7 point test for stocks - applying it to HSY and BTC

The Hershey Company is a high dividend paying stock. It's perfect to use as an example of a solidly run company. I would recommend this stock. Instead of acting intuitively, let's look at some of the numbers that make this a good stock and this is a test that can be applied to any stock for comparisons. All of these numbers can be found on Yahoo finance.

The first thing we'll look at is the market cap, revenue, gross profit, and operating cash flow listed on the balance sheet. For HSY the market cap is 29.9B(MC), the yearly revenue is 7.91B(R), the gross profit is 3.59B(GP), and the operating cash flow is 1.7B(OCF). This is a snapshot of the company's financials and gives us a feel for how much money the company makes vs. how much do investors already think the company is worth. Dividing the market cap by the revenue and then dividing the market cap by the gross profit gives us a number in years. For HSY,

MC/R =3.78 years
MC/GP=8.33 years
MC/OCF=17.59 years

These numbers are right where they ought to be for a purchaser, but they are not incredibly appealing to a speculator. Revenue obviously does not include certain costs, but it is one of the most reliable numbers. Two companies might calculate their gross profit and operating cash flow in different ways. That's why it is important to look at the revenue.

For BTC: R, GP, and OCF are zero. Investors should never except to be paid back based on sales and revenue, but rather on speculation that the asset will increase in value. For the sake of comparison, coinbase saw revenues of 16 million in 2016 and 923 million in 2017.

The next thing we want to determine is if the company is re-investing their profits or paying dividends. Yahoo finance lists these numbers under "Financials {Cash flow}". For HSY they are:

Dividends(V) = 562M
Capital investment(I) = 1.5B
V/I = 37.4%

37.4% of the company's cash is paid out as dividends. For bitcoin: D and I are both 0. D/I is undefined. Some cryptocurrencies began to offer incentives for holding them, but the United States securities and exchange commission has declared this illegal without a proper filing with them. There is potentially a future here for people willing to make such filings.

The next test I apply compares a companies debt to its net income. Since we haven't yet looked at the company's net income, we can do that now and also divide it into the market cap. For HSY:

Net Income(NI) = 1.28B
MC/NI = 23 years
Debt(D) = 4.74B
D/NI = 3.7 years

HSY could (potentially) repay their debt in under 4 years. For bitcoin, NI and D are both 0 again. Bitcoin holds no debt, but also generate no sales or income. The final numbers we can look at are the net cash reserves and net assets of a company. These are listed under "Financials {Balance Sheet}" on Yahoo finance. HSY is holding roughly 580 million in cash with 1.4B in stockholder equity and 7.7B in total assets. Because companies often calculate assets differently, these numbers are less reliable than some of our previous tests. Generally you want the highest dividends, the lowest debt, and the greatest profits. You can use MC/R, MC/GP, and MC/OCF for HSY as a benchmark. Companies with values lower than 4, 10 and 20 respectively are profitable.

Making money is often about understanding change and how these numbers might change over time. Finding companies that will have greater profits in the future is the speculator's goal. Until innovators can pass an SEC filing, cryptocurrencies remain an unique asset class and do not themselves generate sales and profits. Their value can only be ascertained by the market and what someone is willing to pay for it.