www.gutic.co.

uk

Introduction to shares and basic company evaluation

Edward Thomson and Michal Pechta

30th September 2010

Edward Thomson and Michal Pechta

30th September 2010

2010 DB Blue template

Content

I. Operating Environment

II. Financial Performance

- Sustainability of earnings
- Cash generation capacity
- Leverage

III. Management and Transparency

IV. Research Sources

Edward Thomson and Michal Pechta

30th September 2010

2010 DB Blue template

 I. Operating Environment

II. Financial Performance

III. Management and Transparency

IV. Research Sources

Edward Thomson and Michal Pechta

30th September 2010 3

2010 DB Blue template

Operating Environment
Analysis of the business environment in which the company operates

Operating
Environment

M/L - term
Special Risks
Industry Outlook

Consumer Level of Environmental

Political Risk
Demand Regulation Risk

Speed of
Innovation

Edward Thomson and Michal Pechta

30th September 2010 4

2010 DB Blue template

 I. Operating Environment

II. Financial Performance

III. Management and Transparency

IV. Research Sources

Edward Thomson and Michal Pechta

30th September 2010 5

2010 DB Blue template

Sustainability of Earnings
Analysis of the sustainability and volatility of revenues

- EBITDA margin
- EBITDA / Total Revenue
Operating - EBITDA : OI + depreciation + amortization
Ratios - Indicator of the extent to which operating
expenses use up Total Revenue
- Net Income margin
- Net Income / Total Revenue

- Return on Assets (ROA)

- Net Income / Total Assets
- Measure of how effectively a company
Efficiency utilizes its assets
Ratios - Return on Equity (ROE)
- Net Income / Total Equity
- Measure of the return on money
provided by the shareholders
Edward Thomson and Michal Pechta
30th September 2010 6

2010 DB Blue template

Cash Generation Capacity
Key question: How is the company using the cash it generates?

— Measure of company liquidity and funding capability. Increased

Cash Flow

— Key Indicators:
— Net Operating Cash Flow (NOCF) Increased
— NI + Depreciation +\- changes in working capital Capex and/or
— Measure of the ability of a company to generate cash Dividends
through operations.
— Free Cash Flow (FCF)
— NOCF – Capital Expenditure (capex) Impact on ROA
— Measure of the cash flow available for distribution and ROE
among all the security holders (debt holders and)
shareholders)

Edward Thomson and Michal Pechta

30th September 2010 7

2010 DB Blue template

Leverage
The analysis of the debt capacity of a company

— Measure of the financial risk taken on by the company estimated by comparing

the extent of debt financing relative to the size and volatility of cash flows.

— Key Indicators:
— Interest Bearing Debt (IBD) / EBITDA
— IBD = short-term bank debt + M/L term bank debt + M/L term issued securities
— Measure of the ability of a company to meet its financial obligations and an
indicator of the company’s methods of financing.
— Interest Bearing Debt (IBD) / IBD + Total Equity
— Measure of the solvency of the company

Edward Thomson and Michal Pechta

30th September 2010 8

2010 DB Blue template

Edward Thomson and Michal Pechta
30th September 2010

2010 DB Blue template

Edward Thomson and Michal Pechta
30th September 2010

2010 DB Blue template

Edward Thomson and Michal Pechta
30th September 2010

2010 DB Blue template

Edward Thomson and Michal Pechta
30th September 2010

2010 DB Blue template

 I. Operating Environment

II. Financial Performance

III. Management and Transparency

IV. Research Sources

Edward Thomson and Michal Pechta

30th September 2010 13

2010 DB Blue template

Management and Transparency
The analysis of the strength and quality of the company management

— Frequent / key management changes

Management — Ability to meet announced targets
Quality — Consistency of managements’
communication to the market

— Provision of information
— Conduct of account
Transparency — External rating coverage

Edward Thomson and Michal Pechta

30th September 2010 14

2010 DB Blue template

 I. Operating Environment

II. Financial Performance

III. Management and Transparency

IV. Research Sources

Edward Thomson and Michal Pechta

30th September 2010 15

2010 DB Blue template

Research Sources

— Annual and quarterly financial statements

— Bloomberg
— Bankscope
— Credit rating agencies (Fitch, Moody’s, S&P)
— Financial press

Edward Thomson and Michal Pechta

30th September 2010 16

2010 DB Blue template

 ANY QUESTIONS?

Edward Thomson and Michal Pechta

30th September 2010 17

2010 DB Blue template