Peerless Revised Formula

First the Peerless part of this blog. Peerless (PRLS) reported their earnings this evening (Peerless Systems Announces Fiscal 2008 Fourth Quarter and Full-Year Results). I thought the numbers were strong, and I see where they're up 6% in after hour trading (pass me a gin and tonic while I buy some PRLS!). More importantly, they announced that shareholders will be voting on the sale of a chunk of the company to Kyocera-mita. This deal would net PRLS about $40m (pre-tax). They have $23m in cash right now, so you gotta believe they'll have north of $50m post the sale. Yet their market cap is under $40m. A real head-scratcher. I guess the market doesn't have confidence that they'll use the money wisely (let's party!) or I am missing something.

Now the Revision Part.

Improvements to the “Formula”.

Not sure if it’ll help us get better results, but we should come closer to matching the website. KD on the Yahoo! Boards had taken the formulas I had posted (which I had pretty much copied from Tony Brake) and made a few slight tweaks to get much closer to the website. The big change has to do with cash. I had toyed around with a very similar change as I was concerned that at time invested capital could get very close to zero, which didn’t make any sense.

The key is to split cash into two components, which I’ll call working cash (which will be part of invested capital) and excess cash (which will be part of the calculation of enterprise value.

The calculation for working cash = (accounts payable + other current liabilities) – (receivables + inventories + other current assets) subject to a minimum of $0.

If you stop and think about it, it makes sense. If you don’t have enough current liquid assets to meet your current liabilities you have to supplement with “working” cash. Of course the beauty of this change (if you think about the math briefly) is that invested capital can now never be less than Property, Plants and Equipment, which seems sensible. Before this change, I defaulted invested capital to PPE when less than zero, but this makes more sense.

KD also had several other smaller changes. He gets his market cap from another source (I use Yahoo). I have had trouble tying to the market caps in the website so I’ll keep using Yahoo until convinced otherwise. His final comment was that he matched better not adjusting for minority interest – income account. This doesn’t come up very often. But as that income is not available to the stockholders, I’d rather keep pulling it out (unless somehow in his market cap he increases for minority interest). Anyway, in total I feel we’re closer than ever.

So here is the new and improved formula:

		hsii
+	Operating Income After Depreciation	71.83
-	Minority Interest - Income Account	-
=	Income for Calculation	71.83
	Market Cap Yahoo	572,390
	Share Price	33.13
+	Market Cap Calc	572.39
+	Preferred Capital	-
+	Short-Term Borrowings	-
+	Long-Term Debt	-
	Cash and Short-Term Investments	218.24
-	Excess Cash	164.19
=	Enterprise Value	408.20
+	Property Plant and Equipment - Net	18.12
+	Receivables	131.49
+	Inventories	-
+	Other Current Assests	31.57
+	Working Cash	54.06
-	Accounts Payable	7.09
-	Current Liabilities - Other	210.03
=	Invested Capital	18.12
	Earnings Yield	18%
	ROIC	396%
	note: working cash = Current liabilities - Current Assets (x PPE), subject to a min of $0