August 5, 20130Comments

Overfunded Pension Plan Assets – Invested Capital Adjustment

Overfunded pension assets are similar to excess cash, and should not be included in the calculation of return on invested capital (ROIC).

by David Trainer, Founder & CEO

August 2, 201310Comments

Deferred Tax Assets and Liabilities – Invested Capital Adjustment

DTAs artificially raise reported assets and do not help generate operating profit while DTLs are like a source of interest-free financing. We remove the impact of DTAs and DTLs from our calculation of invested capital to ensure the more accurate measure of a firm’s return on invested capital (ROIC).

by David Trainer, Founder & CEO

August 1, 20132Comments

Deferred Compensation Assets – Invested Capital Adjustment

Deferred compensation plans delay employee compensation until a later date. The assets held for these plans are used to compensate employees in the future, not to generate profits for the company. As such, they should not be factored into the calculation of a company’s return on invested capital (ROIC).

by David Trainer, Founder & CEO

July 15, 20132Comments

FASB/IASB Considers Adopting Revised Rules for Operating Lease Accounting

We applaud the Financial Accounting Standards Board's (FASB) latest proposal to change the way leases are reported. The new rules would make only the shortest-term operating leases exempt from being recorded on the balance sheet.

by David Trainer, Founder & CEO

July 11, 20130Comments

Accumulated Other Comprehensive Income Removed from Invested Capital – NOPAT Adjustment

Reported assets don’t tell the whole story of the capital invested in a business. Accounting rules provide numerous loopholes that companies can exploit to hide balance sheet issues and obscure the true amount of capital invested in a business.

by David Trainer, Founder & CEO

July 9, 20132Comments

Discontinued Operations Removed from Invested Capital – Invested Capital Adjustment

Most investors would never know that discontinued operations distort GAAP numbers by over-stating assets on balance sheets and distorting the picture of a company’s ability to generate a return on that capital.

by David Trainer, Founder & CEO

July 8, 20133Comments

Off-Balance Sheet Debt – Invested Capital Adjustment

Investors who ignore off-balance sheet debt are not holding companies accountable for all of the capital invested in their business. By adding back off-balance sheet debt to invested capital, one can get a true picture of the value that management is creating for shareholders. Diligence pays.

by David Trainer, Founder & CEO

July 3, 20134Comments

Off-Balance Sheet Reserves – Invested Capital Adjustment

Reported assets don’t tell the whole story of the capital invested in a business. Accounting rules provide numerous loopholes that companies can exploit to hide issues and obscure the true amount of capital invested in a business over its life.

by David Trainer, Founder & CEO

July 1, 20130Comments

Footnotes Adjustments for Earnings & Valuation Diligence

This article details the uniquely rigorous diligence behind each of our ratings on 3000 stocks, 7000 mutual funds and 400 ETFs. It contains reports on all the adjustments we make to convert GAAP data to economic earnings and derive true shareholder value in a discounted cash flow model.

by David Trainer, Founder & CEO

June 6, 20130Comments

Footnotes Adjustments for Earnings & Valuation Diligence

This report summarizes our series of reports on how to convert GAAP data to economic earnings and derive true shareholder value in a discounted cash flow model as well as more accurate measures of economic

by David Trainer, Founder & CEO

November 8, 201211Comments

Invested Capital: Definition And Formulae

Invested capital equals the sum of all cash that has been invested in a company over its life without regard to financing form or accounting name.

by David Trainer, Founder & CEO

November 8, 20120Comments

ROIC: Definition And Formulae for Return on Invested Capital

ROIC is the true measure of a company's cash on cash returns.

by David Trainer, Founder & CEO

March 22, 20120Comments

New Constructs’ Offerings: Company valuation models

Our Company Valuation models are very sophisticated discounted cash flow and earnings quality models. An enormous amount of works goes into every model. I wish I could offer a short-cut (beyond our ratings and reports) for understanding our models.

by David Trainer, Founder & CEO

April 12, 201110Comments

No Security In VirnetX Holding Corp’s (VHC) Stock

Is VHC the next Google? The market’s current valuation seems to suggest it is that and much more. Very few times in the last 15 years have I found a stock as expensive as VHC. The only comparable situation that comes to mind is Google (GOOG) at its IPO.

by David Trainer, Founder & CEO

February 15, 20113Comments

Stock Pick of the Week: Buy Discover Financial Services (DFS)- Very Attractive Rating

HIDDEN GEMS: 1. Our discounted cash flow analysis shows that DFS’s current valuation (stock price of $21.80) implies that the company’s profits will decline by 40% and never grow again. 2. Economic earnings are growing faster that reported accounting earnings. 3. Free cash flow of $2.8bn or 24% of its enterprise value during the last fiscal year.

by David Trainer, Founder & CEO

February 11, 20111Comments

For Ask Matt readers: Abbot Laboratories (ABT) – Attractive Rating

HIDDEN GEM: ABT's current stock price (~$45 per share) implies the company’s profits will permanently decline by 20%. In other words, the market is not only giving no credit for future profit growth, it is predicting a significant (20%) decline in profits.

by David Trainer, Founder & CEO

January 18, 20113Comments

Stock Pick of the Week: Buy Apollo Group Inc cl A (APOL)- Very Attractive Rating

HIDDEN GEMS: 1. Our discounted cash flow analysis shows that APOL’s current valuation (stock price of $42.31) implies that the company’s profits will decline by 60% and never grow again. 2. Economic earnings are higher than reported accounting earnings. 3. Excess cash of $1,201mm or about 20% of its market cap

by David Trainer, Founder & CEO

January 6, 20110Comments

Starbucks -Don’t Be Fooled Again: Stong Brand Does Not Equal Strong Stock

We went on record that investors should short SBUX on 11/6/2006 when the stock was close to $38 per share. Click here to see the Fortune Article. The stock did not look attractive to us until 2 years (11/18 – 11/20/08) later when it was under $8, and that for only about 3 days. And ever since we have had a Neutral or Dangerous Rating on the stock.

by David Trainer, Founder & CEO

January 4, 20110Comments

Stock Pick of the Week: Buy Accenture Plc (ACN)- Very Attractive Rating

HIDDEN GEMS: 1. Our discounted cash flow analysis shows that ACN’s current valuation (stock price of $48.59) implies that the company’s profits will decline by 9% and never grow again. 2. Economic earnings are higher than reported accounting earnings. 3. Excess cash of $3,728mm or about 12% of its market cap

by David Trainer, Founder & CEO

December 7, 20100Comments

Stock Pick of the Week: Buy Analog Devices Inc (ADI) – Very Attractive Rating

HIDDEN GEMS: 1. About $15 million in non-operating expenses (after-tax) cause reported earnings to be understated. 2. Our discounted cash flow analysis shows that ADI’s current valuation (stock price of $37.18) implies that the company’s profits will decline by 10% and never grow again. 3. The company grew its economic earnings by $283mm during its last fiscal year. 4. Excess cash of $2,462.5mm or nearly 25% of its market cap

by David Trainer, Founder & CEO

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