Time is very limited for all of us and so i have to thank you Camden for the thought which you have put into that last posting, and to other posts. I can only provide a limited reply.
I would not like to think that my approach to investment analysis is from a banker's perspective, quite the opposite. As stated I have not considered it a priority to examine the detail of cash flows - that is the way a banker does operate, particularly the US banks lending to a UK company which will already have secured its assets to its 'first' banker.
Because financial statements available to us, but not to bankers who can be provided with monthly a/cs, are on a half yearly or annual basis, any cash flow analysis is limited. Nevertheless as I think I may have said, my approach, although focused on eps, recognises gearing ratios and debtors/turnover ratios and then eps. Valuation (ie sp) of most businesses is based on an earnings multiple (ie peratio).
Without the in-depth analysis which you have provided, I draw cash flow conclusions from the relative growth in debtors vs turnover, ie whether the company is developing one of the various types of liquidity problems: debtors are not paying! - and this can mean my simply not proceeding further with such a company; gearing ratios, if trending negatively, are for me in a similar category.
If a profitable company's turnover and earnings are growing faster than debtors, then in my view we have to leave to the company the detail of how it manages the cash flow arising, and not concern ourselves with whether it pays its tax on time - we have to assume such a company would do so! I can respect your view that further analysis of cash flow is useful, but if the turnover is growing faster than debtors then it is eps which is the issue for me.
I recognise that a company can misuse its surplus cash flow with imprudent expenditure and asset acquisitions, so negatively affecting its cash flow, but we have to assume that the executive team knows what it is doing, and our analysis months after an event can be of only limited benefit.
Yes you are correct that I am nervous re COF. I have a very substantial holding, but I am still a buyer at ~1.11. The mystery, rather than concern, for me is that COF earnings yield (PERatio) and gross div yield are very very high, at levels normally only associated with a company in difficulty; one can be consoled by the fact that only a few weeks ago, after the Update, there was a 'becoming a substantial holder' filing by a new shareholder, who we assume did their homework!
I still see the company's balance sheet as an unhealthy one; as I mentioned, if not a capital raising then a reduction in payout ratios would solve the problem, and the latter may unfortunately become inevitable; either method would provide an increase in reserves/NTA.
The minor point I was making re irrelevant intangibles was that it is indicative of a company scratching the barrel to produce a/cs with greater reserves than would normally be presented, and even then, for a company of this size, are incredibly thin at $6.6m.
COF Price at posting:
$1.05 Sentiment: Buy Disclosure: Held
