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Strategies & Market Trends : Value Investing
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To: Jurgis Bekepuris who wrote (45513)11/16/2011 3:07:49 PM
From: J Mako   of 78680
 
Theoretical vs Practical. That's one good question, Jurgis.

Not yet. But I reckon the adjustment gives a better picture of the profitability of the operation of a business.

Similarly, I haven't yet found a good net-net with the NACV calculation. But it doesn't invalidate the principle.

That said, now come to think about it, if a mgmt does waste money in an acquisition and since the mgmt is an integral part of the business, I also need to "adjust" my valuation of the business downward. But this is not some financial figures I can adjust. So if I say I simply do my goodwill adjustment, that's misleading. In the quality side of my analysis, I've also discounted the ability of the mgmt. There are indeed a lot of subjective judgments/adjustments going on.

p.s. Btw, I was referring to one-off acquisition. If a company is growing by constant acquisitions, I realise I also need to subtract the goodwill from the profit (because it's an expense now). So both numerator and denominator in the ROE need adjustment. That does look messy.
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