Owner Earnings and Owners’ Cash Profits are similar types of cash flow for analysis of businesses and stocks. These metrics provide important insight into the cash flow of the entity, particularly the cash flow available for the owners.
...Are you ever confused by the different types of cash flow for investment analysis? There are too many cash flow calculations for most of us to have in memory. I know I get them confused and I’m a seasoned investor.
I believe you will find this a useful guide to the different types of cash flow and cash flow calculations, along with practical step by step comparisons and uses for each metric.
...Working capital is an important measure of a company’s operating liquidity. The working capital ratio (a.k.a current ratio) is an indicator of the ability of the company to meet its short term obligations.
Working capital calculations such as Net Current Asset Value (NCAV) and Net Net Working Capital (NNWC) provide valuable metrics with which to measure against price in order to identify bargain stocks.
...Enterprise value (EV) and Enterprise value ratios are part of the basic foundation of stock analysis for value investors.
The purpose of Enterprise Value (EV) is two fold; First, to calculate what it would cost to purchase the entire company or business. Secondly, to provide a capital neutral valuation with which to compare with other companies.
...Your investment analysis should include high probability value strategies that improve returns and lower portfolio volatility. The focus needs to be on strategies that are long term value oriented rather than on instant gratification.
...Examples demonstrate that volatility lowers your investment returns. Arithmetic and geometric averages serve different purposes and only geometric averages will accurately reflect compounded investment returns.
Even small differences in investment returns can make huge differences in results over long periods of time. The consequence is investors need to put additional emphasis on the amount of volatility they are willing to accept. It may be that you can increase your long term investment returns by taking LESS risk!
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As founder of the Arbor Investment Planner my passion is to educate and empower the individual investors to manage their own investment portfolio.
The Arbor Investment Planner is a value investment portfolio management guide for those individual investors who choose to manage their own money. I focus on ideas and concepts important to the self directed investor; but put special emphasis on risk management, value investing strategies, and proper asset allocation and diversification.
- Ken Faulkenberry
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