Personal Finance, Stock Market Series

Was Buying TD stocks the right decision (Part 2)?

TD Bank

So far, TD Bank (TSX:TD) seems to have a durable advantage because of its positive results from the income statement.

Lets evaluation the bank’s balance sheet in the 2016 annual report (some of the accounting calculation require the income statement):

  • 1700% of net receivables to gross sales, which remains questionable to its durable advantage

Screen Shot 2017-08-02 at 4.53.59 PM

 

Screen Shot 2017-08-01 at 9.06.06 PM

  • Has a current ratio of 1.07, which is positiveScreen Shot 2017-08-02 at 4.33.04 PM

 

  • Increase in goodwill compared to 2015, which is positive

Screen Shot 2017-08-02 at 4.36.22 PM

  • Return on asset ratio is 0.008, which is questionable regarding its durable competitive advantage

Screen Shot 2017-08-02 at 4.50.26 PM

Screen Shot 2017-08-02 at 4.46.40 PM

  • Debt to Shareholders’ Equity Ratio is 14.86, not usual for banks to have the ratio this high as banks tend to borrow lots of money and then loan it back out to make money

Screen Shot 2017-08-02 at 4.59.51 PM

  • Increase in retained earnings and a slight decrease in treasury shares (always negative) compared to 2015, which are positive

Screen Shot 2017-08-02 at 5.03.57 PM

  • Has a 12% return on shareholders’ equity, which is questionable whether TD has durable competitive advantage

Screen Shot 2017-08-02 at 4.50.26 PM

Screen Shot 2017-08-02 at 5.15.13 PM

As you can see, we start to see some faults about TD Bank just by looking at the balance sheet.  What about the cash flow statement?

  • Return of capital expenditure (amount always negative) is 8.9%, which is positive

Screen Shot 2017-08-02 at 5.26.19 PM

Screen Shot 2017-08-02 at 4.50.26 PM

I found the capital expenditure figure on Google Finance because I did not have to do any calculations using the cash flow statement from the 2016 annual report.

Ultimately, TD Bank (TSX:TD) seems like a good investment to hold long-term many of parameters are positive except for net receivable to gross sales and return of asset ratio.   This is because TD Bank makes most of the money from loaning money to clients and profiting from interests (this is a common business model for banks).

In addition, TD Bank’s performance is very steady over the last four years and it gets better every year as retained earnings and earnings per share increase on a yearly basis:

Screen Shot 2017-08-02 at 10.43.30 PM

So if you currently have TD Bank (TSX:TD) stocks in your portfolio right now, how long should I keep them?  The answer is when the price-earnings ratio (P/E ratio) is 40 or more.  

P/E ratio valuates a company by measuring its current share price relative to its per-share earnings.  Currently, the P/E ratio is Screen Shot 2017-08-02 at 10.59.11 PM

In the next post, we will compare TD Bank (TSX:TD) to the other four biggest banks in Canada.  

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

P. S. All the financial statements and related information are from the TD Bank website and Google Finance.

 

3 thoughts on “Was Buying TD stocks the right decision (Part 2)?”

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