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Determining Excess Cash in ROIC

On top of Joel Greenblatt's definition of ROC in the previous post, Morningstar's Pat Dorsey in his book "The Five Rules for Successful Stock Investing" defined Return on Invested Capital (ROIC) as: Net Operating Profit After Tax (NOPAT) / Invested Capital where Invested Capital = Total assets – Non-interest-bearing current liabilities (e.g. accounts payable and … Continue reading

Book Review: The Little Book That Beats the Market

Rating: Good Key Points: Joel Greenblatt proposed a “magic formula” to rank stocks based on 2 factors: Return on Capital (ROC), and Earnings Yield. Each stock will be ranked based on each individual factor (hence each stock has 2 ranks), then we add the two ranks up, and perform a final sorting. Hence the best … Continue reading

Martin Whitman’s “safe and cheap” approach

Another good article on Gurufocus. According to Marty Whitman, the “safe and cheap” investor looks for four things in an investment: High quality balance sheet; Competent and shareholder-oriented management; Understandable and honest disclosure documents; Priced at 50 to 60 cents on a dollar. Whitman is similar in many respects to Graham. Whitman concentrates more on … Continue reading

Graham’s net-net investment strategy

Just read an article on Gurufocus: http://www.gurufocus.com/news.php?id=877 that talks about Benjamin Graham's "net-net" investment strategy in 1979, and Joel Greenblatt's analysis of it back in 1981. Salient points: Graham's rough liquidation value (net-net) estimate: "Current Assets" (cash, accounts receivable, inventory, etc.) Less: "Current Liabilities" (short term debt, accounts payable, etc.) Less: "Long Term Liabilities" (long … Continue reading

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