In this special report, we identify and provide specific examples of the red flags you should be on the lookout for when activist investors begin building a large position in a company.
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.
Based on the linear equation within, the stock is worth ~$18/share if we assume that GE can maintain its current ROIC of 3% and not accelerate growth. That downside translates into a loss of $125 billion in market cap or $13 per share (43%) for investors.
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).
Even though most acquisitions destroy value, this deal stands out for just how quick and large the value destruction was. This case study details the acquisition and includes a warning on another deal that we think may follow the same path as the one in the case study.
We know that Valeant is not the only company with misaligned executive incentives. There are many others, many of which have already been put in the Danger Zone and some who will go into the Danger Zone soon. This week, however, compensation committees land in the Danger Zone because of the role they play in creating the problems that lead to shareholder value destruction.
In case you missed it, or in case you wanted to watch it again, here is our live webinar from this week. In this webinar, David Trainer, a Wall Street veteran, will discuss how undervalued American Express (AXP) is.
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.
Thesis: Management can boost the market value of American Express in the amounts below by aligning the firm’s strategy and performance compensation with real cash flows or what we call return on invested capital (ROIC).
In this webinar, David Trainer, a Wall Street veteran, will discuss ROIC’s role in the capital markets, how to calculate it correctly, and how to get the most out of the metric
In case you missed it, or in case you wanted to watch it again, here is our live webinar from this week. David Trainer will discuss how undervalued Oracle is relative to real cash flows and ROIC and more.
In reality, EV/EBITDA can actually be significantly worse than P/E or P/B ratios because EBITDA ignores certain real costs of doing business like taxes, depreciation, and amortization. Put simply, EBITDA is even farther removed from the real cash flows of the business than EPS or net income.
Thesis: Management can boost the market value of ORCL in the amounts provided by aligning the firm’s strategy and performance compensation with real cash flows or what we call return on invested capital.
I think we are seeing the start of that process in late 2015 and early 2016. The combination of a slowdown in China, falling energy prices, and the end of zero interest rate policy from the Fed have put markets and the global economy in an interesting state of transition.
It’s incredible that corporate executives and the market as a whole continue to depend on such flawed numbers when we already have a measure that is clearly linked with value creation: return on invested capital (ROIC).
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?
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.
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…
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.
What do these companies have in common? They are the only surviving S&P 500 stocks to rise 10% or more in 2008. In the midst of a collapsing market and the subsequent damage, these seven stocks made good money for investors.
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