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In case you missed the last line of the recent Sad News.. OSV Up for Sale and Shutting Down, Happy April Fools.
But you got me instead because I now have a ton of emails to respond to… The most I’ve ever received in a day, and it’s not even lunch time…
There are a lot of skim readers or headline readers and all I can say is that unfortunately, you are stuck with me and my writing for a long time. But I must give a big thank you to the well wishers. If any opportunity does come up, it will be providing you with full time service, better tools and information.
Now back to business.
Calculating Owners Earnings
The only, yes only, determination of a strong company is its ability to generate cash for its stakeholders. To determine if the company has been historically strong, we employ Owner’s Earnings (as used by Warren Buffett), which is the approximated cash earnings available to the stakeholders in the company. How are these earnings different than what Wall Street reports?
At its core, the EPV looks at a company’s return on capital relative to its cost of capital. Companies which report returns higher than their costs deserve an EPV higher than their NARV, while companies with returns unable to recoup the costs of capital aren’t even worth the trouble to continue operating, and should thus trade at less than their NARV. Ideally, a fairly-valued company would have an Enterprise Value (market cap + interest-bearing debt) that equals its EPV. The EPV is simply calculated using the following formula:
At the beginning of 2011, Rakuten (4755.Japan) disclosed that it had changed its depreciation method from the straight-line method to the declining-balance method. Over the life of the asset, depreciation will basically be the same number. Straight-line depreciates an equal amount to each period; the other takes bigger deductions in the early years, and small ones later on. In U.S. dollars, that change added $13 million to Rakuten’s operating profit, through a lower depreciation expense. Is there any place in the GAAP rule book that says: ‘Thou shall never change your depreciation method?’ No. But, in my interpretation, that stinks. It had nothing to do with selling additional products or having stronger margins.
GeoEye is a provider of high resolution and low resolution global space-based and aerial imagery and geospatial information through their processing and distribution network to customers around the world. I’m sure you have seen the high resolution maps on Google maps. Some are taken by GEOY.
I wrote this in July 2008 and the company is down from its highs and slightly higher than when I first saw them.
You may want to check it out yourself.
Can’t have a April Fools edition without some good jokes.
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