I just finished the book. It was very informative. However, I find it difficult to follow your calculation in the book. Is it possible to construct earning power chart using 30 sec method for calculation defensive profit and enterprising profit? if so, then how do you convert return on capital for 30 sec enterprising profit calculation to per share value?Thanks in advance
ibaldoc,Thanks for the generous comments on the book. I will be the first to admit that some of the calculations are hard to follow; heck, I hard a hard time following Cash Flow and Security Analysis and The Quest for Value when I started out.* But the more companies you study using our two alternate income statements, the easier it gets.If you are serious about investing, you need a spreadsheet. You can build a defensive income statement in a couple of minutes. The enterprising P&L, however, takes a little more work. You may want to visit Aswarth Damodaran's web site at http://pages.stern.nyu.edu/~adamodar/ to check out his spreadsheets, which includes an EVA spreadsheet if I am not mistaken. I recommend all of Damodaran's books. (I do not intend to distribute my spreadsheet because it is proprietary; also, if there is an error in my spreadsheet, then I would feel bad if it caused you to lose money.)Now to answer your question, yes you can create an Earnings Power Chart using the 30 second approach. To get a per-share figure for the enterprising income statement, try this if you are able: ((return on capital - cost of capital) * capital), divided by shares outstanding. Maybe other visitors to this board have some suggestions.My 30 second approach is to see if the company has a return on equity over 20%, and if operating and free cash flow are trending up. I like to see persistent growth; companies that go up and down go in the trash can. You can get this information from Morningstar. I highly recommend Morningstar's web site, including their intrinsic value calculations. I have seen the spreadsheets the Morningstar analysts use to estimate intrinsic value, and they are extremely comprehensive.*My book synthesizes the free cash flow and Economic Value Added income statements described in these two books.
Thanks for the formula and the book. It'll be a lot easier for me to screen large amt of stocks using the 30 sec approach. I'll also check out morningstar web site as well
just to clarify is that ROIC - WACC ? and is the 30 sec approach generate as reliable as the long calculation for defensive and enterprising formula?
yes, roic - waccno, because intangibles are expensed. but as a rough cut, this "speed lane" approach is a good place to start
I noticed that the 30 sec calc does not take into account of taxes while the long calculation does. Should the taxes be considered in the calculation as well?
The 30 second test does not include taxes. Also, there is no accounting for spending on intangibles, as well as operating leases. I look at ROE and if it is over 15%, then company probably has enterprising profits. But I always run a firm's financials through my spreadsheet before buying.Hewitt
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