Good points.
Just one question: why can't FCF be manipulated? I know that it's commonly held to be an "incorruptable" measurement, but surely someone cold manipulate that one too? E.g., say that ones company has (non-existent) cash in a Swiss bank account, or simply lie and overstate cash – etc. etc. Ya know whattay mean? It seems like FCF is looked at something of a holy grail in this sense, even by Graham and Klarman and other highly conservative/skeptical investors –– whereas I feel that nothing is, unfortunately, holy in the domain of finance.
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I highly doubt the lumber business will miraculously end up as a long term secular growth business LOL, yeah, no, I don't think so... not likely :=)
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Re overstatement of BV. I don't know if it's common or not, but my go-to site for financial ratios lists P/Tang.BV separately, as a stand-alone ratio, which I love. Quite interesting to see how many c/o:s vastly overstate their P/B (I tend to disregard intangibles more or less completely, hence I regard a significant difference between P/B and P/B.Tang (say more than 100 %) simply as 'overstating'.)
I can only see this metric for Swedish c/o:s, but especially among c/o:s with conspicuously perfect earnings or blatantly poor financials, this seems like a common trick. At first glance, book value can be low (around and sometimes below 1) but TBV can be very high (> 10 times higher) or even negative. To me, that's just a really cheap way of trying to fool the customer (i.e. 'investor'). You barely have to lift the hood to find out; still, I think it may fool many. |
