Free cash flow – Freedominst http://freedominst.org/ Mon, 27 Jun 2022 04:26:20 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 http://freedominst.org/wp-content/uploads/2021/03/cropped-favicon-32x32.png Free cash flow – Freedominst http://freedominst.org/ 32 32 The intrinsic value of Rottneros AB (publ) (STO:RROS) is potentially 40% higher than its share price http://freedominst.org/the-intrinsic-value-of-rottneros-ab-publ-storros-is-potentially-40-higher-than-its-share-price/ Mon, 27 Jun 2022 04:21:56 +0000 http://freedominst.org/the-intrinsic-value-of-rottneros-ab-publ-storros-is-potentially-40-higher-than-its-share-price/

Today we are going to walk through a way to estimate the intrinsic value of Rottneros AB (publ) (STO:RROS) by estimating the future cash flows of the business and discounting them to their present value. Our analysis will use the discounted cash flow (DCF) model. Patterns like these may seem beyond a layman’s comprehension, but they’re pretty easy to follow.

Businesses can be valued in many ways, which is why we emphasize that a DCF is not perfect for all situations. Anyone interested in learning a little more about intrinsic value should read the Simply Wall St.

See our latest review for Rottneros

What is the estimated valuation?

We will use a two-stage 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 “sustained growth”. In the first step, we need to estimate the company’s cash flow over the next ten years. Wherever possible, we use analysts’ estimates, but where these are not available, we extrapolate the previous free cash flow (FCF) from the latest estimate or reported 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 more in early years than in later years.

Generally, we assume that a dollar today is worth more than a dollar in the future, and so the sum of these future cash flows is then discounted to today’s value:

10-Year Free Cash Flow (FCF) Forecast

2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Leveraged FCF (SEK, millions) kr158.0 million kr195.0 million kr179.0 million 169.3 million kr 163.1 million kr kr159.0 million 156.4 million kr 154.7 million kr 153.7 million kr 153.2 million kr
Growth rate estimate Source Analyst x1 Analyst x1 Analyst x1 Is @ -5.41% East @ -3.69% Is @ -2.49% Is @ -1.65% Is @ -1.06% Is @ -0.65% Is @ -0.36%
Present value (SEK, million) discounted at 6.2% 149 kr 173 kr 149 kr 133 kr 121 kr 111 kr 103kr 95.6kr 89.4kr 83.9kr

(“East” = FCF growth rate estimated by Simply Wall St)
10-year discounted cash flow (PVCF) = kr1.2b

After calculating the present value of future cash flows over the initial 10-year period, we need to calculate the terminal value, which takes into account all future cash flows beyond 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 0.3%. We discount terminal cash flows to present value at a cost of equity of 6.2%.

Terminal value (TV)= FCF2031 × (1 + g) ÷ (r – g) = kr153m × (1 + 0.3%) ÷ (6.2%– 0.3%) = kr2.6b

Present value of terminal value (PVTV)= TV / (1 + r)ten= kr2.6b÷ ( 1 + 6.2%)ten= kr1.4b

The total value is the sum of the cash flows for the next ten years plus the present terminal value, which gives the total equity value, which in this case is 2.6 billion kr. In the last step, we divide the equity value by the number of shares outstanding. Compared to the current share price of 12.3 kr, the company looks slightly undervalued at a 29% discount to the current share price. Ratings are imprecise instruments, however, much like a telescope – move a few degrees and end up in a different galaxy. Keep that in mind.

OM: RROS Cash Flow Update June 27, 2022

The hypotheses

The above calculation is highly dependent on two assumptions. One is the discount rate and the other is the cash flows. If you disagree with these results, try the math yourself and play around 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 consider Rottneros 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 6.2%, which is based on a leveraged beta of 1.391. Beta is a measure of a stock’s volatility relative to the market as a whole. We derive our beta from the average industry beta of broadly comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable company.

Next steps:

Although a business valuation is important, it is only one of many factors you need to assess for a business. The DCF model is not a perfect stock valuation tool. Instead, the best use of a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For example, changes in the company’s cost of equity or the risk-free rate can have a significant impact on the valuation. Why is the stock price below intrinsic value? For Rottneros, there are three essential aspects that you should delve into:

  1. Risks: Take risks, for example – Rottneros has 3 warning signs (and 1 which is significant) that we think you should know about.
  2. Future earnings: How does RROS’ growth rate compare to its peers and the market in general? Dive deeper into the analyst consensus figure for the coming years by interacting with our free analyst growth forecast chart.
  3. Other strong companies: Low debt, high returns on equity and good past performance are essential to a strong business. Why not explore our interactive list of stocks with strong trading fundamentals to see if there are any other companies you may not have considered!

PS. Simply Wall St updates its DCF calculation for every Swedish stock daily, 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 only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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Here’s why Poly Medicure (NSE:POLYMED) can manage debt responsibly http://freedominst.org/heres-why-poly-medicure-nsepolymed-can-manage-debt-responsibly/ Sat, 25 Jun 2022 02:10:26 +0000 http://freedominst.org/heres-why-poly-medicure-nsepolymed-can-manage-debt-responsibly/

Howard Marks said 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 that every practical investor that I know is worried”. When we think of a company’s risk, we always like to look at its use of debt, because over-indebtedness can lead to ruin. We can see that Poly Medicine Limited (NSE: POLYMED) uses debt in its business. But the real question is whether this debt makes the business risky.

Why is debt risky?

Debt helps a business until the business struggles to pay it back, either with new capital or with free cash flow. If things go really bad, lenders can take over the business. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, permanently diluting shareholders, just to shore up its balance sheet. Of course, debt can be an important tool in businesses, especially capital-intensive businesses. When we look at debt levels, we first consider cash and debt levels, together.

Check out our latest analysis for Poly Medicure

What is Poly Medicure’s debt?

You can click on the chart below for historical figures, but it shows Poly Medicure had ₹1.25bn in debt in March 2022, up from ₹1.34bn a year prior. However, he has ₹3.52 billion in cash to offset this, resulting in a net cash of ₹2.27 billion.

NSEI: POLYMED debt/equity history June 25, 2022

How solid is Poly Médecine’s balance sheet?

The latest balance sheet data shows that Poly Medicure had liabilities of ₹2.27 billion due within one year, and liabilities of ₹626.8 million falling due thereafter. In return, he had ₹3.52 billion in cash and ₹2.07 billion in receivables due within 12 months. So he actually has ₹2.70 billion After liquid assets than total liabilities.

This surplus suggests that Poly Médecine has a conservative balance sheet, and could probably eliminate its debt without too much difficulty. Simply put, the fact that Poly Medicure has more cash than debt is probably a good indication that it can safely manage its debt.

In contrast, Poly Medicure has seen its EBIT fall by 4.6% over the last twelve months. If earnings continue to decline at this rate, the company could find it increasingly difficult to manage its debt. When analyzing debt levels, the balance sheet is the obvious starting point. But ultimately, the company’s future profitability will decide whether Poly Medicure can strengthen its balance sheet over time. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.

But our last consideration is also important, because a company cannot pay debt with paper profits; he needs cash. Although Poly Medicure has net cash on its balance sheet, it’s still worth looking at its ability to convert earnings before interest and taxes (EBIT) to free cash flow, to help us understand how fast it’s building ( or erodes) that cash. balance. Over the past three years, Poly Medicure has generated free cash flow of 3.1% of its EBIT, a performance without interest. This low level of cash conversion compromises its ability to manage and repay its debt.

Summary

While we sympathize with investors who find debt a concern, you should bear in mind that Poly Medicure has a net cash position of ₹2.27 billion, as well as more liquid assets than liabilities. We are therefore not concerned about Poly Medicure’s use of debt. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist outside of the balance sheet. Example: we have identified 3 warning signs for Poly Medicure you should be aware, and 1 of them is a bit unpleasant.

In the end, sometimes it’s easier to focus on companies that don’t even need to take on debt. Readers can access a list of growth stocks with no net debt 100% freeat present.

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

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3M (NYSE:MMM) has a fairly healthy balance sheet http://freedominst.org/3m-nysemmm-has-a-fairly-healthy-balance-sheet/ Wed, 22 Jun 2022 10:36:07 +0000 http://freedominst.org/3m-nysemmm-has-a-fairly-healthy-balance-sheet/

Berkshire Hathaway’s Charlie Munger-backed outside fund manager Li Lu is quick to say, “The biggest risk in investing isn’t price volatility, but whether you’re going to suffer a permanent loss of capital “. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. We note that 3M Company (NYSE:MMM) has debt on its balance sheet. But should shareholders worry about its use of debt?

When is debt dangerous?

Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, it exists at their mercy. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are mercilessly liquidated by their bankers. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. Of course, many companies use debt to finance their growth, without any negative consequences. When we look at debt levels, we first consider cash and debt levels, together.

See our latest analysis for 3M

What is 3M Debt?

You can click on the chart below for historical numbers, but it shows 3M had $16.7 billion in debt in March 2022, up from $18.2 billion a year prior. However, he also had $3.36 billion in cash, so his net debt is $13.4 billion.

NYSE:MMM Debt to Equity June 22, 2022

How healthy is 3M’s balance sheet?

Zooming in on the latest balance sheet data, we can see that 3M had liabilities of US$9.15 billion due within 12 months and liabilities of US$21.7 billion due beyond. In compensation for these obligations, it had cash of 3.36 billion US dollars as well as receivables valued at 4.82 billion US dollars due within 12 months. It therefore has liabilities totaling $22.7 billion more than its cash and short-term receivables, combined.

While that might sound like a lot, it’s not too bad since 3M has a huge market capitalization of US$74.0 billion, so it could probably bolster its balance sheet by raising capital if needed. However, it is always worth taking a close look at its ability to repay debt.

In order to assess a company’s debt relative to its earnings, we calculate its net debt divided by its earnings before interest, taxes, depreciation and amortization (EBITDA) and its earnings before interest and taxes (EBIT) divided by its expenses. interest (its interest coverage). The advantage of this approach is that we consider both the absolute amount of debt (with net debt to EBITDA) and the actual interest expense associated with that debt (with its interest coverage ratio ).

3M has a low net debt to EBITDA ratio of just 1.4. And its EBIT covers its interest charges 17.2 times. So we’re pretty relaxed about his super-conservative use of debt. Although 3M doesn’t seem to have gained much on the EBIT line, at least earnings are holding steady for now. When analyzing debt levels, the balance sheet is the obvious starting point. But future earnings, more than anything, will determine 3M’s ability to maintain a healthy balance sheet in the future. 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 pay off its debts; book profits are not enough. So the logical step is to look at what proportion of that EBIT is actual free cash flow. Over the past three years, 3M has produced strong free cash flow equivalent to 79% of its EBIT, which is what we expected. This free cash flow puts the company in a good position to repay its debt, should it arise.

Our point of view

3M’s interest cover suggests it can manage its debt as easily as Cristiano Ronaldo could score a goal against an Under-14 goalkeeper. And this is only the beginning of good news since its conversion of EBIT into free cash flow is also very pleasing. When we consider the range of factors above, it seems that 3M is quite sensible with its use of debt. This means they take on a bit more risk, hoping to increase shareholder returns. 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 outside of the balance sheet. To this end, you should be aware of the 1 warning sign we spotted with 3M.

If, after all that, you’re more interested in a fast-growing company with a strong balance sheet, check out our list of cash-flowing growth stocks without further ado.

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

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We think DLF (NSE:DLF) can stay on top of its debt http://freedominst.org/we-think-dlf-nsedlf-can-stay-on-top-of-its-debt/ Mon, 20 Jun 2022 08:23:23 +0000 http://freedominst.org/we-think-dlf-nsedlf-can-stay-on-top-of-its-debt/

Berkshire Hathaway’s Charlie Munger-backed outside fund manager Li Lu is quick to say, “The biggest risk in investing isn’t price volatility, but whether you’re going to suffer a permanent loss of capital “. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. Above all, DLF limited (NSE:DLF) is in debt. But should shareholders worry about its use of debt?

Why is debt risky?

Debt is a tool to help businesses grow, but if a business is unable to repay its lenders, it exists at their mercy. If things go really bad, lenders can take over the business. However, a more common (but still costly) event is when a company has to issue stock at bargain prices, permanently diluting shareholders, just to shore up its balance sheet. That said, the most common situation is when a company manages its debt reasonably well – and to its own benefit. The first thing to do when considering how much debt a business has is to look at its cash and debt together.

See our latest analysis for DLF

What is DLF’s debt?

As you can see below, DLF had a debt of ₹39.6 billion in March 2022, up from ₹66.7 billion in the previous year. However, he has ₹11.7 billion in cash to offset this, resulting in a net debt of around ₹27.9 billion.

NSEI: Historical Debt to Equity Ratio June 20, 2022

How strong is DLF’s balance sheet?

The latest balance sheet data shows that DLF had liabilities of ₹104.0 billion due within a year, and liabilities of ₹57.2 billion falling due thereafter. In return, he had ₹11.7 billion in cash and ₹12.5 billion in receivables due within 12 months. It therefore has liabilities totaling ₹137.0 billion more than its cash and short-term receivables, combined.

Given that publicly traded DLF shares are worth a total of ₹747.5 billion, it seems unlikely that this level of liabilities will pose a major threat. But there are enough liabilities that we certainly recommend that shareholders continue to monitor the balance sheet in the future.

We measure a company’s leverage against its earning power by looking at its net debt divided by its earnings before interest, taxes, depreciation and amortization (EBITDA) and calculating how easily its earnings before interest and taxes (EBIT ) covers its interest charge (interest coverage). Thus, we consider debt to earnings with and without amortization and depreciation expense.

DLF has net debt worth 1.6x EBITDA, which isn’t too much, but its interest coverage looks a little low, with EBIT at just 2.6x interest expense . While these numbers don’t alarm us, it’s worth noting that the cost of corporate debt has a real impact. It should also be noted that DLF has increased its EBIT by a very respectable 22% over the past year, improving its ability to repay its debt. When analyzing debt levels, the balance sheet is the obvious starting point. But it is future earnings, more than anything, that will determine DLF’s ability to maintain a healthy balance sheet in the future. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.

Finally, a business needs free cash flow to pay off its debts; book profits are not enough. It is therefore worth checking how much of this EBIT is supported by free cash flow. Over the past three years, DLF has actually produced more free cash flow than EBIT. This kind of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Our point of view

The good news is that DLF’s demonstrated ability to convert EBIT into free cash flow delights us like a fluffy puppy does a toddler. But we have to admit that we find that its interest coverage has the opposite effect. Given all this data, it seems to us that DLF is taking a pretty sensible approach to debt. This means they take on a bit more risk, hoping to increase shareholder returns. 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 outside of the balance sheet. For example, we found 2 warning signs for DLF which you should be aware of before investing here.

In the end, it’s often best to focus on companies that aren’t in debt. You can access our special list of these companies (all with a track record of earnings growth). It’s free.

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

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Estimation of the fair value of Intercos SpA (BIT:ICOS) http://freedominst.org/estimation-of-the-fair-value-of-intercos-spa-biticos/ Sat, 18 Jun 2022 07:38:46 +0000 http://freedominst.org/estimation-of-the-fair-value-of-intercos-spa-biticos/

Does the June Intercos SpA (BIT:ICOS) stock price reflect what it is really worth? Today we are going to estimate the intrinsic value of the stock by taking the expected future cash flows and discounting them to their present value. One way to do this is to use the discounted cash flow (DCF) model. There really isn’t much to do, although it may seem quite complex.

Businesses can be valued in many ways, which is why we emphasize that a DCF is not perfect for all situations. For those who are passionate about stock analysis, the Simply Wall St analysis template here may interest you.

See our latest analysis for Intercos

crush numbers

We use what is called a 2-stage model, which simply means that we have two different periods of company cash flow growth rates. Generally, the first stage is a higher growth phase and the second stage is a lower growth phase. To begin with, we need to obtain cash flow estimates for the next ten years. Wherever possible, we use analysts’ estimates, but where these are not available, we extrapolate the previous free cash flow (FCF) from the latest estimate or reported 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 more in early years than in later 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 these future cash flows to their estimated value in today’s dollars:

Estimated free cash flow (FCF) over 10 years

2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Leveraged FCF (€, Millions) €53.0m €69.0m €81.0 million €89.7 million €97.0 million €102.9 million €107.9 million €112.1 million €115.7 million €118.9 million
Growth rate estimate Source Analyst x1 Analyst x1 Analyst x1 Is at 10.79% Is at 8.06% Is at 6.15% Is at 4.81% Is at 3.87% Is at 3.22% Is at 2.76%
Present value (€, millions) discounted at 8.9% 48.7 € 58.2 € 62.7 € 63.8 € 63.3 € 61.7 € 59.3 € 56.6 € 53.6 € 50.6 €

(“East” = FCF growth rate estimated by Simply Wall St)
10-year discounted cash flow (PVCF) = €578 million

After calculating the present value of future cash flows over the initial 10-year period, we need to calculate the terminal value, which takes into account all future cash flows beyond 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 10-year government bond yield of 1.7%. We discount terminal cash flows to present value at a cost of equity of 8.9%.

Terminal value (TV)= FCF2031 × (1 + g) ÷ (r – g) = €119m × (1 + 1.7%) ÷ (8.9%– 1.7%) = €1.7bn

Present value of terminal value (PVTV)= TV / (1 + r)ten= €1.7 billion÷ ( 1 + 8.9%)ten= €712 million

The total value is the sum of the cash flows for the next ten years plus the present terminal value, which gives the total equity value, which in this case is 1.3 billion euros. The final step is to divide the equity value by the number of shares outstanding. Compared to the current share price of €13.5, the company appears around fair value at the time of writing. Remember though that this is only a rough estimate, and like any complex formula – trash in, trash out.

BIT: ICOS discounted cash flows June 18, 2022

The hypotheses

Now, the most important inputs to a discounted cash flow are the discount rate and, of course, the actual cash flows. You don’t have to agree with these entries, I recommend you redo the calculations yourself and play around with them. 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 consider Intercos 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 8.9%, which is based on a leveraged beta of 1.125. Beta is a measure of a stock’s volatility relative to the market as a whole. We derive our beta from the average industry beta of broadly comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable company.

Look forward:

While a business valuation is important, it shouldn’t be the only metric to consider when researching a business. DCF models are not the be-all and end-all of investment valuation. Rather, it should be seen as a guide to “what assumptions must be true for this stock to be under/overvalued?” If a company grows at a different rate, or if its cost of equity or risk-free rate changes sharply, output may be very different. For Intercos, there are three essential factors that you should examine in more detail:

  1. Risks: For example, we spotted 2 warning signs for Intercos you should be aware.
  2. Future earnings: How does ICOS’ growth rate compare to its peers and the wider market? Dive deeper into the analyst consensus figure for the coming years by interacting with our free analyst growth forecast chart.
  3. Other high-quality alternatives: Do you like a good all-rounder? Explore our interactive list of high-quality actions to get an idea of ​​what you might be missing!

PS. Simply Wall St updates its DCF calculation for every Italian stock daily, 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 only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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We think King Wan (SGX:554) can stay on top of his debt http://freedominst.org/we-think-king-wan-sgx554-can-stay-on-top-of-his-debt/ Wed, 15 Jun 2022 23:28:17 +0000 http://freedominst.org/we-think-king-wan-sgx554-can-stay-on-top-of-his-debt/

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from synonymous with risk.” When we think of a company’s risk, we always like to look at its use of debt, because over-indebtedness can lead to ruin. Like many other companies King Wan Corporation Limited (SGX:554) uses debt. But should shareholders worry about its use of debt?

What risk does debt carry?

Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are mercilessly liquidated by their bankers. However, a more frequent (but still costly) event is when a company has to issue shares at bargain prices, permanently diluting shareholders, just to shore up its balance sheet. By replacing dilution, however, debt can be a great tool for companies that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business has is to look at its cash and debt together.

See our latest review for King Wan

What is King Wan’s debt?

The image below, which you can click on for more details, shows that King Wan had a debt of S$11.2 million at the end of March 2022, a reduction from S$33.4 million on a year. However, he has S$18.0 million to offset this, resulting in a net cash of S$6.76 million.

SGX: 554 Debt to Equity History June 15, 2022

How healthy is King Wan’s balance sheet?

Zooming in on the latest balance sheet data, we can see that King Wan had liabilities of S$52.4 million due within 12 months and liabilities of S$3.78 million due beyond. In return, he had S$18.0 million in cash and S$31.1 million in debt due within 12 months. Thus, its liabilities total S$7.16 million more than the combination of its cash and short-term receivables.

While that might sound like a lot, it’s not that bad since King Wan has a market capitalization of S$27.9 million, so it could likely bolster its balance sheet by raising capital if needed. But it is clear that it is essential to examine closely whether it can manage its debt without dilution. While he has some liabilities to note, King Wan also has more cash than debt, so we’re pretty confident he can safely manage his debt.

It was also good to see that despite losing money on the EBIT line last year, King Wan turned things around in the last 12 months, delivering an EBIT of S$225,000. The balance sheet is clearly the area to focus on when analyzing debt. But you can’t look at debt in total isolation; since King Wan will need income to repay this debt. So, when considering debt, it is definitely worth looking at the earnings trend. Click here for an interactive preview.

Finally, while the taxman may love accounting profits, lenders only accept cash. King Wan may have net cash on the balance sheet, but it’s always interesting to see how well the company converts its earnings before interest and taxes (EBIT) into free cash flow, as this will influence both its needs and its capacity. . to manage debt. Fortunately for all shareholders, King Wan has actually produced more free cash flow than EBIT over the past year. There’s nothing better than incoming money to stay in the good books of your lenders.

Summary

Although King Wan has more liabilities than liquid assets, he also has a net cash of S$6.76 million. And it impressed us with free cash flow of S$3.3 million, or 1,488% of its EBIT. So we don’t think King Wan’s use of debt is risky. When analyzing debt levels, the balance sheet is the obvious starting point. However, not all investment risks reside on the balance sheet, far from it. To do this, you need to find out about the 2 warning signs we spotted with King Wan (including 1 that didn’t suit us too much).

In the end, sometimes it’s easier to focus on companies that don’t even need to take on debt. Readers can access a list of growth stocks with no net debt 100% freeat present.

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

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We think V-Guard Industries (NSE:VGUARD) can stay on top of its debt http://freedominst.org/we-think-v-guard-industries-nsevguard-can-stay-on-top-of-its-debt/ Tue, 14 Jun 2022 00:50:23 +0000 http://freedominst.org/we-think-v-guard-industries-nsevguard-can-stay-on-top-of-its-debt/

Howard Marks said 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 that every practical investor that I know is worried”. So it may be obvious that you need to take debt into account when thinking about the risk of a given stock, because too much debt can sink a business. Above all, V-Guard Industries Limited (NSE:VGUARD) is in debt. But the more important question is: what risk does this debt create?

When is debt a problem?

Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are mercilessly liquidated by their bankers. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. Of course, many companies use debt to finance their growth, without any negative consequences. The first step when considering a company’s debt levels is to consider its cash and debt together.

Check out our latest analysis for V-Guard Industries

What is V-Guard Industries net debt?

The image below, which you can click on for more details, shows that V-Guard Industries had a debt of ₹117.9 million at the end of March 2022, a reduction from ₹130.1 million on a year. However, his balance sheet shows that he holds ₹612.7 million in cash, so he actually has ₹494.7 million in net cash.

NSEI:VGUARD Debt to Equity June 14, 2022

How healthy is V-Guard Industries’ balance sheet?

According to the latest published balance sheet, V-Guard Industries had liabilities of ₹6.16 billion due within 12 months and liabilities of ₹678.0 million due beyond 12 months. As compensation for these obligations, it had cash of ₹612.7 million as well as receivables valued at ₹4.86 billion due within 12 months. Thus, its liabilities total ₹1.37 billion more than the combination of its cash and short-term receivables.

This situation indicates that V-Guard Industries’ balance sheet looks quite strong, as its total liabilities roughly equal its cash. It is therefore highly unlikely that the ₹93.9bn company will run out of cash, but it is still worth keeping an eye on the balance sheet. Despite its notable liabilities, V-Guard Industries has a net cash position, so it’s fair to say that it doesn’t have a lot of debt!

The good news is that V-Guard Industries increased its EBIT by 5.7% year-on-year, which should ease any worries about debt repayment. There is no doubt that we learn the most about debt from the balance sheet. But future earnings, more than anything, will determine V-Guard Industries’ ability to maintain a healthy balance sheet in the future. So if you want to see what the professionals think, you might find this free analyst earnings forecast report interesting.

But our last consideration is also important, because a company cannot pay off its debts with paper profits; he needs cash. Although V-Guard Industries has net cash on its balance sheet, it is always worth looking at its ability to convert earnings before interest and taxes (EBIT) to free cash flow, to help us understand how quickly it builds (or erodes) this cash balance. Over the past three years, V-Guard Industries has created free cash flow of 6.1% of its EBIT, an uninspiring performance. This low level of cash conversion compromises its ability to manage and repay its debt.

Summary

We could understand if investors are worried about the liabilities of V-Guard Industries, but we can take comfort in the fact that it has a net cash position of ₹494.7 million. On top of that, it has increased its EBIT by 5.7% over the last twelve months. We are therefore not concerned about the use of debt by V-Guard Industries. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist outside of the balance sheet. To do this, you need to find out about the 3 warning signs we spotted with V-Guard Industries (including 1 that is concerning).

Of course, if you’re the type of investor who prefers to buy stocks without the burden of debt, then feel free to check out our exclusive list of cash-efficient growth stocks today.

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

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3 unstoppable growth stocks to buy on the stock market http://freedominst.org/3-unstoppable-growth-stocks-to-buy-on-the-stock-market/ Sat, 11 Jun 2022 15:53:00 +0000 http://freedominst.org/3-unstoppable-growth-stocks-to-buy-on-the-stock-market/

Growth stocks are falling out of favor with investors in 2022. Interest rates are rising rapidly, a trend that makes the present value of future cash flows worth less.

Despite what the market thinks of growth stocks, Apple (AAPL -3.86%), Roblox (RBLX -8.98%)and Airbnb (ABNB -5.88%) operate excellent businesses that seem unstoppable. Their shares are already trading at a discount after the sale. Investors should consider adding these three growth stocks if the stock market crash gains momentum. Here’s why.

Apple has decades of proven innovation

Apple’s business is centered on a unique ability to deliver innovative consumer technology products that generate billions in sales, beginning with the Mac computer, iPod, iPhone, iPad, Apple Watch, AirPods, etc. What is important for investors is that it has proven time and time again that it can innovate. It is therefore likely that it can maintain strong revenues and profitability in the long term.

PE AAPL Ratio Data by YCharts

From 2019 to 2021, Apple’s sales grew from $260 billion to $366 billion, while increasing earnings per share from $2.97 to $5.61. Apple trades at a price/earnings ratio of 22 and a price/free cash flow (P/FCF) multiple of 21.

Roblox is a metaverse pioneer

Roblox operates a platform where players can virtually interact with each other and the environment – in other words, a metaverse. It grew to have 53.1 million monthly active users in April, a 23% increase from the previous year. It’s free to join and use, for the most part. Roblox makes money by selling Robux, an in-game currency required for premium items.

Graph showing the increase in cash from Roblox operations since 2020.

Cash data from RBLX operations (annual) by YCharts

Roblox chose to outsource these creations, a business model that has helped it generate strong cash flow over the past two years. Roblox flourished at the start of the pandemic, when millions of children – its most popular cohort – were spending more time at home. The economic reopening is creating headwinds for Roblox, which, in addition to the sale of growth stocks, has caused its stock to crater. Sold at a P/FCF multiple of 31, it’s almost the cheapest it’s ever been.

Airbnb gives travelers more options

Like Roblox, Airbnb operates an asset-light business model which has been helpful for its ability to generate free cash flow. Instead of creating, owning and operating the listings on its platform, Airbnb incentivizes others to list rentals. Airbnb takes a percentage of the booking value of each transaction on its website.

Additionally, by allowing hosts to list properties on the platform, Airbnb provides a unique set of properties not available in traditional hotels. This means that on Airbnb, travelers can book a room in an apartment or an entire house, depending on their needs for a particular stay. Revenue soared 77% for Airbnb in 2021, underscoring that it is growing in popularity with travelers.

Chart showing the pandemic-related decline in Airbnb's operating cash and its sharp increase since 2021.

ABNB Operating Cash Data (Annual) by YCharts

Much like Roblox, Airbnb is trading near its lowest P/FCF multiple at 25.

Robust growth at an excellent price

Each of the three stocks mentioned above recorded excellent growth, indicating continued expansion in the years to come. Fortunately or unfortunately, depending on your perspective as a shareholder or potential investor, the sale of growth stocks is causing these companies to trade at substantial discounts to where they were just a few months ago.

They could get even better if another crash pushes prices even lower. Investors should put Apple, Roblox, and Airbnb on their watchlists and consider adding them to their portfolios should the market continue to decline.

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Idea farm: faith in free money http://freedominst.org/idea-farm-faith-in-free-money/ Thu, 09 Jun 2022 16:13:47 +0000 http://freedominst.org/idea-farm-faith-in-free-money/
  • Long-term forecasts should be more wobbly
  • Short-term estimates can also waver
  • Lots of idea-generating content

In theory, making an accurate prediction about an event should be easier the closer we get to it. The more imminent something is, the more information we tend to have – while the window for chance, chaos and unknown factors to assert itself shrinks.

This is generally the case with financial markets. An accurate estimate for Apple (US: AAPL) sales in any given quarter are always unlikely. But with only a few weeks left in the current period and facts about global currency fluctuations and consumer appetite now well established, the margin for error should be smaller than it was a month ago. .

This presents a paradox for investors. Longer-term price, earnings and market estimates should matter much more for today’s decision-making and capital allocation decisions. But the more advanced these predictions are, the more flawed they become.

Again, the margin of error can be wide over a period as short as a year.

Take the consensus forecast for a big index like the FTSE All-Share. You might think that the aggregated predictions of each analyst covering 600 companies would amount to the wisdom of the crowds. And sometimes that’s true: in 2018, for example, the index’s free cash flow per share estimates were never exceeded by more than 5% in either direction in that calendar year ( See table).

FTSE All-Share FCF estimates vs reality*
Year High Down Real Interval
2017 235.69 206.03 214.45 +10% to -4%
2018 249.31 224.21 236.85 +5% to -5%
2019 264.24 220.34 213.4 +24% to 3%
2020 262.2 127.42 147.07 +78% to -13%
2021 223.69 192.57 240.12 -7% to -20%
2022 302.36 257.66
Source: Fact Set. *Per share (£), estimated range during the year.

However, each year since, the range of estimates has been wider, even adjusting for time. The highest consensus in-year forecast for 2021 – made in mid-December – was 7% lower than the actual figure.

Either way, investors are doomed to make short- and long-term guesses.

Usually, the insights, results, and stock screens on these pages focus on forecasts for the next two years. Overall, this seems reasonable, given general market and investor expectations. But it also has its downsides, especially when it comes to expensive stocks: the value of a stock priced at 25 times projected 2023 earnings is not usually attributed to a 4% yield the next year, but what profits will the company make afterwards? years.

One of the ways analysts typically account for this is by using discounted cash flow models, which incorporate many forecasts to arrive at a net present value.

A cruder method is to take analysts’ longer-term forecasts at face value.

Given the reluctance of many City and Wall Street residents to release estimates more than three years in advance, this is often not possible. But some do, and the numbers shouldn’t be entirely ignored.

Using free cash flow per share as an indicator of actual earnings, FactSet shows up to seven years of forecasts for select All-Share and S&P stocks. Adding those numbers up and excluding stocks worth less than five times this year’s expected earnings, we find a handful of companies that are expected to generate at least 75% of their current cash value, in six years or less.

Some of the British names – such as Cineworld (CINE) and DFS Furniture (DFS) – have large debts and operate in fragile sectors where consumption trends are difficult to predict. Others – like Glencore (GLEN) and Hull (SHEL) – will likely face high price volatility and a rapidly changing regulatory environment.

Yes, this type of screening has its limits. But it’s not limited to value stocks: Google-parent Alphabet (US: GOOGL), which trades at 19 times forward earnings, is expected to generate half its market value in cash in six years. The long term always matters.

FTSE All Share
Company ITLOS Price (£) Before NTM PE Year of recovery
cineworld CINE 0.26 5 2
Quick rental SDY 0.48 9 2
quilter QLT 1.18 15 3
bridge stitch BPT 3.37 22 3
DFS Furniture DFS 1.94 seven 3
glencore GLEN 5.42 6 4
TUI-AG TUI 1.89 ten 4
Marston’s MARCH 0.55 8 4
Shell SHEL 23.95 seven 5
BP BP 4.40 5 6
Endeavor Mining VDE 18.75 13 6
Source: Investor Chronicle, FactSet
S&P500
Company ITLOS Price ($) Before NTM PE Year of recovery
NRG Energy NRG 46.23 9 4
Tapestry TRP 34.62 9 5
Discovery of Warner Bros. WBD 16.85 ten 5
Modern mRNA 140.00 seven 6
Comcast Company CMCSA 42.28 11 6
Source: Investor Chronicle, FactSet
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Franchise Group enters into exclusive negotiations with Kohl’s Corporation http://freedominst.org/franchise-group-enters-into-exclusive-negotiations-with-kohls-corporation/ Mon, 06 Jun 2022 23:59:00 +0000 http://freedominst.org/franchise-group-enters-into-exclusive-negotiations-with-kohls-corporation/

Franchise Group, Inc.

DELAWARE, Ohio, June 06, 2022 (GLOBE NEWSWIRE) — Franchise Group, Inc. (NASDAQ: FRG) (“Franchise Group”) announced today that it has entered into a three-week exclusive negotiation period to acquire Kohl’s Corporation for 60 $.00 per unit in cash.

If Franchise Group and Kohl’s Corporation enter into a definitive agreement, Franchise Group intends to contribute approximately $1 billion of capital to the transaction, all of which is expected to be funded by a corresponding increase in the size of its secured credit facilities. . A majority of the financing for the transaction is expected to be provided based on the real estate assets of Kohl’s Corporation. Other than the increase in Franchise Group’s secured credit facilities, no part of the financing of the transaction is expected to be recourse against Franchise Group.

Franchise Group remains committed to its prudent financial policies, including target leverage levels and maximizing free cash flow generation. If a transaction is completed, Franchise Group’s free cash flow, adjusted EBITDA and non-GAAP EPS are expected to increase significantly. The significant increase in free cash flow generation should support Franchise Group’s objective of increasing dividends and other capital returns for shareholders, while allowing Franchise Group to accelerate the pursuit of organic and inorganic investments. .

There can be no assurance that a transaction will result from ongoing discussions with Kohl’s Corporation. Franchise Group does not intend to comment further regarding these discussions unless and until it is appropriate to do so, or a formal agreement has been reached or transaction discussions are completed.

About Franchise Group, Inc.

Franchise Group is an owner and operator of franchise and franchiseable businesses that continually seeks to grow its brand portfolio while utilizing its operating and capital allocation philosophy to generate strong cash flow for its shareholders. Franchise Group businesses include Pet Supplies Plus, American Freight, The Vitamin Shoppe, Badcock Home Furniture and More, Buddy’s Home Furnishings and Sylvan Learning. On a combined basis, Franchise Group currently operates over 3,000 locations primarily in the United States that are either company-managed or operated under franchise and licensee agreements.

Forward-looking statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, projections, predictions, expectations or beliefs regarding future events or results. and are not statements of historical fact. . Such statements include all statements contained in this press release regarding the potential acquisition of Kohl’s Corporation, the timing thereof, whether such transaction proceeds and, if so, its effect on Franchise Group, any expected financial performance of Kohl’s Corporation or Franchise Group or the benefits Franchise Group currently expects to derive from the transaction, including that the transaction, if completed, would significantly increase free cash flow, adjusted EBITDA and non-GAAP EPS of Franchise Group or would allow it to increase dividends, shareholder returns, or organic or inorganic investments. These forward-looking statements are based on various assumptions at the time they are made and are inherently subject to known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to differ materially from any future result, performance or achievement expressed or implied by such forward-looking statements. Forward-looking statements are often accompanied by words that convey projected future events or results such as “expect”, “believe”, “estimate”, “plan”, “project”, “anticipate”, “have the intention of”, “will”, “may”, “view”, “opportunity”, “potential” or words of similar meaning or other statements concerning the opinions or judgment of the Company or its management on events future. Although the Company believes that its expectations with respect to forward-looking statements are based on reasonable assumptions within the limits of its current knowledge of its business and operations, there can be no assurance that the actual results, performance or achievements of the Company will not differ materially from any projected future results, performance or achievements expressed or implied by such forward-looking statements. Actual future results, performance or achievements may differ materially from historical or anticipated results depending on a variety of factors, many of which are beyond the control of the Company. We refer you to the “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of the Company’s Annual Report on Form 10-K for the period ended December 25, 2021, as well than the comparable sections of the company’s quarterly report. Reports on Form 10-Q and other filings, which have been filed with the SEC and are available on the SEC’s website at www.sec.gov. All forward-looking statements made in this press release are expressly qualified by the cautionary statements contained or referred to herein. Readers are cautioned not to rely on any forward-looking statements contained in this press release. Forward-looking statements speak only as of the date on which they are made, and the Company undertakes no obligation to update, revise or clarify such forward-looking statements, whether as a result of new information, future events or otherwise.

INVESTOR RELATIONS CONTACT:

Andrew F. Kaminsky
Executive Vice President and Administrative Director
Franchise Group, Inc.
akaminsky@franchisegrp.com
(914) 939-5161

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