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

To: bruwin who wrote (75891)	7/27/2024 8:48:00 PM
From: E_K_S	Read Replies (1) \| Respond to of 78767

This is basically the same thing but RONTA does not include (1) Goodwill and (2) Intellectual Property (Patents, Copyrights, Trademarks, Trade Secrets) as assets. The big one being Goodwill. Net Tangible Assets is Book Value excluding the intangible assets (#1 & #2 above). Net Tangible assets include: land assets; all depreciable assets (some argue add back in some/all of the depreciation) and any other assets that may have been expensed (ie section 179 assets expensed in the 1st year of ownership). The investor then looks at the RONTA of these tangible assets. Total revenues divided by your tangible assets. --------------------------------------------------------------------- I guess one could make an argument that Goodwill and/or Intellectual Property is the one time cost necessary to enter the business. What about reoccurring royalties and/or licensing fees? Perhaps you could adjust Revenues to reflect these costs and use some adjusted revenue component to base your return (ie ROI) calculation. --------------------------------------------------------------------- Why would Buffett even look at this metric? I suppose if the company required a basket of hard assets (like land, machinery, warehouse, trucks) then it might be useful. What might this include?: farm operations, warehouse logistics, different type of manufactures, oil & miners, etc. ----------------------------------------------------------------------- I think the point of the metric is to measure the efficiency of the operation and their RONTA on the assets they currently own. Then with future Capital investments can you produce as good or better RONTA? You have a benchmark to compare. Your new RONTA will be a bended return from the old & new. My thought is there are a lot of 'legacy' companies with good tangible assets already producing an acceptable RONTA but could be much higher with new Capital infusions (new equipment, AI robots, updated manufacturing facilities & logistics). If you can buy these companies at a discounted price, perhaps management (or a new management, Private Equity Partner and/or Investor) will make a large Capital Investment to increase the blended RONTA. As a result, the stock s/d appreciate significantly. ------------------------------------------------------------------------------------ So is Buffet looking at RONTA companies and wanting to be that Partner (or owner) willing to make that huge Capital investment that will increase RONTA growing revenues for years?