As I mentioned in this post, three of Phil Fisher's 15 Points to Look For in a Common Stock are directly related to profit margins. Companies with slim profit margins often feel tough economic or business cycles more vehemently than those with fat margins. Of course, there is a flip side to that coin: When coming out of tough times, companies with thin profit margins tend to rebound much more than those with fat margins.

Continue Reading Phil Fisher on Profit Margins, Part II ››

At the end of this post, you'll find a "Buy Now" button to purchase a 20-page report comparing Free Cash Flow to Warren Buffett's owner earnings. Though the two terms (free cash flow and owner earnings) are often used interchangeably, they are not always the same. Confusing the two can have a dramatic effect on your intrinsic value calculations.

Continue Reading Free Cash Flow vs. Owner Earnings ››

In his 1934 book Security Analysis, Benjamin Graham laid out the definition for investing versus speculating. In the 74 years since he and David Dodd penned the book, nothing in the definition has changed. That said, BPal asked a very interesting question. I answered it in the comments, but I figured I should post about it as well.

Continue Reading Value Investing vs. Business Investing ››

A visitor just sent this email to me and I figured (as per his last line) that it would be better suited in a post rather than in a private email response. The question: Should I use the owner's margin on lowered sales as I project the intrinsic value of a company rather than sticking with historical growth and projections?

Continue Reading Predicting The Future of a Troubled Business ››

Folks — as you can imagine, I have been busy ripping through annual reports and financial statements like crazy. Hence the irregularity to my posting. Back in October of last year, I had a lot of time on my hands — the effects of a high market and few opportunities. That situation has reversed.

What am I looking for? The economy has been putting a squeeze on a lot of companies, slamming profit margins, revenues and earnings. When this happens, companies have to start shedding assets — human and physical — in an effort to return to normal levels of profitability. When profit margins are thin, the business' are at risk (think GM, Blockbuster). When profit margins are fat under normal conditions, the business is sound, even if it takes a substantial hit to sales.

Continue Reading What You Should Be Looking For ››