Unadjusted GAAP earnings already obfuscate true profits enough, and non-GAAP earnings lead investors even farther astray. In turn, non-GAAP earnings are often used to line the pockets of insiders at the expense of shareholders.
Our analysts scrutinize every page of over 3000 10-Ks to find instances in which accounting adjustments need to be made to each company’s GAAP numbers. We adjust for over 30 items that can artificially inflate or deflate earnings.
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.
Stryker is a rarity in the current market: a strong business with a stock that is still attractively valued.
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).
Reported earnings don’t tell the whole story of a company’s profits. They are frequently manipulated by companies to manage earnings.
GAAP financial statements generally fail to meet equity investors’ analytical needs. We try to calculate something that does.
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.
Without removing the tax impact of non-operating items, one still gets distorted picture of a company’s operating profitability.
We remove all income and losses from discontinued operations in calculating operating profit because this income/loss will not recur in the future, and we are looking for the true profitability of the continuing and core operations of a company.
Reported earnings don’t tell the whole story of a company’s profits. They are based on accounting rules designed for debt investors, not equity investors, and are manipulated by companies to manage earnings. Only economic earnings provide a complete and unadulterated measure of profitability.
Non-operating items in operating income are unusual gains that don’t appear on the income statement because they are bundled in other line items. Without careful footnotes research, investors would never know that these non-recurring income items distort GAAP numbers by artificially raising operating earnings.
Non-operating expenses are unusual charges that don’t appear on the income statement because they are bundled in other line items. Without careful footnotes research, investors would never know that these non-recurring expenses distort GAAP numbers by lowering operating earnings.
Asset write-downs are unusual charges that don’t appear on the income statement because they are bundled in other line items. Without careful footnotes research, investors would never know that these non-recurring items distort operating earnings by overstating core-operating costs.
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 book value, and enterprise value. As a former accountant and member of FASB’s Investor Advisory Committee, I know first hand that reported earnings don’t tell the whole…
This article provides some empirical evidence behind my putting Apple (AAPL) in the Danger Zone last week because its return on invested capital (ROIC) is outrageously high. That fact underscores why valuing this company or any other with the expectation that such a high ROIC was sustainable would be a mistake.
If you bought Cisco Systems Inc (CSCO) last August when I recommended it to investors, or when I recommended it again in January, or any time between May 10, 2012 and now when the stock has had my Very Attractive rating, then today has been a good day for you.
The difference between the stock price and Economic Book Value (EBV) of s stock measures the difference between the market’s expectation for future profits and the no-growth value of the stock.
After S&P’s recent upgrade to its outlook on Delta Airlines [s: DAL], I cannot help but to wonder how they do their analysis.
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.
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