A quick financial analysis of a company is one of the first things I always do when I am
analysing a stock for a potential investment. To determine - at first glance - if the stock is
fundamentally undervalued, I always check whether the stock complies with my preconditions for selecting undervalued stocks.
The first calculation refers to the current ratio, which has to have a minimum value of 1.5. A ratio
under 1 implies that the company is unable to pay off its current liabilities with their current assets. The
current liabilities are all the company's liabilities which are due within twelve months - the current
assets are all the company's assets which are reasonably expected to be converted into cash within twelve
For the second calculation, I check if the outcome of the tangible book value divided by the total
tangible assets is at least 0.4 (for producing companies) or 0.8 (for exploration companies), as I do not
feel comfortable investing in companies with a high level of debt. As San Gold Corporation is
classified as a junior gold producer, the minimum value should be 0.4.
The third and final calculation which must be met, refers to my margin of safety and is
calculated by dividing the tangible book value by the market cap. The outcome of this ratio must be at least 2,
which implies that you can buy the stock at a discount of 50% from the company's tangible book value.
My Commentary and Conclusion Regarding these 3 Revealing Ratio's
In the following table you will see the outcomes of these 3 revealing ratio's for selecting fundamentally
undervalued stocks. The used numbers were taken from the company's most recent balance sheet as at March
31, 2014, which you can find by clicking here.
Today's News Related to the Global Energy and Mining Stocks.On
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How I Conduct My Stock's Due Diligence Investigation Process.If
you want to know what I learned while I was conducting my due diligence, I recommend you to read
all the chapters of the investigation process.
Are These the Best Stocks to Buy Today.In my stock watchlist you
find stocks who offer great potential, but at the time I analysed these stocks they didn't comply
with all my guidelines from my due diligence chapters.
Are These the Best Shares to Buy Now.As the year 2015 has just started, I
believe it's about time that I share my stock portfolio with you. Therefore, you will find my
updated stock portfolio on this page.
Jeroen Snoeks is the founder of UndervaluedEquity.com, a website for
investors passionate about investing in undervalued stocks. ThroughUndervaluedEquity.com, he shares his
experience and knowledge and will soon reveal his personal stock portfolio.