The second step to gauge the value of a company is to determine the sum of all cash that has been invested in a company over its life without regard to financing form or accounting name. We call this Invested Capital.
Dwindling cash reserves and increased competition are only the surface problems for this company. Throw in turmoil in the boardroom and we have a recipe for disaster.
Liberty Tax (TAX: $34/share) has carved out a successful niche as the discount option for tax return preparation. Despite its significantly smaller scale and brand awareness compared to competitors such as H&R Block (HRB) and Intuit (INTU), TAX still earns a comparable return on invested capital (ROIC). The beauty here is that the market values TAX at a considerable discount to HRB and INTU.
Our first step to gauge the value of a company is to determine the true, after-tax cash flows generated by its operations. We call this Net Operating Profit After Tax (NOPAT).