be closely knit if we are to conclude its profits are realized in cash. I also keep an eye on capital expenditures and my rule of thumb is its average should be lower than the average of operating cash flow.

This is just my own framework of FS analysis, and it's good to have one since it lets you focus on the important and relevant data, and prevents information overload, and analysis-paralysis. I would also like to stress that quantitative analysis should be done in conjunction with qualitative analysis. My view on this is that the ratios and figures should always be validated by qualitative information which cannot be easily captured by raw financial numbers. Let's contemplate on a scenario: you find a very profitable, non-capex-intensive company realizing its profits in cash, and you know it's got brand everybody recognizes--now that's what I'm talking about!

An aside: Don't do FS analysis just for the sake of doing it; do it because you want to find the best businesses around!

Hmmmmn   Well said mr or ms thriftypinoy.  Naalala ko tuloy ang mga discussions sa Management Services at Quantitative Techniques in Business ng nasa college pa ako.

Sana marami pa matuto dito mag-analyze ng mga FS. Hindi ko nagamit ang pinag-aralan ko sa business kasi na focus ang attention ko sa IT at operations. Isa pa wala naman ako capital para maka pag put-up ng business kaya namamasukan lang ako.

Anyway, appreciate your shared knowledge. Pakikinabangan natin lahat ito.  Cheers!  

[GIG]

Ok guys how about comparing CEU to FEU using FS analysis. My research shows FEU is a better company than CEU. But at the current market price, CEU is the better bargain than FEU. What say you?

[thriftyPinoy]

@ric_TNT: thanks for the comment it's mr.

@GIG: I'm leaning towards the same conclusion as well.

Note: Figures are in million pesos except book value and the ratios.
NI = Net Income
D = Cash Dividends
OCF = Operating Cash Floow
CX = Capital Expenditures
BV = Book Value per share
DPR = Dividend Payout Ratio

              2005          2006          2007          2008          2009
---------------------------------------------------------------------

FEU
NI          396.80        581.90       612.70       600.70        567.00
D             93.42        112.11       175.16       194.55        309.88
OCF        636.80        645.20       583.90       565.40        539.40
CX         (189.60)       (17.70)      (48.70)     (147.90)     (148.85)
BV          326.66        426.12       348.35       388.45        294.52
ROE          33.76%       39.67%      32.09%      26.32%       22.48%
ROA          22.00%       26.94%      22.56%      19.00%       17.50%
DPR           23.54%       19.27%      28.59%      32.39%       54.65%

CEU
NI           250.00        243.20       238.20       269.30        275.80
D            181.86        143.34       146.93       179.40        294.00
OCF        266.13         293.04       264.21       342.02        415.03
CX          (35.72)         (71.09)    (206.69)      (96.00)        (78.50)
BV             5.38             5.53          5.78          6.09           6.03
ROE          13.37%        12.74%      11.99%      12.98%       13.01%
ROA          11.45%        11.01%       9.66%      10.01%        10.11%
DPR          72.74%         58.94%     61.68%      66.62%      106.60%

Both companies are realizing their profits in cash (NI ≈ OCF). These school businesses are able to operate profitably while maintaining their CX below the cash they are able to produce (OCF > CX). They've got quality ROE as qualified by their ROA. Both are good companies in my opinion.

I have more admiration for FEU though. Profitability-wise, its ROE is way, way higher (22 to 39%, what a beast!). Secondly it's got more capacity to compound retained earnings. The real challenge for a company is when it is able to retain all or a majority of its earnings and is still able to compound them at the same rate. Notice how much of CEU's profits are being paid out as cash dividends (DPR)--50% above, even got to that point it paid out more than it earned (2009).  FEU, on the other hand, is able to retain most of its earnings and is even able to compound them at a higher rate than CEU.

Relative to price, however, CEU seems to be the better bargain. Last done at Php 750 and with equity per share at Php 294.52, FEU trades 2.55x book; CEU trades at a mere 1.41x book (Php 8.5/ 6.03 BV)!

[learner]

        this s great!just what ive been wanting to learn!!!

[GIG]

Nice thrifty pinoy!

I like your "tabled" way of explaning things. Its so organize. Anyways if you look at the revenues of FEU from tuition fees alone,they have more or less the same as CEU. Now if you look closely there is another revenue stream.Here is why FEU is the "beast". They have this realty company which owns the buildings which FEU leases.The company is partly owned by FEU. Now I credit this scheme to the montinolas. I'm speculating on that, but they manage to, "again maybe", circumvent the non-profit status of schools by putting up a company that leases buildings or property to FEU, with financial muscle coming from FEU itself. I mean clearly this company is not bound by the "non-profit status" and was made to maximize FEU profits. My next question is who are the other owners of this realty corp? I hope they have FEU in mind first rather than themselves. Since this is not a public company I dont have any info on its FS. Seeing the trend though, on the whole we have nothing to fear. I think FEU is in good hands. CEU leaders would be best to replicate this scheme. It would certainly increase their net income.

[thriftyPinoy]

We can see that after the numbers add up, a qualitative approach can validate and confirm our quantitative findings.

@GIG: That's an interesting observation. I'm looking at the sources of feu's revenues now. Are these leases u're referring to the rentals under the account of other income in the income statement? A majority of it is made up of interest income from AFS assets and cash equivalent deposits (probably above-average yielding time depos). Sorry if i'm kinda slow at picking up this one. How does setting up a separate realty firm enhance feu's earnings?

[GIG]

You're not at all slow thriftyPinoy, your fast and accurate. A check on my records show that you are right. I made a mistake. FRC's earnings arent even in FEU's books. I was so consumed by this realty corp,FRC, leasing its assets to FEU. I mean what would be a good explanation on this?

[thriftyPinoy]

Looks like plain tuition fees to me other income account for 10% of overall revenues; the other 90% come from tuition & misc billings, making it still its bread & butter. but anyhow, even if it's understating its income (not booking its earnings share from frc) to save some tax payments, i'm well & good, very satisfied, in fact, even not to consider those other unreported income, should there be any.

[GIG]

hey guys,

I'm having difficulties finding financial statement of PSE listed companies. My only sources are the PSE website or the company's own website. Are there any other sources for free? In the states you could request all the FS you like through the company investor relation dept. and they send you the documents by mail. Is that possible here also?

[thriftyPinoy]

You can try scuttlebutting locally too. i still haven't tried requesting AR's from companies which i don't own yet, but for those which i do, you either request from the investor relations department, accounting, or sometimes, legal dept. You get various responses (some friendly, some too cautious or suspicious, you just have to introduce yourself--as a part-owner in a well-mannered way to be taken seriously); the usual SOP is they'd ask you to send them a request letter for proper documentation (i usually just ask for their email for convenience and it's not really an issue for them).

Detailed FS (with notes) are really good when a specific company already catches your interest and you want to further investigate the detailed workings of their financials. For fast, screening purposes, however, i make use of reuters. They have recently changed their website format since the merging of thomson & reuters so, for some reason, it's harder now to get the specific financial statements with the new format, but you can give it a try you still have to exercise due diligence though since third-party tabulated FS are still prone to encoding errors.

[bauer]

hey guys,

I'm having difficulties finding financial statement of PSE listed companies. My only sources are the PSE website or the company's own website. Are there any other sources for free? In the states you could request all the FS you like through the company investor relation dept. and they send you the documents by mail. Is that possible here also?

most local PSE listed companies do not have a good investor relations department so it is really difficult to get an FS if you are not a registered shareholder in their books.  the best source is your local stock broker.