I have no doubt, Nik, from what we've read in your posts, that you welcome inputs and comments.
In addition you have always been willing to share info as we've seen in your posts about "Special Situation Ideas"
You said ...
"... but do we know why?"
" we cannot ... make a post chap 11 company go through Buffett criteria."
" ... tonnes of restructuring ..."
" ... are these earnings normalized for discounted business ....?"
" ... at 8x, you get the Ag business for free."
I'd say valid questions and observations.
In addition I'd say the following ...
For me, the most important financial statement is the Income Statement (especially if it's properly audited !). After all, any public company is in the business of making as much net profit as it can from the revenue that one can see from its top line. And that's irrespective of whether it sells soft drinks, gum, motor cars, mining equipment, chemicals, etc...
And as one looks down the Statement one can see how the various "obstacles" have reduced that initial Revenue (or Sales) amount, e.g. CoS, SGA, Depreciation, Interest Expense, Tax, etc ...
That can also show where a company may need to improve its business activities in order to reduce the drain on its initial Revenue. It also provides, over time, a reference against which to determine where improvements are being made by a company's activities.
And it's that final Bottom Line that substantially adds to, or subtracts from, the "Asset Value" of its Balance Sheet when we consider the structure of that statement which one can arrange in the form of ...
Share Capital + Retained Income = Total Assets - Total Liabilities.
Should Share Capital remain fairly constant over a period of time, which it sometimes does, then the only way that the overall value of that equation can vary is when an addition, or subtraction, is made to "Retained Income", which, as we know, comes from that Bottom Line, after payment of a dividend, if one is declared.
So, IMO, that's what makes those ratios of Buffett so relevant and important. They are not only about uncovering companies which could be classified as having Durable Competitive Advantage.
He has targeted those components of a company's financial statements that will show how well, or badly, a company's business has performed in the recent past, and which aspects of its business have contributed to that performance.
Of course, that's the past. What's going to happen, going forward, is not always that easy to determine. One can make some educated guesses and assumptions based on a variety of factors and inputs, but can we know for sure ??
If a company's past performance hasn't been great, as we've seen in CHMT's case, at least one now has past references against which to measure its future business output and also, hopefully, to see where improvements have been made in terms of adding to Net Profit.
And if those improvements continue to gain momentum and consistency, then I'd say that should add to one's confidence in buying its shares ... |
