Personal Finance, Stock Market Series

Was Buying TD stocks the right decision (Part 1)?

When I bought Toronto-Dominion Bank (TSX:TD) shares six months ago, I bought them just because TD bank pays dividend and banks in Canada never go bankrupt.  As a result, it is a decent investment as it would give me 3% return every year.

But after I read Warren Buffett’s book, I am wondering if I have made the right decision since Warren Buffett does not hold stock in every American bank.

Here are some accounting formulas to remember before we start the evaluation:

  • Gross Profit = Total Revenue – Cost of Good Sold (Cost of Sales)
  • Gross Profit Margin = Gross Profit / Total Revenue
  • Per-share Earning = Net Earning / Shares Outstanding
  • Current Ratio = Current Assets / Current Liabilties
  • Return on Asset Ratio = Net Earning / Total Assets
  • Debt to Shareholders’ Equity Ratio = Total Liabilities / Shareholders’ Equity
  • Return on Shareholders’ Equity = Net Earning / Shareholders’ Equity
  • Return on Capital Expenditure = Capital Expenditure / Net Earning

Looking at TD Bank’s annual report in 2016, the gross profit is basically total revenue because there is no cost of good sold.

Screen Shot 2017-08-01 at 9.06.06 PM

28% of gross profit is used in selling, general and administrative expense, which is positive

Screen Shot 2017-08-01 at 9.07.37 PM

10% of gross profit used in depreciation, which is positive

Screen Shot 2017-08-01 at 9.10.25 PM

14% of gross profit used in interest expense, which is positive

Screen Shot 2017-08-01 at 9.13.09 PM

26% of net income on total revenue, which is positive

Screen Shot 2017-08-01 at 9.17.47 PM

$4.68 earnings per share, which is positive because there is an increase compare to 2015

Screen Shot 2017-08-01 at 9.21.10 PM

So far, TD Bank (TSX:TD) is a good investment just based on our evaluation of the income statement.  In the next part, we will interpret the balance sheet and cash flow statement.

Just a reminder that I am not a professional accountant.  I did this evaluation based on the knowledge I learned from this book.

Please feel free to leave any comments! Catch you on the flip side!

10 thoughts on “Was Buying TD stocks the right decision (Part 1)?”

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