Lynch Investment Analysis Framework for Excel Financial Data
Lynch Philosophy Analysis Framework for Financial Excel Data
Here's a structured framework for analyzing any company using Peter Lynch's investment philosophy when you have financial Excel data available:
1. Business Clarity Assessment
- In one simple sentence, what does this company do?
- Identify the core product/service lines and their contribution to total revenue
- Calculate the compound annual growth rate (CAGR) for each business segment
- How does the company compare to competitors in terms of market share and growth?
2. Financial Health Indicators
- Calculate ROE for the past 5 years and identify trend (>15% is preferred)
- Analyze operating margin and net profit margin trends
- Compare operating cash flow to net income ratio (>1 suggests quality earnings)
- Calculate interest coverage ratio (EBIT/Interest Expense) for debt servicing capacity
- Determine free cash flow yield (FCF/Market Cap) for value assessment
3. Growth Quality Analysis
- Calculate 5-year revenue CAGR (Compound Annual Growth Rate)
- Calculate 5-year EPS CAGR and compare to revenue growth
- Analyze organic vs. acquisition-based growth from cash flow statements
- Calculate the revenue per employee trend (efficiency of growth)
- Identify growth acceleration/deceleration points and management explanations
4. Debt Sustainability Metrics
- Calculate debt-to-equity ratio trend (prefer <0.5)
- Calculate debt-to-EBITDA ratio trend (prefer <3)
- Analyze debt maturity schedule from notes
- Calculate debt servicing as percentage of operating cash flow
- Identify changes in interest rates on company debt
5. Management Effectiveness Assessment
- Compare management's growth projections vs. actual results for past 3 years
- Calculate return on invested capital (ROIC) for capital allocation effectiveness
- Analyze insider ownership trends and recent transactions
- Review accounting method changes and their impact on reported earnings
- Assess executive compensation structure and alignment with shareholder returns
6. Competitive Position Indicators
- Calculate gross margin trend vs. industry average
- Analyze pricing power through average selling price trends
- Calculate market share trend where data is available
- Identify customer concentration risk (% revenue from top clients)
- Review R&D spending as % of revenue compared to competitors
7. Business Focus Metrics
- Calculate revenue concentration (% from core vs. non-core businesses)
- Analyze profitability of different segments (segment margin analysis)
- Review geographic diversification trends
- Calculate return on assets (ROA) by business segment
- Assess strategic fit of recent acquisitions with core business
8. Valuation Metrics Analysis
- Calculate 5-year historical P/E range and average
- Calculate current and historical PEG ratio (P/E ÷ growth rate)
- Compare EV/EBITDA to sector peers and 5-year company average
- Calculate price-to-free cash flow ratio trend
- Determine the implied growth rate from current valuation
9. Economic Sensitivity Assessment
- Calculate revenue and profit correlation to GDP growth
- Analyze performance during the last two economic downturns
- Identify percentage of revenue from recurring vs. discretionary sources
- Calculate fixed vs. variable cost ratio for margin pressure assessment
- Analyze currency exposure and hedging effectiveness
10. Warning Signs Detection
- Calculate inventory growth vs. sales growth ratio
- Calculate accounts receivable growth vs. revenue growth ratio
- Identify significant goodwill impairments or write-downs
- Analyze capital expenditure trends vs. depreciation (maintenance vs. growth)
- Calculate accrual ratio ((Net Income - Operating Cash Flow)/Average Total Assets)
Summary Analysis Framework
- Lynch Classification: Categorize as Slow Grower, Stalwart, Fast Grower, Cyclical, Turnaround, or Asset Play
- Key Strengths: Identify 3-5 attributes that Lynch would appreciate
- Key Concerns: Identify 3-5 factors that might concern Lynch
- Current Opportunity Assessment: Is the stock currently undervalued based on Lynch criteria?
- Investment Thesis: Summarize why Lynch would or wouldn't invest at current valuation
Modify the code:Integrate Claude 3.7 Sonnet to do further analysis,the prompts are uploaded. Please add results of Claude 3.7 Sonnet to dashboard.