Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: James Clarke who wrote (7085)	5/7/1999 7:17:00 PM
From: Michael Burry	Read Replies (4) \| Respond to of 78462

The point of a return on investment analysis is to separate the BUSINESS from THE WAY THE COMPANY CAPITALIZES THE BUSINESS. Accounts payable is clearly part of the BUSINESS. Right. Trade accounts payable are necessary to the business. That's why I subtract it out from capital invested in the business. I would say that operating leases on their stores are too. If they had been capital leases, they would be considered part of THE WAY THE COMPANY CAPITALIZES ITS BUSINESS. Operating leases are problematic. Graham certainly felt they were. What makes it so cut-and-dried for you? I did make a mistake in my portrayal. In SA, I believe it asks to separate the principal from the interest. The principal being the PV of the operating lease agreement and the interest being the (total payments less the PV). Then using the ratio of PV/total payments, one can figure how much of the rent payment is going towards interest, and how much is going towards paying down the principal. Then you can add the interest portion of the rent expense back to the tax-adjusted net income and interest (in addition to amortization of goodwill) to bolster the numerator. Mike