3-Year Average Return on Invested Capital: Explanation & Examples

3-year average return on invested capital (seen in Figure 1) provides additional insights into a firm’s track record of prudent capital management.

Continue Reading →

GAAP-Based Return on Invested Capital: Explanation & Examples

GAAP-based ROIC is based on a simplified after-tax profit (NOPAT) and invested capital that can easily be calculated using only the income statement and balance sheet.

Continue Reading →

Identifying Good And Bad Activist Investors

There are some genuinely good examples of shareholder activism out there. In the right context, activist investors hold management accountable and play a beneficial role in the market by ensuring that poor corporate governance and strategy don’t persist.

Continue Reading →

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.

Continue Reading →

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.

Continue Reading →

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.

Continue Reading →

David Trainer Explains Why Suspended Ratings Are In The Danger Zone

CEO David Trainer sat down with Chuck Jaffe of Money Life and MarketWatch.com to talk about our Danger Zone pick this past week: Danger Zone: Suspended Ratings.

Continue Reading →

Danger Zone: Suspended Ratings

We suspend our ratings on certain stocks when we feel the company’s latest reported financials are no longer reliable or indicative of the risk/reward of the stock. For example, an announcement of an acquisition or spin-off means the current financial statements could change significantly.

Continue Reading →

4 Reasons ROE Is Not A Useful Metric For Investors

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…

Continue Reading →

The Market Values High ROIC Companies

Last month, Fortune released its list of the top 50 businesspeople of the year. The recognition these CEO’s are receiving shows that the market cares about ROIC, even if many investors aren’t explicitly talking about it.

Continue Reading →

What’s Behind Apple’s Recent Selloff?

New Constructs CEO David Trainer appeared on CNBC’s Closing Bell this afternoon to talk about the future potential of Apple.

Continue Reading →

Ranked: Our Top 10 ETFs

The following is a list of our top 10 ETFs that have over $100 million in assets under management (AUM), and that are not leveraged.

Continue Reading →

Making a Balance Sheet Useful

We’ve compiled a “Top 11” list of the companies (who have already filed for 2014) with the largest adjustments to their balance sheets across the 11 adjustments we make.

Continue Reading →

Do Microsoft Bulls Have A Convincing Case?

MSFT currently earns our Neutral rating, but if new CEO Satya Nadella can halt the company’s declining return on invested capital (ROIC), the stock’s valuation is cheap enough to make it intriguing.

Continue Reading →

Amazon’s New Smartphone Spells Trouble for Apple (AAPL)

A high quality smartphone from Amazon that undercuts higher-priced competitors could mean more serious trouble for Apple’s iPhone and the company’s declining profit margins.

Continue Reading →

Netflix (NFLX): Even More Dangerous

Continue Reading →

Apple’s Declining Advantage is Undeniable

Apple cannot have pricing power and market share at the same time. No one can for an extended period of time. The problem with AAPL is that it is priced for the company to achieve market share penetration and growth at high prices. The reality is that the quality of Apple products versus competitors is declining. Prices will have to come down just to maintain market share.

Continue Reading →

CNBC Interview: Confirming AAPL Thesis – Apple Is Still Rotten

Here’s my latest CNBC interview on my Apple (AAPL) thesis, originally articulated in Danger Zone 5/13/2013: Apple Inc. (AAPL).

Continue Reading →

Apple Stays Rotten

The “value” in Apple is an illusion. Astute investors need to look at Apple through the lens of what is a reasonable ROIC in the future.

Continue Reading →

Danger Zone 9/16/13: E*Trade Babies

Online trading firms aim to exploit the gullibility of many retail investors by encouraging the myth that they can outperform professional money managers armed with vastly greater resources, experience and expertise. The E*Trade babies are the most glaring symbol of this myth. The symbol also reinforces the notion that investing is an easy task that takes no special effort or aptitude to succeed.

Continue Reading →

Page 1 of 3