tag:blogger.com,1999:blog-2149523431587168680.post2269932208799823265..comments2024-01-16T00:12:23.220-05:00Comments on Oddball Stocks: A few thoughts on ROICNate Tobikhttp://www.blogger.com/profile/05660387777171986124noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-2149523431587168680.post-40151383719518282772014-02-21T01:19:34.977-05:002014-02-21T01:19:34.977-05:00I use this formula with minor tweaks. I'm a fa...I use this formula with minor tweaks. I'm a fan of excess cash, working capital & less of a fan of projecting cash into the future. Get back to the basics, equity runs the show & cash follows for the ride. A company can survive without cash but not so much without equity. Cash may be tied up & may even stop flowing while equity keeps the cash going when the cash has stalled. Cash is more of financial health where equity is the worth of that health. The formula for cash works rather well if you like cash projections. For me, I focus more on equity & use ROIC as a measure of health. Together cash & equity go hand in hand & should have a equal focus. Cash may fall or rise as both are good till the financial evidence proves otherwise. Earnings is either fueled by leverage, profitability or assets efficiency & both equity & cash would suggest together it's quality of lack of it. Investing, finances, equity, operations pretty much is everything you need to determine if further research should be done. A ratio is only a peek at the universe, it's secrets aren't revealed till we look inside which translates to a company's financial statements. Ratios should be the first step, a way to filter through a list of stocks. It's not a good idea to buy or sell a stock on the results of a ratio + a ratio is not meant to be precise or perfect. The formula used doesn't matter, what you do next is very important. 2 people looking at the same ratio would take different roads. It all comes down to your experience, personality, awareness, logic which sets you apart from another & in both cases, they are both correct. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-90258683080803783092012-08-17T10:57:50.371-04:002012-08-17T10:57:50.371-04:00Nate - whats your preferred method of capitalizing...Nate - whats your preferred method of capitalizing operating leases? <br /><br />Have you considered capitalizing r&d as well? I would think at least some r&d spend produces a productive asset that is a source of revenue and profit beyond the current year. A lot of tech companies look like they produce amazingly high ROIC until you capitalize the R&D. <br /><br />Let me know what you think. THanks in advancefranknoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-17042917757886775112012-02-17T15:05:47.932-05:002012-02-17T15:05:47.932-05:00Anon - I agree with you, I like how Marty Whitman ...Anon - I agree with you, I like how Marty Whitman puts it, a company can do three things with cash<br />1) Expand assets<br />2) Reduce liabilities<br />3) Distribute equity to owners (dividends/buybacks)<br /><br />I don't think there is some sort of ranking system for those, they each have their place. The key is when a company expands assets are they getting an adequate return on those assets? <br /><br />I remember seeing a formula for a good way to estimate maintenance capex. Of course the key is estimate, unless management provides it there's really no way to know what the true number is.Nate Tobikhttps://www.blogger.com/profile/05660387777171986124noreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-50746154676936772572012-02-17T14:45:04.709-05:002012-02-17T14:45:04.709-05:00"In essence, entities having a low ROIC or de..."In essence, entities having a low ROIC or dependent on large capital expenditures resulting in small amounts of distributable cash flows deserve low valuation metrics despite their higher rates of growth in GAAP-related yardsticks. This is why many investors are fooled, having invested in low-P/E companies."<br /><br />Depends at what stage the business is in. An earlier stage company may have a large capex so it can grow. This isn't necessarily a bad thing. If you could definitively break capex into growth and maintenance, then the point would make sense if maintenance capex was really high. But that is tough or impossible to do.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2149523431587168680.post-58257131138273416052012-02-17T10:58:44.518-05:002012-02-17T10:58:44.518-05:00Hi Nate, I would love to see a post on PSD.TO. A m...Hi Nate, I would love to see a post on PSD.TO. A misunderstood stock due to odd accounting rules and a leader in its industry.Anonymousnoreply@blogger.com