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.
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
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.
Growth benefits investors only when the business in point can invest at incremental returns that are enticing
From its growing operating cash flow, it is able to fund growing capital spending and also fund growing R&D expenditures. Of note, it seems to be able to maintain and even improve its operating margins. It is easily able to fund the capex needed to maintain it long-term competitive position in its various markets. It is also easily able to fund the capex it chooses to make to grow the company and fund healthy R&D expenditures.
A high ratio of price to book value, a high price-earnings ratio, and a low dividend yield – are in no way inconsistent with a ‘value’ purchase.
You know, Skippy, if all this bad stuff hadn’t happened, we would be having a pretty good quarter.
Book Value – Ain’t what it used to be – With the rise of company investment in intangibles, book value is losing its relevance.
Something over 80% of the market capitalization of the S&P 500 is made up of intangibles. Only a fraction of that appears on balance sheets.
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