Ever find yourself searching the internet for statistics on your local real estate market? I often do.

Here is a summary list of useful housing market statistics for major Canadian cities from around the web.

Toronto Housing Market

• Toronto Housing Charts
• Toronto Market Watch Report
• Toronto Condo Market Report

Vancouver Housing Market

• Vancouver Monthly Statistical Reports
• Vancouver Listed vs. Sold Charts

Montreal Housing Market

• Montreal Resale Market Trends and News

Calgary Housing Market

• Calgary Housing Statistics
• Calgary Monthly Housing Summary

Edmonton Housing Market

• Edmonton Monthly Housing Statistics

Housing Price Indicies

• MLS Home Price Index
• Teranet Composite House Price Index

The first stock valuation that I have completed with my new DCF Stock Valuation Model is on PotashCorp (POT), which trades on the Toronto Stock Exchange (TSE).

PotashCorp is the world’s largest fertilizer company by capacity, producing the three primary crop nutrients – potash (K), phosphate (P) and nitrogen (N).

Positives

• Global reserves of potash are highly concentrated to a few countries. Canada alone accounts for 46% of potash reserves. Russia accounts for 35%.
• PotashCorp is the largest producer of potash controlling 20% of world capacity
• There are significant barriers to entry in the potash production industry. It takes approximately 7-8 to develop a new potash mine. This means that periods of short supply could persist for some time until new capacity is added, resulting in higher prices.
• PotashCorp is the lowest cost supplier to the US market
• As the world population grows so will the demand for food and in turn fertilizers like potash. Changes in diets and decreases in arable land will also contribute to increased demand for potash and other fertilizers.

Negatives

• KCI (Potash) prices has risen ~150% since 2007 and now sit at $500 per MT. Is this sustainable? According to PotashCorp there are several factors that will justify the current price and potentially push it higher in the long term. I do however see this as a potential risk because if KCI prices actually go down in the future it will hurt PotashCorp’s revenues and margins.

Valuation

• Assumed revenue would grow at 7%, 6%, 5%, 5%. 5% Y/Y over the next 5 years. Conservative given POT’s historical Y/Y revenue growth rates
• EBIT Margins have hovered between 30% and 45% over the last 5 years. Decided to go with an 35% EBIT margin going forward which isn’t overly aggressive.
• CAPEX intensity is a key variable in this valuation. Historically POT has had a high CAPEX intensity due to investment in new production. This is all growth CAPEX. According to POT’s guidance the CAPEX intensity should come down over the next couple of years and level off at about $500M per year which will be all maintenance CAPEX by 2013.

Based on an 8% discount rate I calculate an estimated fundamental value per share of $45.79. Compared to the market price of $45.40 at market close on March 16th, 2012 it appears that POT is fairly valued.

Download (PDF) my valuation report for POT at the link below.

PotashCorp – DCF Stock Valuation – 2012-03-16

Recommendation

Given that POT seems to be fairly valued at the current market price I am going to hold off on buying the stock for now. I require an additional margin of safety and will wait until it gets a bit cheaper (if it ever does) before I decide to buy. With a 25% margin of safety my buy in price would be ~$34.34.

Thoughts on POT?

Disclosure
I do not currently own any shares in POT

Model Features

• Quickly and accurately calculate the fundamental value of a company’s shares using a discounted cash flow valuation framework
• Automatically download company financial statement data from the internet with the click of a button
• Automatically download current price information and other background information on the company
• Automatically calculate key financial ratios to rapidly analyse recent trends
• Easily measure changes to fundamental value per share by performing sensitivity analysis on key inputs and assumptions
• The model works on most TSX, NYSE & NASDAQ listed companies

Initial Known Issues / Limitations

• Make sure macros are enabled in Excel or else the model will not pull financial data from the internet
• The model will not work on banking and insurance companies (yet).
• The model will not work on companies without at least a 5 year operating history

Instructions on How To Use The Model

I will follow up over the next couple weeks with tutorials on how to use my DCF Stock Valuation Model and provide example valuations on real companies.

Make sure to read Part 1 and Part 2 of the review if you haven’t already do so.

To keep it simple I’ll only focus on the two most common income forms including the Employment Income T4 and the Investment Income T5.

Employment Income (T4)

Entering your employment income from your T4 slips is fairly straightforward. All you have to do is input the information on your paper T4 slip into the matching box number on the TurboTax T4 form. There should be a corresponding box number on the TurboTax T4 form to match all items contained on your paper T4 form. Once you’ve entered all the information from your paper T4 form into the TurboTax T4 form, you can save your work and always come back to edit it later if you need to.

If you have multiple T4 forms from different employers it’s not a problem as TurboTax will allow you to enter and save multiple T4 forms.

Investment Income (T5)

Entering investment income information from your T5 slips is just as simple as entering your employment income. TurboTax provides a web based form that mirrors your paper T5 slip. Again all you need to do is line up the box number on your paper T5 slip with the box number on the T5 web form.

Income Summary

Once you are done inputting all of your income information TurboTax will provide you with an income summary which includes the calculation of your total income for the year. This summary is handy to review all of your income sources and verify if everything is accounted for.

In Part 4 of my review I will look at how deductions and RRSPs are handled in TurboTax Online.

There are two components to calculating any holding period return on a stock; 1) price appreciation and 2) cash flow from dividends. Both contribute to your total return over a holding period.

The price appreciation component is easily calculated as (P1 – P0) / P0)  where P0 is the price of the stock at the beginning of the holding period (when you buy it) and P1 is the stock price at the end of the holding period (when you sell it).

For example if I buy 1 share of BCE at $40 today and sell it 2 months from now for $42 my total return due to price appreciation over that 2 month period is calculated as ($42 – $40) / $40 = +5%

The cash flow component is calculated as CF1 / Po where CF1 is the total cash flow received over the holding period and P0 is the price of the stock at the beginning of the holding period (when you buy it).  This is also referred to as the cash flow yield. Also note that technically CF1 should take into account when the cash flow occurs over the holding period and any additional return resulting from reinvestment of the cash flow, but for the simplicity of this calculation we will ignore those factors.

Building on my previous BCE example, assume that Bell pays out a $1.00 dividend over that 2 month holding period. The cash flow component of total return over that two month period would be calculated as $1.00 / $40 = 2.5%.

To calculate your total return on the stock over the entire holding period simply add the price appreciation return and the cash flow return. That is (P1 – P0) / P0 + (CF1/P0) = 5% + 2.5% = 7.5% total return.

This method works for any length of holding period whether it be days, weeks, months or years.

That’s all there is to it. 

Today I use Excel to value stocks before making an investment decision. However the entire process of valuing a single stock can take hours. I manually copy and paste financial statement data into Excel from the company’s financial statements. This can be a pain in the $%# sometimes when the formatting doesn’t work properly. From there I have to manipulate the financial statement data to a point where I can start to perform some calculations. Since this process is so tedious I fear that I will make mistakes or potentially cut my analysis short because it takes so long to complete leading to suboptimal investment decisions.

I feel there must be a better way do this. There must be a way to automate the investment analysis process and make it more efficient and reliable. And that’s what I have set out to do.

Model Objectives

• Substantially reduce the time it takes to value a stock
• Improve the accuracy of my stock valuations

Model Requirements

• The model must be build based on a discounted cash flow valuation analysis.
• The model must be able to value the majority of TSX, NYSE & NASDAQ listed companies.
• The model must be able to automatically retrieve financial statement data from the internet based on a ticker symbol as input. This includes annually & quarterly income statements, balance sheets and cash flow statements.
• The model must also automatically retrieve price information regarding the stock including the most recent available market price.
• The model must be able to automatically calculate certain financial ratios and display trends in a summary report or graph.

Why use a Discounted Cash Flow Model?

In my opinion, the discounted cash flow analysis framework is the most robust and accurate method when it comes to valuing a stock and determining it’s intrinsic value. This type of analysis is highly coveted by Benjamin Graham and Warren Buffet. It does take a lot of work to do a thorough DCF analysis and there is a lot of room for error, but in the end I feel the effort pays off through better investment decisions.

Why build the model in Excel?

You might be wondering why I choose Excel to build my model? Other alternatives include Google Docs or web based programming languages (HTML, PHP, JS, ASP etc.). Here’s why I choose Excel.

• Able to execute complex calculations through formulas and existing functions
• Able to import data from the internet into a pre-formatted table
• Easy Graphs and charts
• Back end programming language in VBA to automate particular processes
• Software has a large user base and is widely distributed

Will You Share?

Yes, I intend to provide a free download of my model to readers of this blog. I’ve been working on the model for over two weeks now and am very close to an initial release. I’ll have something to share soon. Stay tuned.

Yesterday Warren Buffet released his annual letter to Berkshire Hathaway shareholders. Buffet does this every year to explain the prior year’s results and outline his views on the future.

I always read each of his letters front to back, and so should every serious investor. Buffet always does a good job of explaining complex concepts using silly analogies that the average Joe can understand.

The major benefit of reading his letters is you receive insight into where Buffet thinks the markets and economy are heading over the short and long term. This has tremendous value given that Buffet has one of the most impressive investment tracker records out there.

The per-share book value of both our Class A and Class B stock increased by 4.6% in 2011. Over thelast 47 years (that is, since present management took over), book value has grown from $19 to $99,860, a rate of 19.8% compounded annually.

That statistic is what makes Warren Buffet a legend. 19.9% compounded annual return for 47% years. 

Head over to the Berkshire Hathaway website and give his 2011 letter to shareholders a read.

I recently came across one of their recent articles that I found to be interesting and a good read for other investors out there.

Here is the link -> Unintended Consequences

The article analyses some of the recent moves made by G6 central banks in order to maintain stability and liquidity within the banking system. The article contends that without some of these moves the European banking system would have collapsed in December 2011.  A lot of the measures taken by central banks in the last couple months have involved printing money essentially to keep the system a float.

What I take from the article is that these types of measures provide short term relief to the system, but come with long term consequences. The article goes as far to question what would happen if central banks like the US federal reserve begin to lose credibility with investors and particularly creditor nations.

Interesting enough the article points out that both China and Russia have decreased their holdings of US currency over the last year and have instead begun to invest in hard assets like gold and other metals and materials.

What does this mean for the average investor? Perhaps an acceleration of future inflation. Maybe a devaluation of certain currencies like the USD as investors and lending nations move to hard assets and away from currencies.

I recommend you give it a read.

In this part of the review I will take a look at how TurboTax Online generates your personal income tax profile. At this stage of the tax return preparation process TurboTax essentially asks the question… “What happened to you in 2011?“.  The intent is to try to figure out which parts of the a standard tax return are relevant to your particular situation. This is an extremely good way to approach it, because it avoids you having to go through the many sections of a standard tax return if only a few sections are relevant to you.

Take a look at the below screenshot for a visual on how it works.

As you can see TurboTax online poses simple questions like “Did you work in 2011“? If you answer “no” then TurboTax will not press you for additional details and will not ask you to input information into standard income forms such as T4  further along in the tax return preparation process. If you answer “yes” to the question, then the page will expand and TurboTax will request additional details as to the nature of your work in 2011. Based on the additional details that you provide, TurboTax will  present you with the appropriate forms to fill out further along in the tax return preparation process.

Other high level questions that TurboTax Online will ask you to gage your personal tax situation for 2011 include…

• Did you receive pension or retirement income?
• Did you have any self employment, rental or investment income?
• Were you a student in 2011?
• Did you make contributions to a retirement plan such as an RRSP?
• Did you make any donations to a charity or political party?
• Did you have moving expenses?
• Did you have any medical expenses?
• Did you have any other deductions?

These questions generally cover 90% of most Canadian’s tax situations and allow TurboTax Online to quickly narrow down what segments of a standard tax return are relevant for you to complete.

That concludes Part 2 of my review of TurboTax Online. Next I will explain how TurboTax  Online handles the input of income and deductions in Part 3.