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The Mirandolan

Essays and research, newest first

  1. XXXVIII 14 July 2024 The Weighted Average Cost of Capital (WACC) An investment is a choice to foregore present consumption in favour of future consumption, in exchange for which the investor is given a return which can simply be…
  2. XXXVII 5 June 2024 Free Cash Flow (FCF) and FCF Yield Free cash flow (FCF) is the cash that is available to all investors, whether debt holders or shareholders, after taxes have been paid. This is the after-tax cash…
  3. XXXVI 5 June 2024 Invested Capital Invested capital is the accumulation of investments that have been made into a business’ core operations, in order to earn NOPAT. As with NOPAT, I calculate invested capital…
  4. XXXV 5 June 2024 Net Operating Profit After Tax (NOPAT) Annual reports are not merely long, and complex, with often abstruse language that seems calculated to befuddle the reader, they are also structured in ways that unintentionally disguise…
  5. XXXIV 8 May 2024 Unconsolidated Subsidiary Assets, a Valuation Adjustment Where the unconsolidated subsidiary’s income is disclosed, I consider that income as operating and add it to my calculation of the parent company’s NOPAT, and invested capital and…
  6. XXXIII 8 May 2024 Excess Cash, a Valuation Adjustment As excess cash is not needed for operations, it can be distributed to shareholders, and so, I add it to my calculation of economic book value (EBV). In…
  7. XXXII 8 May 2024 Discontinued Operations, a Valuation Adjustment When it comes to estimating economic book value (EBV), one can say that the logic of discontinued operations is that, if businesses are held for sale, the cash…
  8. XXXI 8 May 2024 Deferred Compensation Assets and Liabilities, a Valuation Adjustment Although deferred compensation agreements create a liability for a business, that business may not match that liability with requisite assets. Deferred compensation assets are netted against deferred compensation…
  9. XXX 8 May 2024 Net Deferred Tax Assets and Liabilities, a Valuation Adjustment In my calculation of economic book value (EBV), I deduct DTLs, net of DTAs because they are real obligations that will have to be paid in future, reducing…
  10. XXIX 8 May 2024 Pension Net Funded Status, a Valuation Adjustment As I discussed in “Overfunded Pension Plan Assets, an Invested Capital Adjustment”, under SFAS 158, companies are obliged to  report the net funded status of their pensions, which…
  11. XXVIII 8 May 2024 Adjusted Total Debt, a Valuation Adjustment The adjusted total debt of a firm is the sum of the fair value of all its short and long-term obligations, on-balance sheet and off-balance sheet. For example,…
  12. XXVII 8 May 2024 Non-Controlling Interests, a Valuation Adjustment The fair value of non-controlling interest liability is subtracted from shareholder value in my reverse discounted cash flow (DCF) models to reflect the reality that non-controlling interests have…
  13. XXVI 8 May 2024 Preferred Stock, a Valuation Adjustment Preferred stock is a form of hybrid financing that has the qualities of both equity and debt. In terms of claims on assets and cash flows, preferred stock…
  14. XXV 8 May 2024 Deferred Compensation Assets, an Invested Capital Adjustment Deferred compensation is that portion of employee compensation that has been set aside for future payment. Firms create plans to manage the assets that will be used to…
  15. XXIV 8 May 2024 Outstanding Employee Stock Options, a Valuation Adjustment Not only are ESOs a compensation effect that impacts profitability, they are also an obligation to pay employees in shares, in a process of share dilution. There are…
  16. XXIII 8 May 2024 Non-Operating Unconsolidated Subsidiaries, an Invested Capital Adjustment Unconsolidated subsidiaries, also referred to as investments in associates, investments in affiliated companies, and equity investments, are businesses wherein a firm has a significant stake that falls short…
  17. XXII 8 May 2024 Time-Weighted Acquisitions, an Invested Capital Adjustment When a company is bought, its purchase price, debts and other long-term liabilities are fully absorbed by the acquirer's balance sheet. However, only the income it earns for…
  18. XXI 8 May 2024 Accumulated Goodwill Amortisation and Unrecorded Goodwill, an Invested Capital Adjustment Statement of Financial Accounting Standards (SFAS) 142 has implications for my calculation of invested capital. Accumulated goodwill amortisation, which sums up all the goodwill amortisation expensed throughout the…
  19. XX 8 May 2024 Excess Cash, an Invested Capital Adjustment Firms use a portion of their cash and cash equivalents and investments as operating cash for the running of the business, and any cash beyond this amount is…
  20. XIX 8 May 2024 Overfunded Pension Plan Assets, an Invested Capital Adjustment When retirement-related assets and liabilities are too small to disclose on the face of the balance sheet, companies will often elect to include prepaid pension assets within long-term…