The Fed Is Irrelevant: Low Interest Rates Are the New Normal

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It’s time to consider a new paradigm for interest rates – a paradigm where treasury rates remain ultra low and riskier investments are priced by a decentralized market instead of a central bank.

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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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How To Calculate Invested Capital Webinar

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In this webinar, we provide details and models showing how to calculate Invested Capital and how it relates to Net Operating Profit After Tax (NOPAT) and return on invested capital (ROIC).

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The Value Of Transparency: Why Methodology Matters

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investors always need to dig deeper than looking at a simple “buy” or “sell”. Sometimes, these ratings can be driven by factors that have nothing to do with markets or fundamentals. On other occasions, the argument might sound convincing but completely crumble when you examine some of the underlying assumptions.

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Non-GAAP Earnings Boost Executive Pay At The Expense Of Shareholders

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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.

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8 Items Distorting the Net Income of Companies in Your Portfolio

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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.

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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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Buy Stryker (SYK): When a 12% Return is Not Enough

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Stryker is a rarity in the current market: a strong business with a stock that is still attractively valued.

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How To Value A Stock, Step 1: Profit (NOPAT)

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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).

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30+ Accounting Adjustments to Get the Truth About Earnings & Valuation

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Reported earnings don’t tell the whole story of a company’s profits. They are frequently manipulated by companies to manage earnings.

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GAAP Opinion versus Economic Fact

GAAP financial statements generally fail to meet equity investors’ analytical needs. We try to calculate something that does.

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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.

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Non-Operating Tax Adjustment – NOPAT Adjustment

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Without removing the tax impact of non-operating items, one still gets distorted picture of a company’s operating profitability.

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Income and Loss from Discontinued Operations – NOPAT Adjustment

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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.

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Change in Total Reserves – NOPAT Adjustment

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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.

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Non-Operating Income Hidden in Operating Earnings – NOPAT Adjustment

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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.

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Non-Operating Expenses Hidden in Operating Earnings – NOPAT Adjustment

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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.

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Asset Write-Downs Hidden In Operating Earnings – NOPAT Adjustment

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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.

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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 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…

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The Truth Behind AAPL’s Numbers

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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.

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