The Power Of Quantifying Market Expectations

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Sometimes, even the most well recognized experts make shockingly bad predictions. No one truly knows (legally) what the market is going to do next, and the risk involved in that uncertainty is what creates the potential for significant returns.

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Free Cash Flow (FCF): Explanation & Examples

There are many ways to calculate free cash flow. Most approaches are short cuts to our more comprehensive approach to the calculation. The formula for FCF can be seen in Figure 1. For more on FCF, see within.

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Economic Earnings: Explanation & Examples

To derive economic earnings, 30+ adjustments must be made to accounting earnings. These adjustments remove items hidden in the footnotes and MD&A of annual filings and close loopholes within GAAP accounting.

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Weighted Average Cost of Capital (WACC): Explanation & Examples

WACC plays a key role in our economic earnings calculation. It is hard to be 100% certain about the exact cost of a company’s capital. Our guiding principle when calculating WACC is that it is better to be vaguely right than precisely wrong.

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Return On Invested Capital (ROIC): Explanation & Examples

The formula (see Figure 1) for calculating ROIC is easy. The hard part is finding all the data, especially from the footnotes and MD&A, required to get NOPAT and Invested Capital right. When we calculate ROIC, we make numerous adjustments to close accounting loopholes and ensure apples-to-apples comparability across thousands of companies.

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Net Operating Profit After-Tax (NOPAT): Explanation & Examples

We calculate NOPAT in two ways, from an operating and financing perspective. See Figure 1. Figure 1 shows the basic calculations. On page 2, we share the complete calculations for specific companies.

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Invested Capital: Explanation & Examples

We calculate invested capital in two mathematically equivalent ways: financing and operating approach. Figure 1 shows the basic calculations. On page 2, we share the complete calculations for specific companies.

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How To Protect Your Portfolio As Well As Your Colleague’s Webinar

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In this webinar, CEO David Trainer, a Wall Street veteran, will discuss strategies that worked in the last market crash and the one thing that always matters when everything else breaks down.

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If ROIC Is So Great, Then Why Doesn’t Everyone Use It?

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Why do investors, executives, and the financial media focus on reported earnings and other metrics such as EBITDA that ignore the balance sheet? Why aren’t executives around the world adopting ROIC in order to boost returns?

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True Value Investing Still Works

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Investors looking for value need to take a holistic approach that measures a company’s ability to deliver economic earnings to investors and quantifies the expectations for future cash flows embedded in its current stock price.

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How Much Quality Is In The “High Quality” ETF?

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With the significant drop in the market to start 2016, we can be sure that many investors are looking to shift their portfolios towards higher quality stocks. The challenge is how to define “high-quality” because it is not as straightforward as one might think.

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Finding Safe Investments In A Dangerous Market Webinar

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While trading fads come and go, good fundamental research is required to fulfill your fiduciary duties to your clients and yourself. Without it, realize it or not, you take significant risk that the numbers you use to make a decision are not correct.

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The Problem With Using Accounting Book Value

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In our recent article on the flaws in return on equity, we showed how it has no correlation with several different measures of valuation. However, there is one valuation metric, price-to-book (“P/B”), that, at first, appears to correlate strongly with ROE. A more rigorous look reveals the relationship between the two variables is not as…

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4 Reasons ROE Is Not A Useful Metric For Investors

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Recently, we ran through the various flaws in the price to earnings ratio and explained why investors need to be paying more attention to return on invested capital (ROIC). This week, we’re tackling another of the market’s favorite metrics, return on equity (ROE). Return on equity has a very simple formula: It’s tempting to think…

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Why PE Ratios Are Not A Good Measure Of Value

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We’ve pointed out the flaws in the price to earnings (PE) ratio many times before. Chief among these flaws is the fact that the accounting earnings used in the ratio are unreliable for many reasons:

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The Truth About M&A: How To Measure True Value

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In this special webinar, CEO David Trainer will walk you through how to determine whether or not a corporate acquisition is in your — the investor’s — best interests.

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David Trainer Explains the Difference Between “Investing” and “Speculating” (Podcast)

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Investing vs. Speculating — and why Wall Street doesn’t want you to know the difference.

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You Won’t Believe What Our DCF Model Reveals About Netflix

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In this video, David Trainer shows you the capability and flexibility of our valuation models by looking at the growth expectations embedded in Netflix’s (NFLX) current stock price.

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David Trainer Explains Why You Need to Know a Company’s Invested Capital

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Watch David Trainer explain the importance of understanding how much capital has truly gone into a business, and the adjustments we make to calculate this metric.

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David Trainer on Why NOPAT is the Best Measure of Profit

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Net operating profit after-tax, or NOPAT, is the profit metric we use at the base of our company models. CEO David Trainer explains why we rely on NOPAT.

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