Judith,
I would like to propose an alteration to section one on measuring the "Basic Facts" when studying the balance sheets and income statements of these fine companies. It's a way of looking at the companies which is right in line with the project from a valuation standpoint of using ROIC (return on invested capital) and ROIC - WACC (weighted average cost of capital) spread. This would simply be an addition to see how the network effect has the ability to contribute to the underlying financials and helps address the valuation issue. We continually hear traditional metrics like P/E ratios, net income and EPS being used as a back drop that are tossed off by certain members of the financial community as reason 'not to invest'. It's always nice to know what's really behind a Network Appliance, a Yahoo!, a Siebel, a Brocade or any company once we get deeper under the hood.
I'm a big fan of Andrew Chan who is a business/finance student, co-founder of the McGill Investment Club and contributes at the Fool come earnings report time to review the cash flow and ROIC of companies like Ariba, i2, Network Appliance, Yahoo!, Brocade, Broadcom, Nortel, CommerceOne, Cisco, AOL and Nokia.
Here's his guest appearance on Fool Hill last night:
fool.com
Here's an earlier post describing his 30 page report on "The Mechanics of the Economic Model":
boards.fool.com
Some examples of his work:
Network Appliance
boards.fool.com
Brocade
boards.fool.com
Yahoo!
boards.fool.com
boards.fool.com
Ariba
boards.fool.com
boards.fool.com
Just a thought since Andrew lists these sources for his work:
*Does Valuation Matter?, Paul Johnson, Paul Sylverstein
* Thoughts On Valuation, Michael J. Mauboussin
* Competitive Advantage Period "CAP": The Neglected Value Driver, Michael J. Mauboussin, Paul Johnson
* A Look at ROIC, Dale Wettlaufer
BB |
