Michael C. Thomsett, Business and investment writer

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• Chapter 1: Rates of Return on Investment: What Goes In, What Comes Out  1 Judging the Outcome – What Did You Expect?  2 The Basic Equation: Return on Cash Invested  4 Calculating Option Trading Returns  10 Taxes and Investment Return  13 Conclusion  17 Chapter 2: Returns on Capital: Putting Cash to Work  19 Calculating Returns from the Corporate View  19 Calculating Average Net Worth  22 Net Worth Versus Total Capitalization  24 Preferred Stock as Hybrid Capitalization  27 The Importance of “Use of Capital”  31 Conclusion  33 Chapter 3: Leverage and Risk Analysis: Maximizing Other People’s Money  35 Calculating the Cost of Money  35 Annualized Return  38 Leverage-Based Risk—the P/E Ratio as a Way to Quantify  40 Using Options as a Form of Leverage  44 Conclusion  48 Chapter 4: Long-Term Trends: Patience Rewarded  49 A Realistic View: Long-Term Returns and Annual Rates  50 Total Net Annualized Return  53 Carryover Losses and Net Return  56 Realistic Expectations: Inflation and Taxes  58 Compound Return Calculations  60 Other Cash Flow Trends  63 Return Formulas  65 Useful Return Shortcuts  70 Estimating the Value of Deposits over Time  72 Conclusion  76 Chapter 5: Core Earnings and Net Worth Adjustments: Making the Numbers Real  77 The Problem with Today’s Accounting Rules  78 Flaws in the GAAP System – a Passive Approach to Reporting  80 Examples of Material Expenses  82 Balance Sheet Problems – Inaccurate Valuation  84 Recalculating the Key Ratios  85 Recalculating Net Worth  89 Finding Core Earnings – Comparative Analysis  92 Conclusion  93 Chapter 6: Fundamentals: Balance Sheet Tests You Need to Know  95 The Nature of Fundamental Analysis  96 Basics of the Balance Sheet  98 Working Capital Tests  101 Accounts Receivable Tests  105 Inventory Tests  108 Long-Term Asset Tests  110 Capitalization  112 Tangible and Total Book Value  116 Chapter 7: Fundamentals: Operating Statement Tests You Need to Know  121 The Basics of the Operating Statement  123 Revenue Trends  128 Earnings Trends  129 Revenue Compared to Direct Costs and Expenses  131 Conclusion  138 Chapter 8: Market Trend Calculations  139 Index Weighting  139 Breadth of the Market  143 Short Interest Ratio  146 New Highs and New Lows  148 Put/Call Ratio  151 Mutual Fund Ratios  152 Chapter 9: Price Indicators  159 The Basics of Technical Analysis  159 The Random Walk Hypothesis and the Efficient Market Theory  162 Basic Price Calculations  165 Chart Patterns and Interpretations  167 Technical Tests of Market Sentiment  171 Breadth of Trading  171 Chapter 10: Volume Indicators  175 Change in Volume  176 On Balance Volume (OBV)  178 Accumulation/Distribution (A/D)  180 Money Flow Index (MFI)  183 Large Block Ratio  186 Conclusion  187 Chapter 11: Momentum Oscillators and Moving Averages  189 Overview, Momentum Oscillators  189 Relative Strength Index (RSI)  192 Moving Average Convergence Divergence (MACD)  195 Stochastic Oscillator  197 Moving Averages  199 Bollinger Bands (BB)  201 Conclusion  204 Chapter 12: Combined Testing: Merging Price and Financial Tests  205 Effective Use of Combined Analysis  206 Valid Versus Invalid Forms of Testing  208 Identifying Important Combined Tests  209 Additional Price-Based Combined Tests  211 The Oddities of Hybrid Analysis  215 Appendix A Stock Market Formulas: Summarizing the Essentials  219 Appendix B: Excel Program Entries: Automating the Formulas  247 Index  267

Michael C. Thomsett, Business and investment writer

Select Guide Rating

• Chapter 1: Rates of Return on Investment: What Goes In, What Comes Out  1 Judging the Outcome – What Did You Expect?  2 The Basic Equation: Return on Cash Invested  4 Calculating Option Trading Returns  10 Taxes and Investment Return  13 Conclusion  17 Chapter 2: Returns on Capital: Putting Cash to Work  19 Calculating Returns from the Corporate View  19 Calculating Average Net Worth  22 Net Worth Versus Total Capitalization  24 Preferred Stock as Hybrid Capitalization  27 The Importance of “Use of Capital”  31 Conclusion  33 Chapter 3: Leverage and Risk Analysis: Maximizing Other People’s Money  35 Calculating the Cost of Money  35 Annualized Return  38 Leverage-Based Risk—the P/E Ratio as a Way to Quantify  40 Using Options as a Form of Leverage  44 Conclusion  48 Chapter 4: Long-Term Trends: Patience Rewarded  49 A Realistic View: Long-Term Returns and Annual Rates  50 Total Net Annualized Return  53 Carryover Losses and Net Return  56 Realistic Expectations: Inflation and Taxes  58 Compound Return Calculations  60 Other Cash Flow Trends  63 Return Formulas  65 Useful Return Shortcuts  70 Estimating the Value of Deposits over Time  72 Conclusion  76 Chapter 5: Core Earnings and Net Worth Adjustments: Making the Numbers Real  77 The Problem with Today’s Accounting Rules  78 Flaws in the GAAP System – a Passive Approach to Reporting  80 Examples of Material Expenses  82 Balance Sheet Problems – Inaccurate Valuation  84 Recalculating the Key Ratios  85 Recalculating Net Worth  89 Finding Core Earnings – Comparative Analysis  92 Conclusion  93 Chapter 6: Fundamentals: Balance Sheet Tests You Need to Know  95 The Nature of Fundamental Analysis  96 Basics of the Balance Sheet  98 Working Capital Tests  101 Accounts Receivable Tests  105 Inventory Tests  108 Long-Term Asset Tests  110 Capitalization  112 Tangible and Total Book Value  116 Chapter 7: Fundamentals: Operating Statement Tests You Need to Know  121 The Basics of the Operating Statement  123 Revenue Trends  128 Earnings Trends  129 Revenue Compared to Direct Costs and Expenses  131 Conclusion  138 Chapter 8: Market Trend Calculations  139 Index Weighting  139 Breadth of the Market  143 Short Interest Ratio  146 New Highs and New Lows  148 Put/Call Ratio  151 Mutual Fund Ratios  152 Chapter 9: Price Indicators  159 The Basics of Technical Analysis  159 The Random Walk Hypothesis and the Efficient Market Theory  162 Basic Price Calculations  165 Chart Patterns and Interpretations  167 Technical Tests of Market Sentiment  171 Breadth of Trading  171 Chapter 10: Volume Indicators  175 Change in Volume  176 On Balance Volume (OBV)  178 Accumulation/Distribution (A/D)  180 Money Flow Index (MFI)  183 Large Block Ratio  186 Conclusion  187 Chapter 11: Momentum Oscillators and Moving Averages  189 Overview, Momentum Oscillators  189 Relative Strength Index (RSI)  192 Moving Average Convergence Divergence (MACD)  195 Stochastic Oscillator  197 Moving Averages  199 Bollinger Bands (BB)  201 Conclusion  204 Chapter 12: Combined Testing: Merging Price and Financial Tests  205 Effective Use of Combined Analysis  206 Valid Versus Invalid Forms of Testing  208 Identifying Important Combined Tests  209 Additional Price-Based Combined Tests  211 The Oddities of Hybrid Analysis  215 Appendix A Stock Market Formulas: Summarizing the Essentials  219 Appendix B: Excel Program Entries: Automating the Formulas  247 Index  267