How long to stay invested in a stock?

Yesterday night, I was speaking with a very respected friend, elder and we discussed about investments & businesses. We started talking about strategy and then he revealed that he was invested in two stocks. I definitely endorsed his strategy, since I, myself am invested in a single business and am enjoying the benefits of that greatly. We started talking about his picks and then I realized that both of his stocks were pretty richly valued in terms of PE. I, then suggested, him to move to a stock which was equally good & of high quality but quoting at undervalued prices. Later, I realized that this was worth writing an article.

What is an ideal business?

What's a business meant to be? Surely, its not for emotional gratification. Its meant to earn you money more than what you invested in raising the business over a period. You expect returns. 

You can't alone run a business. You need co-operative efforts of employees for which they get paid. So, employees are a great asset for the business, but not at the cost of returns from the business. So, definitely, business isn't welfare. Any incompetency & any expensive labour needs to be sorted out.

Business is also run by machines and machines need buildings and buildings are erected upon lands. These all comprise "fixed assets". Their expense come up firsthand while initiating an enterprise. The amount paid for the "fixed assets" must be conducive enough for the profitability of the business. Lets us take the example of land. If the land cost is so prohibitive, then it can affect the expansion of the business which relies upon setting up manufacturing units for itself. Second is the case of machines/technology.

Example for Cash Conversion Cycle

We'll be again using Hawkins Cookers Annual Report for the understanding of Cash Conversion Cycle practically, the link for which is provided below.
http://equitysection.proboards.com/index....hread=5&post=9

As we know Cash Conversion Cycle has three components - Days Inventory Outstanding, Days Sales Outstanding and Days Payable Outstanding.

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EQUITY SECTION An Indian Stock Investment Forum - News Reel

Update on Educomp Solutions Income Tax raid.

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Cash Conversion Cycle

One important tool to help us better understand the dynamics of Working Capital is Cash Conversion Cycle (CCC).

Cash Conversion Cycle (CCC) tells us about the time duration in which -

1. the inventory is consumed & processed into finished products and sold to customers,

2. the sales proceeds from the products is brought in from the customers or Sundry Debtors, and

3. the money is paid to the suppliers or Current Liabilities are paid.

Overall, Cash Conversion Cycle tells us how quickly money generated by the business or Net Profits is brought into the company after paying all its dues and liabilities. The shorter the cycle, the better it is. It also indicates as to how efficiently the working capital is being managed, meaning, whether the company is able to get longer credit periods from its suppliers and is able to quickly draw in money from its customers.

Cash Conversion Cycle has three components - Days Inventory Outstanding, Days Sales Outstanding and Days Payable Outstanding.

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Understanding Working Capital

Net Current Assets and Working Capital are one and the same thing. We know that Working Capital is the difference of Current Assets and Current Liabilities. Current Assets include Inventories, Sundry Debtors, Cash & Bank Balances and Loans & Advances. Current Liabilities include Liabilities and Provisions.

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EQUITY SECTION An Indian Stock Investment Forum - Balance Sheet, Profit & Loss, Cash Flow Statement

EQUITY SECTION An Indian Stock Investment Forum - Balance Sheet, Profit & Loss, Cash Flow Statement

Titan Industries Ltd. - Analysis of December quarter Results

Recommendation : BUY

January 28, 2010.

Titan Industries Ltd. did an Income from Operations worth Rs. 1954.59 crores. The Consumption of Materials as %age of Sales decreased significantly to 63% to 1235.91 crores from 70% at 935.74 crores in the same quarter last year. Purchase of Traded Goods as %age of Sales rose sharply to 12% at 239.37 crores from 8% at 101.21 crores in the same quarter the last year. Tax Expenses climbed to 3% at 59.08 crores as %age of Sales from 1% at 19.93 crores in the same quarter last year.

Selan Exploration Technology Limited - An Analysis

Recommendation : BUY

January 27, 2011.

Remarkable points from Annual Report 2009-10

During this Financial Year, the Selan Exploration Technology Limited has not undertaken any new drilling activities. However, 3D seismic data acquisition, processing and interpretation (API) activity in Bakrol and Indrora oilfields is underway. This shall give us a fair idea of the locations in which drilling campaign can be started in the second half of the current fiscal year.

Titan Industries Ltd - An Analysis

Recommendation : BUY

January 23, 2010.

Remarkable points from Annual Report 2009-10

Both Watches and Jewellery segments benefited from a good wedding season in the first quarter of 2009-10. Retail sales were extremely good for watches post October 2009. Tanishq ran a successful promotion the ‘Queen of Diamonds’ and the new Eyewear business had an extremely impactful activation in the first half of the year and a very successful advertising campaign in the last quarter of the year.