Tuesday, August 15, 2017

Moncler S.p.A. : cash flow statement analysis.

Here we have the consolidated cash flow statement of Moncler (full year 2016 results). 
For further info, we can consult the following link (investor relations) :

Consolidated cash flow statement

I will produce a detailed analysis of the cash flow statement with the aim of understanding if : 
  1. The firm has a great financial balance ;
  2. The core business is able to support the other areas (as it should normally be), investing and financing activities. 
At a glance, we can notice that the core business (operating activities) generates cash flow (+383,664). It is very important for a functioning business. If a firm absorbes cash flow from operating activities, it is not vey good. Substantially, it is a poor business. 
However, the investing activities and financial activities absorbe cash flow. A functioning firm should invest to grow (like Moncler with a negative cash flow from investing area > purchase of tangibles and intangibles fixed assets > -63,301). The financing area should generate cash flow (positive cash flow), to support the business and to grow, following the foregoing reasoning. Instead, the firm prefers repaying the debts (repayment of borrowings, -68,592). 

To summarise, the cash flow from operating activities should be positive and able to cover the financial needs from the other business areas. We are in a great situation with a positive cash flow from the core business and big enough to offset the cash outflows from the other activities. 
We are in a bad situation with negative cash flow from the operating activities and the other areas are not able to generate adequate cash flow to cover the cash outflows from the other business areas. 

The following table and the following  pie chart is very exhaustive. At the same time, Moncler presents a great financial balance and a core business capable to support the areas that absorb cash flow. Indeed, the total net cash flow is positive (a+b+c) and the percentage of the cash flow from operating activities compared to the percentages of the other areas is greater than 50%. There is also an improvement if we look at the fiscal year 2015 and at the fiscal year 2016 : from 54% to 61%.

Table of the cash flows and compared pie charts

To conclude, it is useful to calculate two ratios : revenues monetization index (also known as monetary ROS) ; EBIT liquidity index. The formulas are the following. 

Monetary ROS : Cash flow from operating activities / Revenues.

EBIT liquidity index : Cash flow from operating activities / EBIT.

The following chart shows the compared analysis. For the EBIT, I used the EBIT adjusted, due to the non-recurring items. 

Cash flow statement ratios

The two ratios are very good, as a percentage. The cash flow from operating activities represents the 27% of the revenues and the 88% of the EBIT. There is also an improvement from the full year 2015 to the full year 2016.

Sunday, July 30, 2017

The volatility.

The volatility is an important parameter in the financial markets. 
It is useful to : 
  • measure the underlying risk of an asset or portfolio (higher the volatility, higher the risk);
  • set the market orders, stop loss, take profit, limit orders and so on (higher the volatility, "wider" the market orders) ;
  • set the trading profile (higher the volatility with pure trader strategy and lower the volatility with pure investor strategy) ;  
  • measure the market mood (higher the volatility with an important event price-sensitive ; "stock market fever", see also the VIX indicator). 
As there are so many purposes, in the same way, there are so many methods of measuring and indentifying it. At first, the classical measure is the deviation standard. To calculate it, it needs to import the historical returns of an asset to an Excel spreadsheet and then applying the following formula :

=  DEV.ST.POP (historical returns).

Historical data from Investing.com
Here, we have an image that clearly explains the case. The time-period can be daily, weekly, monthly etc, in the analyst's discretion and based on the purpose of the analysis (it means also holding period and investor perspectives). The ticker is APPLE. The time-frame is daily. 

Another measure is that provided by the graph (indicators).  
In this sense, it means respectively : 
  • width of the real bodies and of the shadows (candlesticks chart ; wider the bodies and the shadows, higher the volatility) ;
  • width of the Bollingers Bands (wider the bands, higher the volatility) ;
  • magnitude of the volumes and so market interest (higher the volumes, higher the volatility). 
As shown in the following chart, there is the silmultaneous presence of more detectors (read the notes inside the graph). 

Chart from Investing.com

Indeed, BBW and HV are useful indicators to measure the volatility. There is a peak compared to the historical series (circled ellipses). The Envelopes (EV) have the same meaning of the BB : if the stock price is above or below the envelopes, there is high volatility in both directions.

Envelopes (EV) ; chart from Investing.com

To conclude, once measured and identified the volatility, every trader/investor should set his trading strategy accordingly, pursuing own profit and loss targets, of course.