How to identify companies that make lots of money for shareholders
Economic performance focuses on effective use of the capital invested in the company
Part 6: The Hallmarks of Superb Businesses
The awkward link between Buffett’s moats and ROIC – Part ll
A company that spends a lot of R&D dollars on intangibles of lasting value will have assets not shown on the balance sheet and ROIC will be artificially inflated. Such a company that is also acquisitive will show depressed ROIC because NOPAT will be reduces because the investments in intangibles of lasting value will be expensed and depress earnings and hence NOPAT.
Be wary of using Return on Capital (ROC)
Superb companies produce a very high return on capital. But when substantial intangible assets don’t show up on balance sheets, the ROC numbers are unduly flattering to management.
Cash flow absurdity and Warren Buffett’s Owner Earnings
Most analysts will talk of EBITDA, EBIT, NOPAT and what not. Warren Buffett’s approach is to think in terms of Owner Earnings. It is somewhat akin to free cash flow.
How Mr. Market is grappling with intangibles
I think we have become leaders in the value investment industry for buying companies where intangibles have become their largest asset and you can’t see from a price to earnings or price to book how cheap the company is
Income Statements and Balance Sheets have largely lost their relevance for investors
The way things are, the only numbers of use to an investor from a Balance Sheet relate to debt. The expensing of investments in intangibles of lasting value creates a distortion that completely undermines the use of the Income Statement. Reported earnings are not only useless for investors but also misleading for the unwary.
Moats, ROIC and the problematic Cost of Equity
If the CAPM is flawed, what can replace it? The best approach would be to assess whether companies in general and relatively speaking, the company in question, can raise money cheaply in public offerings.
Buffett moats and the secret sauce of pricing power
Some companies are in the seemingly fortunate position that they can maintain profit margins simply by raising prices
The awkward link between Buffett’s moats and ROIC – Part l
Growth benefits investors only when the business in point can invest at incremental returns that are enticing
Looking behind Buffett’s moats at the forces that shape them
Asking ourselves questions in a simple framework based on Michael Porter’s five competitive forces allows us to understand what makes Warren Buffett’s moats work and where they are likely to break down.
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