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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Sergio H who wrote (46094)	1/4/2012 2:58:55 PM
From: E_K_S	Read Replies (1) \| Respond to of 78476

Hi Sergio The only problem I see with FROIC and CapFlow is that they are difficult numbers to calculate especially w/o going into the balance sheet (do you know of a site/link where this information is readily available?). The Graham No. can be calculated from the Yahoo Stats in about 10 seconds. This article goes into more detail on the calculations. It's a great screening tool but for me too difficult to calculate on the fly (back of the envelope) during the day. Analysis Of The Aerospace And Defense Industry seekingalpha.com From the article:"...FROIC is basically Free Cash Flow Return on Invested Capital or: (Cash Flow - Capital Spending)/(Long Term Debt + Shareholder’s Equity) I look for companies that achieve Owner Earnings returns of at least 15% on Main Street for every $1 of Total Capital invested. Basically in the real world of Main Street, far from Wall Street companies that achieve 15%+ on this ratio are making a lot of money, so logically if you have a business whose cash register if overflowing continuously, there is a great probability of making some serious money someday. The third ratio that I use to pick stocks I call “CapFlow”. CapFlow is basically: Capital Spending/Cash Flow This ratio allows me to identify elite management teams that achieve very low costs in relation to their cash flow. Very simply they are usually the low cost producer in their industry because of their management great attention to detail in their cost control management. They also use things like “Economies of Scale”, where as their sales increase their cost per unit decreases. So to summarize we search for the following ideal for each ratio; 1) CapFlow = less than 50% 2) FROIC = greater than 15% 3) Price to Owner Earnings = less than 15 In doing my industry analyses I end up giving a stock a rating of four possible outcomes of 0-3 and then gather the ones scoring perfect 3’s and place them on my list for further analysis for potential purchase. ----------------------------------------------------------------------------------------------------- FWIW, I created a watch list with favorable Graham No.s. I am trying to be a bit more analytically in my daily Buys & Sells and want to error on buying value (low PE, Low debt & large value spread between Graham No. and current price). EKS