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Chris Ridder, CFA  

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  • IBM's Return On Equity And Sustainable Growth [View article]
    "Clearly IBM buying back shares has created a wedge between investors valuing a company in part, i.e. per share, and those valuing it as a whole.

    Let's see what IBM took in and spent over 2010-2014.
    Cash Flow from Operations + $93.3 Billion
    Capital Expenditures - $19.7 Billion
    Net Share Repurchases - $60.4 Billion
    Dividends Paid - $18.7 Billion
    Total - $5.5 Billion

    That is why I will have to side with the bears in this argument. IBM has to grow revenues, and not rely on cost cuts and share buybacks. Since 2010 Cash, Cash Equivalents, & Marketable Securities has dropped by over $3.1 Billion. Until revenues grow, holders of IBM stock are counting on a greater fool to buy their shares; right now the debt market is allowing IBM to be that fool, but one can not continually spend more than cash flow from operations!"

    This is at the end of an article I wrote before this one on IBM (published June 4, 2015) "IBM Quality Of Earnings: A Quick Rebuttal"
    http://seekingalpha.co...
    Jul 22, 2015. 05:28 PM | Likes Like |Link to Comment
  • IBM's Return On Equity And Sustainable Growth [View article]
    "... while IBM's income statement problems are now well-known, it is its balance sheet that investors should be paying attention to: with net debt once again slowly rising (from $30 billion to $30.3 billion in Q2), anyone hoping for a return of debt-funded stock buybacks will be sorely disappointed."

    from this Zero Hedge article:
    http://bit.ly/1CMafPa
    Jul 20, 2015. 07:21 PM | Likes Like |Link to Comment
  • IBM's Return On Equity And Sustainable Growth [View article]
    About 6 weeks after the article, IBM's earnings come out and it trades down sharply after hours:

    "IBM posts mixed second-quarter results: Profits beat, but sales fall short"

    http://yhoo.it/1ecDwXk
    Jul 20, 2015. 05:57 PM | Likes Like |Link to Comment
  • Intel's Inventory Helped Create An EPS 'Beat' [View article]
    As explained in the article:

    COGS = Beg. Inv. + Purchases (Manufacturing Costs) - End Inv.

    Since COGS is on the Income Statement and Inventories is in the formula for COGS, it follows that the level of inventory can influence EPS.

    You can watch this youtube video that explains inventory analysis:
    http://bit.ly/1eacakL

    Or search for "CFA® Level I Lesson Financial Reporting and Analysis (2013) " if the link does not work.

    Watch from 3 hours 23 minutes 6 seconds to 4 hours

    Financial Statement Analysis should also included, in my opinion, aggregate accruals analysis using the cash flow method.
    http://bit.ly/1eacakN
    This will be possible when Intel files its full 10-Q instead of just the 8-K released last week.
    Jul 19, 2015. 10:39 PM | Likes Like |Link to Comment
  • Intel's Inventory Helped Create An EPS 'Beat' [View article]
    Inventory levels always affect Cash Flow from Operations
    Jul 19, 2015. 06:00 PM | Likes Like |Link to Comment
  • Intel's Inventory Helped Create An EPS 'Beat' [View article]
    quote, "As we play out through the rest of the year, what we expect to happen is that units will continue to come down from here. 14-nanometer comes down the cost curve, but the inventory shifts even more dramatically from Broadwell to Skylake. And so when I take those three trends into account, I'm predicting that we'll end the year with inventory levels roughly flat to where we are today, not dramatically different. But again, units will be down, dollars will be flat."

    In Q4 2014 ending inventory was 4,273. Today it's 4,818. In dollars inventory would grow by 12.75% YoY, if this Intel executive is correct.
    Analysts, currently expect Q4 revenue growth of only 1.15%
    http://yhoo.it/QzPIV0


    A compression of gross margin in Q4 is very possible depending upon Q3's ending inventory and purchases (cost of manufacturing).
    Jul 18, 2015. 08:39 PM | Likes Like |Link to Comment
  • Intel's Inventory Helped Create An EPS 'Beat' [View article]
    "...in the year 2000, semiconductor stocks didn't peak until the fall, [analysts] were out talking about how Windows 2000 was going to spur demand. That did not happen.

    Shortly thereafter, the analysts came up with this notion of a PC corporate upgrade cycle, which also has not materialized. PCs are replaced sporadically, but there is no 'up-cycle.' "

    from:http://bit.ly/1e7HdgT

    This is very dated commentary, but in my opinion, applicable to previous sentiment environments.

    Also, this quote, "As we play out through the rest of the year, what we expect to happen is that units will continue to come down from here. 14-nanometer comes down the cost curve, but the inventory shifts even more dramatically from Broadwell to Skylake. And so when I take those three trends into account, I'm predicting that we'll end the year with inventory levels roughly flat to where we are today, not dramatically different. But again, units will be down, dollars will be flat."

    deals with Intel specifically.

    In Q4 2014 ending inventory was 4,273. Today it's 4,818. In dollars inventory would grow by 12.75% YoY, if this Intel executive is correct.
    Analysts, currently expect Q4 revenue growth of only 1.15%
    http://yhoo.it/QzPIV0

    A compression of gross margin in Q4 is very possible depending upon Q3's ending inventory and purchases (cost of manufacturing).
    Jul 18, 2015. 06:12 PM | Likes Like |Link to Comment
  • Intel's Inventory Helped Create An EPS 'Beat' [View article]
    You can watch this youtube video that explains inventory analysis:
    http://bit.ly/1e7x2ZO

    Or search for "CFA® Level I Lesson Financial Reporting and Analysis (2013) " if the link does not work.

    Watch from 3 hours 23 minutes 6 seconds to 4 hours

    The explanation about LIFO vs FIFO occurs at about 3 hours 30 min 30 seconds. In a falling price environment (which I would say micro chips are) then LIFO is preferred on the income statement to match economic reality. FIFO is always preferred for analysis of the balance sheet.

    I hope this video will make things clear.
    Good Trading
    Jul 18, 2015. 04:39 PM | Likes Like |Link to Comment
  • Why I Bought Greek Stocks Today [View article]
    "Sixty-one percent of voters backed Prime Minister Alexis Tsipras’s rejection of further spending cuts and tax increases in an unprecedented referendum that’s also taken the country to the brink of financial collapse." from http://bloom.bg/1NKd2Jw

    Appears the author's thesis, "I expect a solid 'Yes' vote from any referendum this weekend, which should provide a massive relief rally to markets globally but especially Greek stocks" was heavily rejected by voters.

    Most likely those options, if short term, are going to options "heaven"
    Jul 5, 2015. 08:14 PM | 2 Likes Like |Link to Comment
  • The Problem With The Fed Paying Interest On Reserves [View article]
    It is blank in the table in the article.

    You can also go to the data directly with this link:
    http://nyfed.org/12yg38A

    There is a tab for "T-Bills" that has no data in it. There is data for Notes, Bonds, Tips, & Agencies.
    Aug 7, 2014. 08:53 AM | Likes Like |Link to Comment
  • The S&P 500's Operating Or GAAP EPS [View article]
    I hope you don't mind, I am going to publish (attempt to at least) an article about this.

    Stick to the trading or investing plan, which should included knowing when to take a loss. I learned that the hard way from 20 years of trading.
    Jul 16, 2014. 02:39 PM | Likes Like |Link to Comment
  • The S&P 500's Operating Or GAAP EPS [View article]
    Unfortunately Russell does not provide the same data that SP does for its index. However, look at this data for the Russell 2000 ETF, IWM, http://bit.ly/1qfVVaU

    This shows that the P/E on June 30th was 30 and in the fine print (mouse over the "i") that, "Negative earnings are excluded, extraordinary items are excluded, and P/E ratios over 60 are set to 60." Also, the price to book appears high at over 4 but then get this in the fine print, "Negative book values are excluded from this calculation and holding price to book ratios over 25 are set to 25." Caveat Emptor!
    Jul 16, 2014. 02:08 PM | Likes Like |Link to Comment
  • The S&P 500's Operating Or GAAP EPS [View article]
    As seen in the graphs the ratio fluctuates widely. Look at the "dip" of 2008 compared to 2000, and also look at the highs have never been achieved that were set early in the data series (top graph). Finally, I left out the data from Q4 2008 because that data would skew everything even more, so that the data presented would become unclear; to be clear this this applies to the bottom graph and confidence interval. Hence, an argument can be warranted that earnings quality has declined over time.
    Jul 15, 2014. 06:30 PM | Likes Like |Link to Comment
  • Alcoa's EPS Smelted By Balance Sheet [View article]
    JRF77,

    My cash flow calculations, though positive, are not as optimistic as Alcoa's method which simply takes operating cash flow and subtracts cap ex.

    Here is another way to calculate free cash flow to the firm from the CFA Institute curriculum:

    " FCFF = EBIT(1− Tax rate)+ Dep − FCInv − WCInv "
    Institute, CFA. Level II 2013 Volume 4 Equity. John Wiley & Sons P&T, 7/9/2012. VitalBook file. Page 213

    I calculated the following values (in millions):

    EBIT = $312
    Tax rate = 37.68...%
    Dep = $349
    FCInv= $258
    WCInv= $47

    Plugging into the above formula one has a free cash flow to the firm of
    $238.44 mm. Unfortunately, free cash flow is not a GAAP measure so companies feel free to use whatever method suits them.
    Jul 10, 2014. 03:22 PM | Likes Like |Link to Comment
  • Alcoa's EPS Smelted By Balance Sheet [View article]
    Sorry, for some reason my reply was chopped into pieces; so here we go again:

    "Not only that, who says that the accounts payable are even related to inventory? "
    - Alcoa says that on their financial statements! On the balance sheet the line item reads "Accounts payable, trade". Read the definition from http://bit.ly/TV5PiX

    "Definition: A trade payable is an amount billed to a company by its suppliers for goods delivered to or services consumed by the company in the ordinary course of business. These billed amounts, if paid on credit, are entered in the accounts payable module of a company's accounting software, after which they appear in the accounts payable aging report until they are paid. Any amounts owed to suppliers that are immediately paid in cash are not considered to be trade payables, since they are no longer a liability.

    ...

    Other types of payables, such as accrued expenses, dividends payable, or payroll expenses, are recorded in other accounts in order to more easily identify them.

    A key difference between trade payables and non-trade payables is that trade payables are typically entered into the accounting system through a special accounts payable module that automatically generates the necessary accounting entries, whereas non-trade payables are typically entered in the system with a journal entry."
    Jul 10, 2014. 12:00 PM | Likes Like |Link to Comment
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