Money and Finance
- Investing In A High-quality Business...
From Capital Returns: Investing in a high-quality company can seem dull and unrewarding in the near-term. The lower risk which comes from investing in quality companies is only properly observed over the long-term. The fact that investors are often...
- Second Interview With Tim Klusas, President Of The Marketing Alliance, Inc.
Below is a link to a follow-up interview that my colleague, Matt Miller, conducted with Tim Klusas, President of The Marketing Alliance, Inc (MAAL.pk). The first interview Matt conducted with Tim occurred in October of 2009 (HERE). I also wrote an article...
- Why Dividends Matter: The Calm In The Storm
Dividends. I love them. One of the reasons that dividends are so awesome is that they provide a positive portion of return that can't be taken away. If you receive a $50 dividend in cash that's a positive return. Forever. The company...
- Portfolio Returns - Part I
I figured that we should take a look at portfolio returns so we can see exactly where we stand. If you don't know what you're actually returning then it's hard to tell if it's a good investment. While some people are focused on just...
- Dividend Compass - Royal Dutch Shell
Todd Wenning's Dividend Compass is a diagnostic tool that covers the parts of fundamental analysis most useful to dividend investors. This is a pretty broad set of metrics, Todd describes them here: "Sales growth: Sales are the life-blood of a company....
Money and Finance
Cash return on capital…
I wanted to highlight the excerpt below, from the book The Outsiders, because through my experience looking at a lot of small companies, I think a focus on cash return on capital would make a huge difference in a lot of places. I think too many companies feel the need to ‘do something’ and invest money opening new stores, new plants, etc. without properly considering whether or not a good economic profit and cash return is being realized. Sales and profit dollars get the attention, but those numbers don’t mean all that much if the capital invested to achieve those sales and profits isn’t considered in the return equation.
Consider the scenario where two restaurants are opened and both restaurants generate $3 million in sales and $200,000 in EBIT. You can’t tell which is better if you don’t know how much capital went into getting them open. If it took $1.5 million to get the restaurant open, then the return is pretty average. If it took $400,000 to get the restaurant open, then the return is pretty great, even though the EBIT margin was less than 7%.
Now the short excerpt from the book:
When Anders and Mellor began to implement their plan, General Dynamics was overleveraged and had negative cash flow. Over the ensuing three years, the company would generate $5 billion of cash. There were two basic sources of this astonishing influx: a remarkable tightening of operations and the sale of businesses deemed non-core by Anders’s strategic framework.
More generally, they discovered that plant managers carried far too much inventory and hadn’t been calculating return on investment in their requests for additional capital. This changed quickly under Mellor’s watch, and he and Anders moved decisively to create a culture that relentlessly emphasized returns. Specifically, as longtime executive Ray Lewis says, “Cash return on capital became the key metric within the company and was always on our minds.”
- Investing In A High-quality Business...
From Capital Returns: Investing in a high-quality company can seem dull and unrewarding in the near-term. The lower risk which comes from investing in quality companies is only properly observed over the long-term. The fact that investors are often...
- Second Interview With Tim Klusas, President Of The Marketing Alliance, Inc.
Below is a link to a follow-up interview that my colleague, Matt Miller, conducted with Tim Klusas, President of The Marketing Alliance, Inc (MAAL.pk). The first interview Matt conducted with Tim occurred in October of 2009 (HERE). I also wrote an article...
- Why Dividends Matter: The Calm In The Storm
Dividends. I love them. One of the reasons that dividends are so awesome is that they provide a positive portion of return that can't be taken away. If you receive a $50 dividend in cash that's a positive return. Forever. The company...
- Portfolio Returns - Part I
I figured that we should take a look at portfolio returns so we can see exactly where we stand. If you don't know what you're actually returning then it's hard to tell if it's a good investment. While some people are focused on just...
- Dividend Compass - Royal Dutch Shell
Todd Wenning's Dividend Compass is a diagnostic tool that covers the parts of fundamental analysis most useful to dividend investors. This is a pretty broad set of metrics, Todd describes them here: "Sales growth: Sales are the life-blood of a company....