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10:24 pm
April 7, 2010
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jalleninvest
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| Member | posts 19 |
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Some balance sheets have negative net working capital, quite a few of them actually. Some sell at absurd multiples of NNWC. Don't pay any attention to them if that is what you are looking for.
Also, keep in mind that sometimes a company with ample net working capitla in relation to price may still not be a very good buy. I keep finding one that has great ratios by every measure but has never made a dime, since the mid-90's! What kind of business value is that? It's some drug company.
Another point is not to fret too much about close calls. I think it was W. Buffett who pointed out that if you have to run it out to three decimals places, it probably isn't a good idea.
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1:42 am
March 10, 2010
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ankitgu
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| Member | posts 49 |
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Paul – good job on that analysis.
I just wanted to say that as you do this, the balance sheet is a good place to start, but don't overlook the notes that accompany the financial statements. Sometimes, you'll have situations where cash is in a restricted account for one thing or another, and it shouldn't be counted.
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2:12 am
March 1, 2010
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Jae Jun
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That is very possible because NNWC does not consider the other assets such as intangibles, goodwill and property which TNH has a lot of. Also since TNH is a limited partnership, they have "Total partners’ capital" of $160m which you'll have to add manually because the formula is only a guide.
If you do the same thing for KO you will find a very low NNWC. Some companies have big red NNWC but trade very high.
NNWC is a tool which unfortunately can't be applied to every company.
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12:35 am
March 1, 2010
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Paul2310
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| Member | posts 11 |
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Could somebody please provide me with some feedback on this? I'm looking to make sure that I am on the right track here. According to my calculations, the value of this business is so far out of line with the stock price that it makes me wonder if I'm using the formula correctly. This is a NNWC analysis of TNH all data was taken from Yahoo Finance quarterly data ending Sep. 30, 2009.
NNWC = Cash and Cach Equiv. + .75 x Accounts Receivables + .5 x Inventory – Total Liabilities
(**numbers in thousands except shares outstanding)
NNWC = 70,656 + (.75 x 18,933) + (.5 x 21,610) – 48,813 = $46,847.8
Shares Outstanding = 18.69M
NNWC/Share = $2.51
How can a stock with a NNWC value of $2.51 be trading at over $100? Am I doing this correctly? Any feedback would be welcome. Thanks!
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5:06 pm
February 24, 2010
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Jae Jun
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It all depends on what the other assets are. Other assets are things such as prepaid items which I don't consider to be much of an asset because the company paid up front for a service that is to be received for the year.
However, if it includes other highly liquid cash type assets, then yes you can include it.
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11:56 pm
February 23, 2010
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Paul2310
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| Member | posts 11 |
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Jae,
One question about Graham's NNWC equation…It accounts for cash and short term investments, accounts receivable and inventory. On many balance sheets though I notice another entry called "Other Current Assets". Should that be included anywhere?
Thank you,
Paul
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