Saturday, May 03, 2014

Air France KLM Graham Defensive Analysis

2013 results, 2 May 2014 price
SECTOR: [PASS] AF is neither a technology nor financial Company, and therefore this methodology is applicable. 

SALES: [PASS]  The investor must select companies of "adequate size". This includes companies with annual sales greater than €260 million. AF's sales of €25,400 million, based on trailing 12 month sales, pass this test.

CURRENT RATIO: [FAIL]  The current ratio must be greater than or equal to 2. Companies that meet this criterion are typically financially secure and defensive. AF's current ratio of €7,937m/€10,190m of 0.8 fails the test.

LONG-TERM DEBT IN RELATION TO NET CURRENT ASSETS: [FAIL] For industrial companies, long-term debt must not exceed net current assets (current assets minus current liabilities). Companies that do not meet this criterion lack the financial stability that this methodology likes to see. The long-term debt for AF is €9,170 million, while the net current assets are €-2,253 million. AF fails this test.

LONG-TERM EPS GROWTH: [FAIL] Companies must increase their EPS by at least 30% over a ten-year period and EPS must not have been negative for any year within the last 5 years. EPS for AF were negative for 6 of the last 7 years including 2013 and therefore the company fails this criterion.

P/E RATIO: [FAIL] The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which this methodology states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. AFLYY's P/E ratio is not available, the company has no earnings, hence it fails this test.

GRAHAM NUMBER VALUE: [FAIL] The Price/Book ratio must also be reasonable. That is the Graham number value must be greater than the market price. AF is French and an airline, little wonder that it fails this test.


2013 graph
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