Wednesday, March 23, 2011

The Calculation

I thought it might be helpful for me to spell out my calculation of earnings yield and return on capital to match the approach used by JG. I can not take credit for the derivation of the calculation, it was a group effort on the Yahoo MFI Board with major assists from Randy Harmelink, Tony Brake and Kdad.

I start with financial statements from Fidelity. Here is the Balance sheet for PWER:

Balance Sheet

Item 12/31/2010 9/30/2010 6/30/2010 3/31/2010
Current Assets



Cash and Short-Term Investments 227.907 194.589 145.215 101.114
Receivables 270.526 211.011 137.949 123.252
Inventories 152.286 125.701 96.214 77.38
Other Current Assests 21.671 17.335 12.66 10.821
Current Assets - Total 672.39 548.636 392.038 312.567





Long-Term Assets








Property Plant and Equipment - Net 63.325 56.539 47.29 47.312
Other Assets Total 26.097 23.983 25.361 26.009
Goodwill 0 0 0 0
Assets - Total 761.812 629.158 464.689 385.888
Liabilities and Shareholders' Equity









Q4 2010 Q3 2010 Q2 2010 Q1 2010

12/31/2010 9/30/2010 6/30/2010 3/31/2010
Current Liabilities



Debt in Current Liabilities 0.103 1.288 1.172 1.257
Accounts Payable 213.096 187.559 146.504 101.387
Income Taxes Payable 103.739 67.4 30.4 17.9
Current Liabilities - Other 67.888 40.947 30.982 31.638
Current Liabilities - Total 384.826 297.194 209.058 152.182





Long-Term Liabilities








Long-Term Debt 35.911 38.387 72.636 73.174
Liabilities - Other 39.445 36.47 22.258 19.7
Liabilities - Total 460.182 372.051 303.952 245.056
Minority Interest - Balance Sheet 0 0 0 0





Common Shares Outstanding 103,924 103,924 88,589 88,370

Income Statement

Item 4 Quarters Q4 2010 Q3 2010 Q2 2010 Q1 2010
Total Revenue 1,047.1 366.2 314.0 214.5 152.4
Cost of Goods Sold 632.9 217.7 182.3 131.7 101.3
Selling, General and Administrative Expenses 111.0 32.6 28.2 26.8 23.4
Operating Income Before Depreciation 306.2 118.8 103.5 56.1 27.8
Depreciation & Amortization 14.8 3.0 3.0 3.8 5.0
Operating Income After Depreciation 291.4 115.8 100.5 52.3 22.8
Interest and Related Expense 6.7 1.4 1.2 2.0 2.0
Nonoperating Income (Expense) (0.7) (0.3) (2.5) 1.1 0.9
Special Items (32.4) (22.1) - (2.9) (7.4)
Pretax Income 251.5 92.0 96.8 48.4 14.3
Income Taxes 103.6 37.6 33.1 23.3 9.7
Minority Interest - Income Account - - - - -

Calculation

Op Item pwer
+ Operating Income After Depreciation 291.36
- Minority Interest - Income Account -
= Income for Calculation 291.36

Diluted Shares Outstanding 141.793

Share Price 8.34
+ Market Cap Calc 1,182.84
+ Preferred Capital 19.60
+ Debt in Current Liabilities 0.10
+ Long-Term Debt 35.91

Cash and Short-Term Investments 227.91
- Excess Cash 227.91
= Enterprise Value 1,010.54






+ Property Plant and Equipment - Net 63.33
+ Receivables 270.53
+ Inventories 152.29
+ Other Current Assests 21.67
+ Working Cash -
- Accounts Payable 213.10
- Current Liabilities - Other 67.89
= Invested Capital 226.82
Earnings Yield 29%
ROIC 128%

Working Cash

Working Cash = Max(0,[(AP + Current Liabilities Other) - (AR + Inventories
+ Other Current Assets)]
Excess Cash = Cash & ST Investments - Working Cash

3 comments:

Tim Zheng said...

In this example of PWER, the long term assets under "Other assets total" of 26.097 is not included in Invested Capital. Why is it excluded?

Nicholas Zarifeh said...

Hi marsh,
I am in the process of trying to replicate the magic formula- in the hope that i can run the screen and get a reasonable match with the MF website...once I am cobfident of this i will use the screen in Australia. I was wondering if you have run the formula in your blog through a dataset to see if you get a list of stocks that is comprable to the MF website. Thanks and regards. Nick

Nicholas Zarifeh said...

Hi marsh,
I am in the process of trying to replicate the magic formula- in the hope that i can run the screen and get a reasonable match with the MF website...once I am cobfident of this i will use the screen in Australia. I was wondering if you have run the formula in your blog through a dataset to see if you get a list of stocks that is comprable to the MF website. Thanks and regards. Nick