All Earnings Aren’t Created Equal: Judging Earnings Quality

Garbage in, garbage out. It’s a phrase typically used when talking about forecasting. Because it’s such a subjective art, your forecasts are highly dependent upon the assumptions you make. Lowering or increasing growth assumptions, discount rates and margins can drastically change what a financial model spits out. Hence, if your assumptions are garbage you’ll get a garbage valuation. Like I’ve mentioned before, there’s nothing wrong with creating financial models and forecasts. You’ll gain an intimate Read More

Portfolio Screen August 2017

Compounders…they’re a rare breed. Even rarer is a compounder at a cheap price. Below I’ve created the following screen to make things a little easier for you. It’s a simple screen. All I’ve done is compile companies which have grown free cash flow by a minimum of eight periods out of an 11-year stretch.  I also made sure each business had an average return on invested capital of 20% or above over the same period. Read More

Financial Modelling: Assumptions Built on Assumptions

Wouldn’t it be great to know the future? Sure it might take the spontaneity out of life. But you could become the best investor ever. There is no such thing as a perfect investment record. Everyone picks up some losers along the way. But if you had an idea of what might happen, you could avoid the ‘bad eggs’ as they say. This is what financial models try to do. They predict what might happen Read More