Do you know of any business schools (besides Columbia) that teach along the lines of Graham & Dodd? I want to avoid schools that emphasize EMH/MPT–I only want to know enough about those ideas to debunk them intelligently. I’m after Graham & Dodd plus a general business education: marketing, strategy, electives outside business (e.g. philosophy), etc.

Thanks.

AJ

Go to your local library and pick up Standard and Poor%u2019s Industry Survey. It gives you the current environment of the specific industry along with the Industry Profile, trends, how the industry operates, key industry ratios and statistics and how to analyze a company in that industry.

Plus, it has a glossary and industry references (Periodicals, trade associations, Gov%u2019t agencies%u2026)and a comparative company analysis..

I hope this helps.

That is all.

You have to ask yourself why shareholder equity is slipping and why CROIC is on the rise. If the business can maintain the same level of cash generating abilities on lower invested capital, that’s good. If, however, the company is taking on debt or shedding assets, which will in turn reduce its ability to generate excess cash, that’s bad.

Make sense?

To clarify a few points. negative equity growth may occur when a company repurchases a substantial amount of its shares (remember treasury holds those repurchased common shares <–this implies a cost to shareholder’s equity).

Its true that a low CROIC company can achieve high FCF growth by taking on debt. You can see this from Kraft, which has low CROIC with alot of debt on the balance sheet. Interestingly, Kraft has NOT been able to increase FCF within the last 10 year time frame.

Even more interesting, Warren Buffet has purchased shares of Kraft implying that he believes that the debt will be used as efficiently as possible with management’s refocus on reorganizing the company for growth with its focused brands once expense systems are properly in place.

As Ponzio has taught us in previous posts, it is not the historical FCF growth that matters as much as THE FUTURE FCF growth. Thus, management’s expertise and honest corporate governance guidelines render increasing chances of enjoying modest sustainable long-term Growth.

Also, to answer your main question, shareholder’s equity growth is important as it is one of the facets of creating investment value. One facet is the future cashflows, and the other is the net worth. Of course, management can return shareholder’s equity through various methods: sharebuybacks, dividends. But it is NOT always in the best interest of sharehodlers for management to use shareholder’s equity(i.e buying back disproportionally high amounts of shares when they are at their most expensive). In sum, there is alot of positives to be drawn from a company that has increased shareholder’s equity by 7-10% CAGR while re-purchasing shares (10 year time-frame), it shows you that management has used equity efficiently while returning some of the gains to the investors.

I hope this helps a little

Does FCF translate into dividends and equity in the long run ? A low CROIC company can achieve high FCF growth by taking on debt. What does it mean if CROIC is high, but FCF growth is close to zero ? I was looking at morningstar data for UST and that is what I find.

Also, UST has a negative equity. and because of that it has boosted the CROIC calculation. So, negative equity is good for CROIC, so why do we be concerned about increasing value of shareholder equity ?

I am very confused on how equity growth, FCF growth and CROIC growth ties together.

On the issue of volatility, I also agree it is trending up. Are people in general adding to or removing emotion from their decisions…are they becoming more rational? In an over communicated society, drowning in information and complexity…where’s the simplicity and wisdom? How many guess vs understand?

A billion or two new capitalists. Baby boomers who need to cheat time. Story tellers trying to trump reality at every turn. Fee driven behavior. It’s an emotional issue first and foremost. Having the temperment to be a value investor is rare. When you live in a culture that’s not conducive it’s even more so. EMH is a delusion. Value investing has a bright future which is inversely proportional to the size of the sum you are investing.