Free cash flow – Freedominst http://freedominst.org/ Wed, 20 Oct 2021 15:19:33 +0000 en-US hourly 1 https://wordpress.org/?v=5.8 http://freedominst.org/wp-content/uploads/2021/03/cropped-favicon-32x32.png Free cash flow – Freedominst http://freedominst.org/ 32 32 Is Realogy Holdings (NYSE: RLGY) Using Too Much Debt? http://freedominst.org/is-realogy-holdings-nyse-rlgy-using-too-much-debt/ http://freedominst.org/is-realogy-holdings-nyse-rlgy-using-too-much-debt/#respond Wed, 20 Oct 2021 14:43:03 +0000 http://freedominst.org/is-realogy-holdings-nyse-rlgy-using-too-much-debt/

Berkshire Hathaway’s Charlie Munger-backed external fund manager Li Lu is quick to say “The biggest risk in investing is not price volatility, but the fact that you suffer a permanent loss of capital. “. It is only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. Above all, Realogy Holdings Corp. (NYSE: RLGY) carries debt. But the real question is whether this debt makes the business risky.

When is debt a problem?

Generally speaking, debt only becomes a real problem when a company cannot repay it easily, either by raising capital or with its own cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. The first thing to do when considering how much debt a business uses is to look at its cash flow and debt together.

See our latest analysis for Realogy Holdings

What is the debt of Realogy Holdings?

As you can see below, Realogy Holdings had $ 3.59 billion in debt in June 2021, up from $ 4.04 billion the year before. However, he also had $ 859.0 million in cash, so his net debt is $ 2.73 billion.

NYSE: RLGY Debt to Equity History October 20, 2021

How healthy is Realogy Holdings’ balance sheet?

We can see from the most recent balance sheet that Realogy Holdings had liabilities of US $ 979.0 million due within one year and liabilities of US $ 4.42 billion due beyond. . In return, he had $ 859.0 million in cash and $ 351.0 million in receivables due within 12 months. As a result, its liabilities exceed the sum of its cash and (short-term) receivables by US $ 4.19 billion.

The lack here weighs heavily on the $ 2.35 billion company itself, as if a child struggles under the weight of a huge backpack full of books, his gym equipment and a trumpet. . So we would be watching its record closely, without a doubt. Ultimately, Realogy Holdings would likely need a major recapitalization if its creditors demanded repayment.

In order to measure a company’s debt relative to its profits, we calculate its net debt divided by its earnings before interest, taxes, depreciation and amortization (EBITDA) and its profit before interest and taxes (EBIT) divided by its interest. debtors (its interest coverage). In this way, we consider both the absolute amount of debt, as well as the interest rates paid on it.

Realogy Holdings has a debt to EBITDA ratio of 3.2 and its EBIT covered its interest expense 3.7 times. Overall, this implies that while we wouldn’t like to see debt levels rise, we believe it can handle its current leverage. However, shareholders should remember that Realogy Holdings has actually increased its EBIT by 117% over the past 12 months. If this earnings trend continues, its debt load will be much more manageable in the future. There is no doubt that we learn the most about debt from the balance sheet. But ultimately, the company’s future profitability will decide whether Realogy Holdings can strengthen its balance sheet over time. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.

Finally, a business can only repay its debts with hard cash, not with book profits. The logical step is therefore to examine the proportion of this EBIT that corresponds to the actual free cash flow. Fortunately for all shareholders, Realogy Holdings has actually generated more free cash flow than EBIT over the past three years. This kind of strong cash generation warms our hearts like a puppy in a bumblebee costume.

Our point of view

While the level of total liabilities of Realogy Holdings makes us nervous. For example, its conversion from EBIT to free cash flow and the growth rate of EBIT give us some confidence in its ability to manage its debt. We think Realogy Holdings’ debt makes it a bit risky, after looking at the aforementioned data points together. Not all risks are bad, as they can increase stock price returns if they are profitable, but this risk of leverage is worth keeping in mind. There is no doubt that we learn the most about debt from the balance sheet. But at the end of the day, every business can contain risks that exist off the balance sheet. These risks can be difficult to spot. Every business has them, and we’ve spotted 2 warning signs for Realogy Holdings you should know.

If you are interested in investing in companies that can generate profits without the burden of debt, check out this page. free list of growing companies that have net cash on the balance sheet.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.

Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.

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Companies like Lake Resources (ASX: LKE) can afford to invest in growth http://freedominst.org/companies-like-lake-resources-asx-lke-can-afford-to-invest-in-growth/ http://freedominst.org/companies-like-lake-resources-asx-lke-can-afford-to-invest-in-growth/#respond Tue, 19 Oct 2021 02:25:28 +0000 http://freedominst.org/companies-like-lake-resources-asx-lke-can-afford-to-invest-in-growth/

Just because a business isn’t making money doesn’t mean the stock will go down. For example, Lake resources (ASX: LKE) Shareholders have performed very well over the past year, with the share price climbing 800%. But the harsh reality is that many, many loss-making companies burn all their money and go bankrupt.

Given the strong performance of its share price, we believe it is worth asking Lake Resources shareholders if its cash consumption is of concern. For the purposes of this article, we’ll define cash consumption as the amount of cash the business spends each year to finance its growth (also known as negative free cash flow). The first step is to compare its cash consumption with its cash reserves, to give us its “cash flow track”.

Consult our latest analysis for the lake’s resources

When could Lake Resources run out of money?

You can calculate a company’s cash flow trail by dividing the amount of cash it has by the rate at which it spends that cash. As of June 2021, Lake Resources had A $ 26 million in cash and was debt free. Looking at last year, the company burned A $ 7.2 million. So he had a cash flow trail of around 3.5 years from June 2021. There is no doubt that this is a long and reassuring trail. Pictured below, you can see how his cash holdings have changed over time.

ASX: LKE History of debt to equity October 19, 2021

How does Lake Resources’ cash consumption change over time?

Lake Resources has not recorded any revenue in the past year, indicating that it is a start-up company that continues to expand its business. Nonetheless, we can still examine its cash consumption trajectory as part of our assessment of its cash consumption situation. With a cash consumption rate up 7.8% over the past year, it looks like the company is increasing its investment in the business over time. This is not necessarily a bad thing, but investors should be aware that it will shorten the liquidity trail. Obviously, however, the crucial factor is whether the company will expand its business in the future. For this reason, it makes a lot of sense to take a look at our analyst forecast for the company.

How difficult would it be for Lake Resources to raise more cash for growth?

As its consumption of cash is increasing (albeit slightly), shareholders of Lake Resources should always be aware of the possibility that it will need more cash in the future. Businesses can raise capital through debt or equity. One of the main advantages of publicly traded companies is that they can sell stocks to investors to raise funds and finance their growth. We can compare a company’s cash consumption to its market capitalization to get an idea of ​​how many new shares a company would need to issue to fund its one-year operations.

Given that it has a market capitalization of AU $ 717 million, Lake Resources’ cash consumption of AU $ 7.2 million is equivalent to approximately 1.0% of its market value. So he could almost certainly borrow a little to finance another year’s growth, or he could easily raise cash by issuing a few shares.

How risky is Lake Resources’ cash flow situation?

It may already be obvious to you that we are relatively comfortable with the way Lake Resources burns its cash. For example, we think his cash flow trail suggests the business is on the right track. Although its growing consumption of cash has not been significant, the other factors mentioned in this article more than make up for the weakness of this measure. After looking at a series of factors in this article, we’re pretty relaxed about its consumption of cash, as the company appears to be in a good position to continue funding its growth. Diving deeper, we spotted 4 warning signs for lake resources you need to be aware, and 2 of them are a bit rude.

Sure Lake Resources may not be the best stock to buy. So you might want to see this free a set of companies offering a high return on equity, or that list of stocks that insiders buy.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.

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These 4 metrics indicate that Herman Miller (NASDAQ: MLHR) is using debt a lot http://freedominst.org/these-4-metrics-indicate-that-herman-miller-nasdaq-mlhr-is-using-debt-a-lot/ http://freedominst.org/these-4-metrics-indicate-that-herman-miller-nasdaq-mlhr-is-using-debt-a-lot/#respond Sun, 17 Oct 2021 13:26:16 +0000 http://freedominst.org/these-4-metrics-indicate-that-herman-miller-nasdaq-mlhr-is-using-debt-a-lot/

Some say volatility, rather than debt, is the best way to view risk as an investor, but Warren Buffett said “volatility is far from risk.” So it can be obvious that you need to consider debt, when you think about how risky a given stock is because too much debt can sink a business. We note that Herman Miller, Inc. (NASDAQ: MLHR) has debt on its balance sheet. But the real question is whether this debt makes the business risky.

What risk does debt entail?

Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its debt under control. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. When we think of a business’s use of debt, we first look at cash flow and debt together.

See our latest analysis for Herman Miller

How much debt does Herman Miller carry?

You can click on the graph below for historical figures, but it shows that as of August 2021, Herman Miller was in debt of $ 1.34 billion, an increase from $ 351.9 million. , over one year. However, because it has a cash reserve of US $ 243.1 million, its net debt is less, at around US $ 1.09 billion.

NasdaqGS: MLHR Debt to Equity History October 17, 2021

How healthy is Herman Miller’s track record?

We can see from the most recent balance sheet that Herman Miller had liabilities of US $ 806.8 million maturing within one year and liabilities of US $ 2.11 billion maturing. beyond. In return, he had $ 243.1 million in cash and $ 307.6 million in receivables due within 12 months. As a result, its liabilities exceed the sum of its cash and (short-term) receivables by $ 2.36 billion.

This is a mountain of leverage compared to its market cap of US $ 2.88 billion. This suggests that shareholders would be heavily diluted if the company needed to consolidate its balance sheet quickly.

In order to measure a company’s debt relative to its profits, we calculate its net debt divided by its earnings before interest, taxes, depreciation and amortization (EBITDA) and its profit before interest and taxes (EBIT) divided by its interest. debtors (its interest coverage). Thus, we look at debt over earnings with and without amortization charges.

Herman Miller’s net debt is 3.8 times its EBITDA, which represents significant leverage but still reasonable. However, its interest coverage of 11.6 is very high, suggesting that interest charges on debt are currently quite low. It is important to note that Herman Miller’s EBIT has fallen 28% over the past twelve months. If this decline continues, it will be more difficult to pay off the debt than to sell foie gras at a vegan convention. When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether Herman Miller can strengthen his balance sheet over time. So, if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.

Finally, a business needs free cash flow to repay its debts; accounting profits are not enough. We therefore always check how much of this EBIT is converted into free cash flow. Over the past three years, Herman Miller has generated strong free cash flow equivalent to 78% of his EBIT, roughly what we expected. This hard cash allows him to reduce his debt whenever he wants.

Our point of view

Herman Miller’s struggle to increase his EBIT made us question the strength of his balance sheet, but the other data points we considered were relatively interesting. In particular, his interest coverage was invigorating. Taking the above factors together, we believe that Herman Miller’s debt presents certain risks to the business. While this debt may increase returns, we believe the company now has sufficient leverage. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks lie on the balance sheet – far from it. We have identified 5 warning signs with Herman Miller (at least 1 that cannot be ignored), and understanding them should be part of your investment process.

If, after all of this, you’re more interested in a fast-growing company with a strong balance sheet, take a quick look at our list of cash net growth stocks.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.

Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.

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Be patient, because GE Stock won’t get stuck at $ 100 per share forever http://freedominst.org/be-patient-because-ge-stock-wont-get-stuck-at-100-per-share-forever/ http://freedominst.org/be-patient-because-ge-stock-wont-get-stuck-at-100-per-share-forever/#respond Fri, 15 Oct 2021 20:32:36 +0000 http://freedominst.org/be-patient-because-ge-stock-wont-get-stuck-at-100-per-share-forever/

Just like in September and several months before that, until now in October, General Electric (NYSE:GE) has been stuck in neutral. Bouncing between $ 100 and $ 105 per share, investors are still unwilling to send GE shares at higher prices.

Source: Various photographs / Shutterstock.com

To some extent, this makes sense. CEO Larry Culp has made progress in his recovery. But something else has to happen that is largely beyond Culp’s control: a full recovery for GE’s aviation unit.

Until airlines ‘get back to normal’ don’t expect the same from this flagship unit. That said, investors may be a little too pessimistic right now.

It may not happen tomorrow, next week or even next month. It may be long before aviation returns to normal that General Electric shares are heading for higher prices.

But over the next year or so, slow and steady improvements (along with aviation, the overall turnaround, and Culp’s efforts to make it a lean company) could lead to slow, steady gains. Investors who buy it today could see their patience rewarded.

GE Stock and further progress with its turnaround

As I said in August, it is still too early to say that Larry Culp has managed to fix everything that is plaguing General Electric. But given its cost-cutting and divestiture measures, it’s hard to deny that it has moved things in the right direction.

For example, cost cutting likely played a role in its ability to raise its free cash flow forecast in 2021. The outlook now projects that figure to be between $ 3.5 billion and $ 5 billion.

As for the sale of non-core assets, such as the sale of its light bulb business or the pending sale of its nuclear turbine unit, offloading those businesses helps the business and, by extension, GE shares. , in several ways.

The sale of non-strategic activities has raised billions in cash, allowing the industrial giant to deleverage its balance sheet. Referring to the sale of nuclear turbines, BofA analyst Andrew Obin noted that this latest sale “would modestly accelerate GE’s progress on FCF margins, deleveraging and strategic repositioning.”

It can be done slowly. But Culp’s big changes at General Electric are having a positive effect, and not just for results this year or 2022. As Joseph O’Dea of ​​Wells Fargo noted, in an otherwise “ closing “, the company could see further improvement in its free cash flow. According to the analyst, free cash flow in 2023 could be around $ 7 billion. This is a marked improvement over the 2021 projections mentioned above. It also exceeds the $ 606 million free cash flow generated in 2020.

The long road back to normal for aviation

Of course, even as the situation improves for GE’s stock, it still faces the huge effect of Covid-19 on the aviation industry. Based on Transportation Security Administration (TSA) checkpoint travel figures, which show passenger throughput has returned to 70% to 80% of pre-Covid-19 levels, one would think the industry is almost back to normal.

But that didn’t mean better results for General Electric’s aerospace unit. Why? Airlines are always looking to keep their capital spending low. This is due to the uncertainty that remains about the pandemic. Variants like delta do not tell when the health crisis will finally end.

It is also a product of the airline industry’s need to reduce debt. Getting out of the pandemic came at the cost of greater indebtedness on their balance sheets. Until both issues are resolved, capital spending is unlikely to return to 2019 levels.

Again, with this factor, it makes sense why there is a lot of hesitation when it comes to adhering to the “GE comeback” thesis. A full recovery of aviation has been in the works for years. Even so, that doesn’t mean the stock stays stuck at around $ 100 per share for several years. The most likely outcome is that incremental improvements in all of its business units (aviation, healthcare, power), along with increased asset sales, will give Wall Street a reason to invest more points in them. actions.

The verdict on GE Stock

A mind-blowing rally is probably not in the cards for General Electric, unless we see Covid-19 clearing up sooner than expected. But a slow, steady recovery isn’t the worst thing in the world. This could pave the way for slow and steady gains in its share price.

Come with an “A” in Portfolio filing cabinet, the GE share is a stronger opportunity than what the market gives it as a whole. Think of it as a buy today, before the crowd changes their lukewarm view of it.

As of the publication date, neither Louis Navellier nor the InvestorPlace research staff member primarily responsible for this article held (directly or indirectly) positions in the securities mentioned in this article.

The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publication guidelines.

Louis Navellier, who has been called “one of the most important fund managers of our time”, broke the silence by this shocking ‘say it all’ video… Exposing one of the most shocking events in our country’s history… and the only move every American has to make today.

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UPS stock surges after Stifel analyst says it has become cheap enough to buy again http://freedominst.org/ups-stock-surges-after-stifel-analyst-says-it-has-become-cheap-enough-to-buy-again/ http://freedominst.org/ups-stock-surges-after-stifel-analyst-says-it-has-become-cheap-enough-to-buy-again/#respond Thu, 14 Oct 2021 15:52:00 +0000 http://freedominst.org/ups-stock-surges-after-stifel-analyst-says-it-has-become-cheap-enough-to-buy-again/

Shares of United Parcel Service Inc. posted strong gains on Thursday, after Stifel Nicolaus analyst Bruce Chan said their recent sell-off, despite strong fundamentals and e-commerce growth, offered investors a “good opportunity” to buy.

The UPS stock of the parcel delivery giant,
+ 3.76%
rose 3.7% in morning trading. It has now rebounded 6.9% from the close to a 5.5-month low of $ 178.42 on October 4, but was still 12.3% below its record-breaking May 7 close of 217, $ 50.

Chan de Stifel upped his buy rating, just about four months after being downgraded to Retain, saying “there is a lot to like about the fundamental history of UPS right now.” He raised his target stock price to $ 224 from $ 210.

“Despite the harshness [year-over-year comparisons], e-commerce continues to generate secular volume growth in the company’s small packaging base unit, and the continued focus on yield management is a boon in an environment with strong short-term rate dynamics. , in our opinion, ”Chan wrote in a research note to clients. .

He added that a disciplined capital allocation strategy, as part of the company’s goal of being “better not bigger”, has helped UPS deliver in an “extremely tight” operating environment. , while its rival FedEx Corp. FDX,
+ 1.13%
is likely to struggle for at least a quarter or two.

“Management has chosen a sacred context to refocus on performance …

UPS stock was up 29.2% year-on-year at the time of its record close in May. Now it is up 12.8% this year, while the stock of rival FedEx has fallen 12.9%. In comparison, the Dow Jones Transportation Average DJT,
+1.08%
gained 18.7% and the Dow Jones Industrial Average DJIA,
+1.37%
has grown 13.9% year-to-date.

“With strong free cash flow and a healthy dividend yield, valuation was our only problem,” Chan wrote.

UPS’s implied dividend yield is 2.14%, well above the implied yields of FedEx of 1.33% and the S&P 500 SPX index,
+1.53%
by 1.37%.

FactSet, MarketWatch

UPS is expected to release its third quarter results on October 26, before the opening bell. The FactSet consensus for earnings per share predicts an increase to $ 2.55 from $ 2.28 a year ago, while revenue is expected to rise 6.5% to $ 22.58 billion.

The company has beaten BPA expectations in the past five quarters, while FedEx has missed the past two quarters.

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Here’s why Davide Campari-Milano (BIT: CPR) can responsibly manage his debt http://freedominst.org/heres-why-davide-campari-milano-bit-cpr-can-responsibly-manage-his-debt/ http://freedominst.org/heres-why-davide-campari-milano-bit-cpr-can-responsibly-manage-his-debt/#respond Wed, 13 Oct 2021 04:28:10 +0000 http://freedominst.org/heres-why-davide-campari-milano-bit-cpr-can-responsibly-manage-his-debt/

Howard Marks put it well when he said that, rather than worrying about stock price volatility, “The possibility of permanent loss is the risk I worry about … and every investor practice that I know is worried “. It is only natural to consider a company’s balance sheet when looking at its level of risk, as debt is often involved when a business collapses. We can see that Davide Campari-Milano SA (BIT: CPR) uses debt in his business. But should shareholders be concerned about its use of debt?

When is debt a problem?

Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. In the worst case scenario, a business can go bankrupt if it cannot pay its creditors. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, constantly diluting shareholders, just to strengthen its balance sheet. That said, the most common situation is where a business manages its debt reasonably well – and to its own advantage. When we think of a business’s use of debt, we first look at cash flow and debt together.

Check out our latest review for Davide Campari-Milano

How much debt does Davide Campari-Milano have?

The image below, which you can click for more details, shows that Davide Campari-Milano had a debt of 1.65 billion euros at the end of June 2021, a reduction of 1.78 billion euros over a year. However, he also had € 669.4 million in cash, so his net debt is € 984.3 million.

BIT: Historical CPR of Debt to Equity October 13, 2021

How strong is Davide Campari-Milano’s balance sheet?

The latest balance sheet data shows Davide Campari-Milano had debts of € 870.6 million due within a year, and debts of € 1.85 billion maturing thereafter. On the other hand, it had cash of € 669.4 million and € 389.6 million in receivables within one year. It therefore has total liabilities of 1.67 billion euros more than its combined cash and short-term receivables.

Considering Davide Campari-Milano has a whopping market cap of € 14.1 billion, it’s hard to believe that these liabilities pose a threat. But there are enough liabilities that we would certainly recommend that shareholders continue to monitor the balance sheet going forward.

We use two main ratios to inform us about the levels of debt compared to earnings. The first is net debt divided by earnings before interest, taxes, depreciation, and amortization (EBITDA), while the second is the number of times its profit before interest and taxes (EBIT) covers its interest expense (or its coverage of interest, for short). Thus, we consider debt versus earnings with and without amortization charges.

We would say that Davide Campari-Milano’s moderate net debt / EBITDA ratio (being 2.2) indicates prudence in terms of debt. And its strong coverage interest of 19.7 times, makes us even more comfortable. If Davide Campari-Milano can continue to increase his EBIT at the rate of 14% last year compared to last year, then he will find his debt more manageable. When analyzing debt levels, the balance sheet is the obvious starting point. But in the end, the future profitability of the company will decide whether Davide Campari-Milano can strengthen its balance sheet over time. So, if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.

Finally, a business can only pay off its debts with hard cash, not with book profits. We therefore always check how much of this EBIT is converted into free cash flow. Over the past three years Davide Campari-Milano has recorded free cash flow corresponding to 60% of its EBIT, which is close to normal, given that free cash flow excludes interest and taxes. This hard cash allows him to reduce his debt whenever he wants.

Our point of view

Fortunately, Davide Campari-Milano’s impressive interest coverage means he has the upper hand on his debt. And we also thought its EBIT growth rate was positive. When we consider the range of factors above, it seems Davide Campari-Milano is being pretty reasonable with his use of debt. While this carries some risk, it can also improve returns for shareholders. There is no doubt that we learn the most about debt from the balance sheet. But at the end of the day, every business can contain risks that exist off the balance sheet. We have identified 1 warning sign with Davide Campari-Milano, and understanding them should be part of your investment process.

At the end of the day, it’s often best to focus on businesses with no net debt. You can access our special list of these companies (all with a history of profit growth). It’s free.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.

Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.

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Slowly but surely, GME stocks are showing signs of improvement http://freedominst.org/slowly-but-surely-gme-stocks-are-showing-signs-of-improvement/ http://freedominst.org/slowly-but-surely-gme-stocks-are-showing-signs-of-improvement/#respond Mon, 11 Oct 2021 17:09:43 +0000 http://freedominst.org/slowly-but-surely-gme-stocks-are-showing-signs-of-improvement/

GameStop (NYSE:GME) is slowly making progress in financial health. This can be seen in its latest financial results released on September 8 for the quarter ending July 31. As a result, GME stock is slowly starting to rise based on its long-term outlook. This includes a slow but steady improvement in its Free Cash Flow (FCF).

Source: Quietbits / Shutterstock.com

Over the past two months, GME has risen nearly 18% (17.6%), from a low of $ 146.80 on August 4 to $ 172.68 on October 8. However, the stock peaked on June 9 at $ 302.56 and has since fallen.

In fact, GME stock appears to be trading in a range of between $ 150 and $ 218 per share over the past three months. The almost 18% increase could come from a realization that GameStop is on the path to improving the financial outlook.

Where are things at with GME Stock

GameStop reported that its second-quarter sales rose nearly 25.6% to $ 1.18 billion. However, that figure was slightly lower than in the first quarter, when sales were $ 1.27 billion for the quarter ending May 1.

Additionally, GameStop produced an adjusted net loss of $ 55 million, against one adjustment. net loss last year of $ 92 million last year. However, that improvement is overshadowed by the much smaller first quarter net loss of just $ 29.4 million.

In other words, the business is growing year over year (YoY) but not on a cumulative quarterly basis. At least that’s what it looks like under standard GAAP accounting.

Improvement in Free Cash Flow in Q2

I don’t spend a lot of time analyzing net income and EBITDA (earnings before interest, taxes, depreciation, and amortization) these days. These accounting constructs now include many non-monetary charges that almost all companies remove in their non-GAAP “adjusted” reformulations.

I focus more on cash flow and more particularly free cash flow (FCF). This is the actual amount of cash that the business generates on a quarterly basis. It includes several items not included in the accounting under GAAP of net income or EBITDA or even “adjusted” calculations. It gives a real clear vision of the company’s ability to pay its bills and generate real cash from its activity.

For example, the consolidated statement of cash flows in the second quarter earnings release shows that GameStop recorded an outflow of $ 11.5 million in operating cash flow for the second quarter. This was much better than the negative operating cash flow of $ 18.8 million in the first quarter.

However, that is not the whole story. Free cash flow takes cash flow from operations and deducts capital expenditures (“capex”) required by the business. It is generally described in the statements of cash flows as “Purchase of property, plant and equipment”. It is also an example of a type of cash expense that is neither included in net income nor even in EBITDA.

Therefore, in the second quarter, with capital expenditure of $ 13.5 million, the total FCF figure was minus $ 25 million (i.e. – $ 11.50 million – 13 , $ 50 million = – $ 25 million). This, again, was much better than the FCF T1 figure of $ 33.5 million (i.e.-$ 18.80 million – $ 14.70 million = -33.50 million dollars). In other words, in the second quarter, FCF’s loss was $ 8.5 million lower than in the first quarter.

This improvement in T2 over T1 FCF may not seem like much, but here’s why it matters. Cash flow from operations will tend to improve as sales increase. In addition, capital spending tends to remain reasonably stable or increase slowly. As a result, with higher sales, GameStop’s FCF will improve much faster.

Where that leaves GME Stock

When GameStop releases its fiscal third quarter results for the period ending October 31, analysts like myself will be taking a close look at the statement of cash flows. We want to see evidence that the company is improving its negative cash consumption and hopefully will turn positive at FCF soon.

For example, if there is an improvement in Q3 over Q2 with FCF cash losses, then we know GameStop is on a trend. In other words, a full quarterfinal improvement in FCF is not yet a trend we can completely hang our hat on. But, as I pointed out, with higher sales, most companies will tend to show improved FCF.

At this point, we can predict with more confidence where the GME stock might be heading. If the company can continue to lower its costs, the FCF will increase and its valuation could increase. I don’t want to speculate just yet on what I think the upside might be until Q3 results either confirm or deny this improving trend in the FCF.

As of the publication date, Mark R. Hake does not hold any position in any of the stocks mentioned (directly or indirectly) in the article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com publishing guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and run the Total Value of Return Guide that you can consult here.

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These 4 measures indicate that Modern Dental Group (HKG: 3600) is using its debts safely http://freedominst.org/these-4-measures-indicate-that-modern-dental-group-hkg-3600-is-using-its-debts-safely/ http://freedominst.org/these-4-measures-indicate-that-modern-dental-group-hkg-3600-is-using-its-debts-safely/#respond Sun, 10 Oct 2021 00:36:08 +0000 http://freedominst.org/these-4-measures-indicate-that-modern-dental-group-hkg-3600-is-using-its-debts-safely/

David Iben expressed it well when he said: “Volatility is not a risk that is close to our hearts. What matters to us is to avoid the permanent loss of capital. ‘ So it seems like smart money knows that debt – which is usually involved in bankruptcies – is a very important factor, when you assess the level of risk of a business. Above all, Modern Dental Group Limited (HKG: 3600) carries the debt. But the most important question is: what risk does this debt create?

Why Does Debt Bring Risk?

Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, then it exists at their mercy. If things really go wrong, lenders can take over the business. However, a more common (but still costly) situation is where a company has to dilute its shareholders at a cheap share price just to get its debt under control. Of course, many companies use debt to finance their growth without negative consequences. The first step in examining a company’s debt levels is to consider its cash flow and debt together.

See our latest analysis for Modern Dental Group

How much debt does the modern dental group carry?

You can click on the graph below for historical figures, but it shows Modern Dental Group owed HK $ 717.7million in June 2021, up from HK $ 823.3million a year earlier. However, he also had HK $ 693.8 million in cash, so his net debt is HK $ 23.9 million.

SEHK: 3600 History of debt to equity October 10, 2021

How healthy is Modern Dental Group’s balance sheet?

According to the latest published balance sheet, Modern Dental Group had a liability of HK $ 675.5 million due within 12 months and a liability of HK $ 646.8 million due beyond 12 months. In return, he had HK $ 693.8 million in cash and HK $ 563.6 million in receivables due within 12 months. It therefore has a liability totaling HK $ 65.0 million more than its combined cash and short-term receivables.

This state of affairs indicates that Modern Dental Group’s balance sheet looks quite strong, as its total liabilities roughly equal its liquid assets. So the HK $ 6.66 billion company is highly unlikely to run out of cash, but it’s still worth keeping an eye on the balance sheet. With virtually no net debt, Modern Dental Group is indeed very little in debt.

In order to measure a company’s debt relative to its profits, we calculate its net debt divided by its earnings before interest, taxes, depreciation and amortization (EBITDA) and its profit before interest and taxes (EBIT) divided by its interest. debtors (its interest coverage). Thus, we consider debt versus earnings with and without amortization charges.

Modern Dental Group has very little debt (net of cash) and has a debt to EBITDA ratio of 0.039 and EBIT of 24.3 times interest expense. Compared to past profits, debt therefore seems insignificant. Even more impressive was the fact that Modern Dental Group increased its EBIT by 238% year over year. If sustained, this growth will make debt even more manageable in the years to come. The balance sheet is clearly the area you need to focus on when analyzing debt. But it is future profits, more than anything, that will determine Modern Dental Group’s ability to maintain a healthy balance sheet going forward. So if you are focused on the future you can check this out free report showing analysts’ earnings forecasts.

Finally, while the IRS may love accounting profits, lenders only accept hard cash. We must therefore clearly check whether this EBIT generates a corresponding free cash flow. Over the past three years, Modern Dental Group has recorded free cash flow of 98% of its EBIT, which is higher than what we usually expected. This puts him in a very strong position to pay off the debt.

Our point of view

The good news is that Modern Dental Group’s demonstrated ability to cover interest costs with EBIT delights us like a fluffy puppy does a toddler. And this is only the beginning of good news as its conversion from EBIT to free cash flow is also very encouraging. We would also like to note that companies in the medical equipment industry like Modern Dental Group generally use debt with no problem. It seems Modern Dental Group has no trouble standing on its own, and it has no reason to fear its lenders. For investment nerds like us, his record is almost charming. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks lie on the balance sheet – far from it. We have identified 1 warning sign with Modern Dental Group, and understanding them should be part of your investment process.

If you are interested in investing in companies that can generate profits without the burden of debt, check out this page free list of growing companies that have net cash on the balance sheet.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in the mentioned stocks.

Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.

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With institutions, we are optimistic about The Coca-Cola Company (NYSE: KO) http://freedominst.org/with-institutions-we-are-optimistic-about-the-coca-cola-company-nyse-ko/ http://freedominst.org/with-institutions-we-are-optimistic-about-the-coca-cola-company-nyse-ko/#respond Fri, 08 Oct 2021 16:03:10 +0000 http://freedominst.org/with-institutions-we-are-optimistic-about-the-coca-cola-company-nyse-ko/

This article first appeared on Simply Wall St News.

After a short-term correction, The Coca-Cola Company (NYSE: KO) rebounds with the broader market. Still, the stock remains essentially stable for the year.

With a solid dividend yield and promising third quarter estimates, the company is now on the radar of several institutions. In this article, we’ll take a look at the latest efforts of masters of brand management and estimate the intrinsic value of the action.

See our latest analysis for Coca-Cola

New marketing campaign and institutional optimism

Coca-Cola has just announced the new global platform, Real Magic. This is the first platform since 2016, with a new slogan, ” A Coke away from each other . “

Over the decades, Coca-Cola has used marketing campaigns to become one of the biggest brands in the world. The company collaborated with an advertising agency BETC London and director Daniel Wolfe on this project.

Meanwhile, institutions turn bullish on the stock. UBS places it at the top of its list of high conviction ideas, while Morgan Stanley maintains an overweight rating with a target of $ 65 – citing the return of sales growth and higher margins.

In addition, Evercore ISI has a positive outlook on the European market, despite soaring raw material costs, maintaining an outperformance rating.

Finally, the latest figures from Nielsen show a positive performance for the soft drink category in September, up 9.5%.

Calculation of intrinsic value

We’ll go over one way to estimate the intrinsic value of a stock by taking expected future cash flows and discounting them to their present value. We will use the discounted cash flow (DCF) model for this.

Remember, however, that there are many ways to estimate the value of a business, and a DCF is just one method. If you would like to know more about discounted cash flow, the rationale for this calculation can be read in detail in the Simply Wall St.

Numbers

We use the two-stage growth model, which means we take two stages of growing the business. During the initial period, the business can have a higher growth rate and the second stage is usually assumed to have a stable growth rate. In the first step, we need to estimate the cash flow of the business over the next ten years.

Where possible, we use analyst estimates, but when these are not available, we extrapolate the previous free cash flow (FCF) from the last estimate or stated value.

We assume that companies with decreasing free cash flow will slow their rate of contraction, and companies with increasing free cash flow will see their growth rate slow during this period. We do this to reflect the fact that growth tends to slow down more in the early years than in subsequent years.

A DCF is based on the idea that a dollar in the future is worth less than a dollar today, so we discount the value of those future cash flows to their estimated value in today’s dollars. hui:

10-year Free Cash Flow (FCF) estimate

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

Leverage FCF ($, Millions)

US $ 9.84 billion

US $ 10.6 billion

US $ 11.7 billion

US $ 12.5 billion

US $ 13.2 billion

US $ 13.7 billion

US $ 14.2 billion

US $ 14.6 billion

US $ 15.0 billion

US $ 15.4 billion

Source of growth rate estimate

Analyst x8

Analyst x6

Analyst x1

Analyst x1

Is 5.03%

Est @ 4.11%

East @ 3.47%

East @ 3.01%

Is 2.7%

East @ 2.48%

Present value (in millions of dollars) discounted at 5.6%

US $ 9.3k

$ 9.5,000

$ 9.9,000

US $ 10.1k

US $ 10.0k

$ 9.9,000

US $ 9.7k

$ 9.5,000

US $ 9.2,000

$ 8.9,000

(“East” = FCF growth rate estimated by Simply Wall St)
10-year present value of cash flows (PVCF) = US $ 96 billion

The second stage is also known as the terminal value. This is the cash flow of the business after the first stage. The Gordon growth formula is used to calculate the terminal value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.0%. We discount the terminal cash flows to their present value at a cost of equity of 5.6%.

Terminal value (TV) = FCF 2031 × (1 + g) ÷ (r – g) = US $ 15 billion × (1 + 2.0%) ÷ (5.6% to 2.0%) = US $ 431 billion

Present value of terminal value (PVTV) = TV / (1 + r) ten = US $ 431 billion ÷ (1 + 5.6%) ten = US $ 250 billion

The total value, or equity value, is then the sum of the present value of future cash flows, which in this case is $ 346 billion. The last step is then to divide the equity value by the number of shares outstanding.

Compared to the current share price of US $ 53.9, the company appears to be fairly good value at a 33% discount from the current share price. The assumptions in any calculation have a big impact on the valuation, so it’s best to take this as a rough estimate, not precise down to the last penny.

dcf

The hypotheses

Now the most critical inputs to a discounted cash flow are the discount rate and, of course, the actual cash flow. image of its potential performance.

Since we view Coca-Cola as a potential shareholder, the cost of equity is used as the discount rate rather than the cost of capital (or the weighted average cost of capital, WACC), which takes into account debt. In this calculation, we used 5.6%, which is based on a leveraged beta of 0.831.

Beta is a measure of the volatility of a stock relative to the market as a whole. We get our average beta from the industry beta of comparable companies globally, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable company.

Next steps:

While a business’s valuation is important, it shouldn’t be the only metric you look at when searching for a business. It is not possible to achieve a rock-solid valuation with a DCF model. Instead, it should be taken as a guide to ” what assumptions must be true for this stock to be undervalued? “Especially since our calculation landed higher than some of the institutional goals.

If a business grows at a different rate, or if its cost of equity or risk-free rate changes sharply, output can be very different.

For Coca-Cola, we have compiled three relevant aspects to consider:

  1. Risks : Consider, for example, the ever-present specter of investment risk. We have identified 2 warning signs with Coca-Cola and understanding them should be part of your investment process.

  2. Management : Have insiders increased their stocks to take advantage of market sentiment about KO’s future prospects? Check out our management and board analysis with information on CEO compensation and governance factors.

  3. Other strong companies : Low debt, high returns on equity and good past performance are fundamental to a strong business. Why not explore our interactive list of stocks with solid trading fundamentals to see if there are other companies you might not have considered!

PS. The Simply Wall St app performs a daily discounted cash flow assessment for every NYSE share. If you want to find the calculation of other actions, search here.

Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no positions in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material.

Do you have any feedback on this item? Are you worried about the content? Contact us directly. You can also send an email to Editorial-team@simplywallst.com

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An intrinsic calculation for Momentive Global Inc. (NASDAQ: MNTV) suggests it is 31% undervalued http://freedominst.org/an-intrinsic-calculation-for-momentive-global-inc-nasdaq-mntv-suggests-it-is-31-undervalued/ http://freedominst.org/an-intrinsic-calculation-for-momentive-global-inc-nasdaq-mntv-suggests-it-is-31-undervalued/#respond Thu, 07 Oct 2021 11:26:07 +0000 http://freedominst.org/an-intrinsic-calculation-for-momentive-global-inc-nasdaq-mntv-suggests-it-is-31-undervalued/

Does the October share price for Momentive Global Inc. (NASDAQ: MNTV) reflect what it is really worth? Today, we’re going to estimate the intrinsic value of the stock by estimating the company’s future cash flows and discounting them to their present value. The Discounted Cash Flow (DCF) model is the tool we will apply to do this. Patterns like these may seem beyond a layman’s comprehension, but they are fairly easy to follow.

We generally think of a business’s value as the present value of all the cash it will generate in the future. However, a DCF is only one evaluation measure among many, and it is not without its flaws. If you want to know more about discounted cash flow, the rationale for this calculation can be read in detail in the Simply Wall St.

See our latest review for Momentive Global

Step by step in the calculation

We are going to use a two-step DCF model, which, as the name suggests, takes into account two stages of growth. The first stage is usually a period of higher growth which stabilizes towards the terminal value, captured in the second period of “steady growth”. In the first step, we need to estimate the cash flow of the business over the next ten years. Where possible, we use analyst estimates, but when these are not available, we extrapolate the previous free cash flow (FCF) from the last estimate or stated value. We assume that companies with decreasing free cash flow will slow their rate of contraction, and companies with increasing free cash flow will see their growth rate slow during this period. We do this to reflect the fact that growth tends to slow down more in the early years than in subsequent years.

A DCF is based on the idea that a dollar in the future is worth less than a dollar today, so we discount the value of those future cash flows to their estimated value in today’s dollars. hui:

10-year Free Cash Flow (FCF) estimate

2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Leverage FCF ($, Millions) US $ 59.3 million US $ 87.5 million US $ 98.0 million US $ 143.0 million US $ 170.9 million 195.2 million US dollars 215.7 million US dollars US $ 232.9 million US $ 247.3 million US $ 259.4 million
Source of estimated growth rate Analyst x2 Analyst x2 Analyst x1 Analyst x1 East @ 19.48% East @ 14.22% Est @ 10.54% Est @ 7.97% Est @ 6.17% Is 4.9%
Present value (in millions of dollars) discounted at 6.4% US $ 55.7 $ 77.3 US $ 81.4 112 USD 125 USD 135 USD 140 USD $ 142 $ 142 140 USD

(“East” = FCF growth rate estimated by Simply Wall St)
10-year present value of cash flows (PVCF) = US $ 1.2 billion

It is now a matter of calculating the Terminal Value, which takes into account all future cash flows after this ten-year period. The Gordon growth formula is used to calculate the terminal value at a future annual growth rate equal to the 5-year average of the 10-year government bond yield of 2.0%. We discount the terminal cash flows to their present value at a cost of equity of 6.4%.

Terminal value (TV)= FCF2031 × (1 + g) ÷ (r – g) = US $ 259 million × (1 + 2.0%) ÷ (6.4% to 2.0%) = US $ 6.0 billion

Present value of terminal value (PVTV)= TV / (1 + r)ten= US $ 6.0 billion ÷ (1 + 6.4%)ten= US $ 3.2 billion

The total value is the sum of the cash flows for the next ten years plus the final present value, which gives the total value of equity, which in this case is US $ 4.4 billion. In the last step, we divide the equity value by the number of shares outstanding. Compared to the current share price of US $ 20.6, the company looks fairly good value with a 31% discount from the current share price. Ratings are imprecise instruments, however, much like a telescope – move a few degrees and end up in another galaxy. Keep this in mind.

NasdaqGS: MNTV Discounted Cash Flow October 7, 2021

The hypotheses

Now the most important inputs to a discounted cash flow are the discount rate and, of course, the actual cash flow. If you don’t agree with these results, try the calculation yourself and play with the assumptions. The DCF also does not take into account the possible cyclicality of an industry or the future capital needs of a company, so it does not give a complete picture of a company’s potential performance. Since we view Momentive Global as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which takes debt into account. In this calculation, we used 6.4%, which is based on a leveraged beta of 1.006. Beta is a measure of the volatility of a stock relative to the market as a whole. We get our beta from the industry average beta from globally comparable companies, with a limit imposed between 0.8 and 2.0, which is a reasonable range for a stable business.

To move on :

While a business valuation is important, it shouldn’t be the only metric you look at when researching a business. The DCF model is not a perfect equity valuation tool. Preferably, you would apply different cases and assumptions and see their impact on the valuation of the business. For example, changes in the company’s cost of equity or the risk-free rate can have a significant impact on valuation. Can we understand why the company trades at a discount to its intrinsic value? For Momentive Global, we’ve put together three other things to consider:

  1. Risks: Take risks, for example – Momentive Global has 3 warning signs we think you should be aware.
  2. Future benefits: How does MNTV’s growth rate compare to that of its peers and the broader market? Dig deeper into the analyst consensus count for years to come by interacting with our free analyst growth expectations chart.
  3. Other high quality alternatives: Do you like a good all-rounder? Explore our interactive list of high-quality stocks to get a feel for what you might be missing!

PS. Simply Wall St updates its DCF calculation for every US stock every day, so if you want to find the intrinsic value of any other stock just search here.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in any of the stocks mentioned.

Do you have any feedback on this item? Are you worried about the content? Get in touch with us directly. You can also send an email to the editorial team (at) simplywallst.com.

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