Interesting metric for Fundamnetal ANalysis -
From TheStreet.com
Hewitt Heiserman
Lincare
12/18/02 04:38 PM ET
One other item regarding my Lincare (LNCR) article (see right).
This provider of oxygen and other respiratory therapy services is popular with small cap growth managers. Unfortunately, while its EPS ramp looks impressive, return on greenest dollar invested (RGD) numbers are so-so at best. For the five years ending 12/01 they are 9%, 8%, 8%, 24%, and 6%.
RGD is an important number, because eventually a firm's overall return on capital percentage will bend to that "greenest" return.
To qualify as a buy-and-hold for my portfolio LNCR's RGD would have to be in mid- to high-double-digits.
For example, Microsoft's RGD for the five years ending 6/97 was 81%, 146%, 52%, 218%, and 81%. Paychex, meanwhile, generated yields of 87%, 86%, 215%, 160%, and 181% during its muscle days of '95-'99.
Unfortunately, I don't know of any reporting service that publishes this number, so you have to do it yourself. Here's an easy, albeit imperfect, way to do the math: Divide the year-to-year change in EBIT by the year-to-year change in capital (for purposes here, loans and stockholders' equity). Then compare to return on capital. Ideally, RGD will be on the upswing, which suggests improving earnings quality. On the other hand, be concerned if RGD is falling. |
