GM: Avoiding Auto Giant After Quick Look Under The Hood [View article]
You wrote: "Despite global economic problems, sales at GM the first nine months of 2011 have increased nearly 13% from the first nine months of 2010."
and
"Net Income was inflated mainly due to the sale of Delphi. The sale of Delphi is classified under "cash from investing activities." There are other issues to consider, but if you strip out the sale of Delphi from net income, net income virtually matches cash flow from operations. "
I wrote, "Operating cash flow is down over 19% over this same time period as reported in the article."
My question is: what figure are you going to use for the growth of net income then?
Also, for full disclosure, do you or your firm have a position in GM?
GM: Avoiding Auto Giant After Quick Look Under The Hood [View article]
"Despite global economic problems, sales at GM the first nine months of 2011 have increased nearly 13% from the first nine months of 2010."
However, Operating cash flow is down over 19% over this same time period as reported in the article. As a CFA you should know that Net Income and Operating Cash Flow will not diverge forever.
"Global light vehicle sales are expected to exceed 100 million by 2015, up from a forecast of 75 million this year, which will benefit GM tremendously. US sales this year will be approximately 13 million, well below their long-term trend average of 15 plus million and their high of over 17 million. GM will benefit as this demand recovers from its trough in 2009. The forecast in global auto sales has not only to do with recovery in the US market but also increasing demand from emerging markets."
In 2015, GM could have increased sales. What about the cost of its inputs? What is the expectation of inflation? Studies have shown a correlation between P/E ratios and inflation. If the economy has improved I think it would be reasonable that interest rates would be higher, and as you know a higher discount rate lowers the value of future cash flows. If rates are still the same this would seem to suggest that the economy has not recovered and in turn this would put the sales forecast in doubt.
"Accounts and notes receivable of $10.5 billion increased by $1.8 billion (or 20.8%) due primarily to: (1) increase related to the termination and modification of wholesale advance agreements with Ally Financial in GMNA, which had provided for accelerated receipt of payment on dealer sales financed through Ally Financial of $2.2 billion."
Ally Financial used to be GMAC. Now the credit risk of these receivables is back with GM. Also, this does not explain the large increase in inventory.
"Net income is down Q3 of 11 compared with Q3 of 10 but that does not have to do with GM's operating performance, as operating income is up. It has to do with non-operating issues such as lower interest income and a tax expense as opposed to a tax benefit. To analyze GM, you must look at its core operations as there is other stuff that can cloud the numbers such as asset sales, interest/equity income, and tax benefits. Operating income the first nine months of 2011 compared with the first nine months of 2010 looks even better if you consider the goodwill impairment charge is a non-recurring, non-cash expense."
Operating income grew 4.2% for Q3 YoY compared to the 7.8% increase in sales. For the 9 months Automotive sales (not financial) grew 12.7% while the cost of automotive sales (not financial) grew 13.3%. Not much operating leverage.
"You also forgot to mention that GM has increased liquidity and lower pension liabilities. Since the end of 2010, cash/ms/inv excluding restricted cash has increased from $35.15 billion to $39.51 billion and pension liabilities have been reduced from $31.2 billion to $27.5 billion."
I would also point to the Increase in Accounts Payable going up from $22.1 Billion to $25.6 Billion and $28.6 Billion of Goodwill still left on the Balance Sheet.
From Dr. Murray Rothbard, "It follows from this analysis that monetary inflation and greater spending will not necessarily reduce unemployment or idle capacity. It will only do so if workers or machine owners are induced to think that they are getting a higher return and at least some of their holdout demands are being met. And this can only be accomplished if the price paid for the resource (the wage rate or the price of machinery) goes up. In other words, greater supply or use of capacity will only be called forth by wage and price increases, i.e., by price inflation." (Link for full explanation http://bit.ly/rYusta )
The increase in CPI from Q1 2008 to Q3 2011 was 6.32%. CPI Q1 2008: 213.464 CPI Q3 2011: 226.955
The GDP inflation data was 6.5% * (1-9.3%) = 6.05% 6.5% Nominal growth 9.3% of Nominal growth was attributed to Real GDP growth This closely matches with the difference being real GDP using implicit price deflator instead of CPI to account for inflation.
I did make the mistake of saying this was a period of 2.5 years instead of 3.5. Opps!
Anglo American (AGPPY.PK) agrees to buy the Oppenheimer family's 40% stake in De Beers for $5.1B, thereby increasing its stake to 85%. However, the Botswana government has a pre-emption right over the Oppenheimer holding that would lift its stake to 25% and limit Anglo American to 75%. (PR) [View news story]
Botswana is considered the best run economy in southern Africa. At least that is what the South Africans told me when I went there. The country receives a large income from its partnership in the diamond mines located there.
Here is a link explaining the differences between the two and potential integration if the future. http://pwc.to/rsTmN0
free cash flow to firm from Chartered Financial Analyst study materials (Schweser)
FCFF = CFO + [Int x (1 - tax rate)] - Fixed Capital Investments
My opinion is that purchasing another company is a Fixed Capital Investment. If a company replicated another company, instead of just purchasing, then this would be recorded as a capital expense.
As an example, ABT spends $100 acquiring a business. If, for sake of argument, the business bought yields a return of 10%, then ABT spent $100 and will receive $10 per year in the coming years (assuming no growth). However the future is uncertain, hence a discount is made on those future flows of cash into a company. There is even potential for a bad investment and loss.
What should be clear is that ABT should not get to count $100 for the base year and also $10 for years 1, 2, 3, etc... as cash flow in. $100 went out from ABT for the base year and the will be inflows of $10 per year, in the future, for this example.
My opinion varies from IAS' recommendation (it's not an absolute) and that is fine with me.
As this article reports one can't ignore the distortions that arise in the calculation of cash flow from operations from continual acquisitions.
The equation is a bit different because the data is from September and not October, but I did show the output and the statistical significance of the Illinois data. In this article I only showed the graph of the data. I can't paste a graphic of the regression output into a comment, but I can assure you that it was significant even with the small sample size. I used 5 years instead of 30 because of the growth in yield related to technology, such a GMO seeds.
Preparing For The October 12 USDA Corn Report [View article]
I just looked at the USDA crop progress released after the close. The crop condition index improved to 53.22. This made a point estimate of 143.7 and a confidence band of 99% around 149.3 on the high side and 138.1 on the low side. The 95% confidence band is 147.4 on the high side and 140.0 on the low.
Grain Traders Hold On For USDA's Corn Report Monday [View article]
I just wrote another article. We will see if it gets published. Point estimate was a corn yield of 142.3 with 147.9 being 3 standard errors away. Corn up over 30 cents in front of report which is unusual.
Pay careful attention to the acerage number in the report. Which way it changes and by how much. I have heard recommendations on farming websites that farmers should sell into any 50 cent + rally in corn. I bet a lot were shocked by the sharp selloff, so I would guess there is some over hanging supply of unhedged crops.
Debunking 'Debunking Myths of a U.S. Monetary Collapse' Redux [View article]
“Remember - you chose this debate by stating things were better investments than paper since my article, as if somehow my idea to buy wealth producers instead of the commodities was bad advice, like a few months is a good sample. I still argue that this was absurd, and still do. You correctly stated it had to do with time frame, but we both know the intent wasn't to talk time frames, it was to undermine my writing as "bad advice." “
This is incorrectly reading into what I wrote. I stated clearly, “There are just times a trader wants to be long things and not companies.” I did not convey anything such sentiment to be invested in things at all times; any such speculation is a misrepresentation.
“So I throw out my worthless data to trump yours, that is all. All with the intent of showing that it is meaningless to use, and then I stated as such afterwards.” Look up begging the question. What is the point of arguing if you concede your data is worthless?
“By your argument grid in your article, we must conclude stuff was much better than paper for a few weeks, and now it is horrible compared to paper. But you and I both know you don't feel that way. For you, it's stuff till death.”
You are incorrect, for most of my marketocracy fund was/is invested in mining companies instead of metals over the last 10 plus years. This is an empirical fact.
“Again not helpful information. But it seems you are still more focused on not wanting to be wrong, rather than getting to the truth. That truth being that the point in your article about out performance of "things" being better than stocks mentioned in my article, in such a short period of time, did nothing more than waste time of the reader. We all know that time is worth something. “
Who made you the arbiter of truth and measurer of the value other people’s time?
“I'm just using your flawed foundation in the same manner you did to "make a point". The point being that data can be skewed to say what ever someone wants it to say, which you did in this article.”
I wrote, “So far it looks okay for “things” compared to companies, but without a time horizon it is difficult to have a “hard science” comparison.” I have reported the data that is common to measure investment performance in the article and comments, especially the Rogers commodity index. The attempt at showing the underperformance of “things” there failed and was a misuse of empirical methods by you. My opinion is that your postings are malicious, as evidenced by the various personal comments previously made. There will not be a reply to any response you provide.
Debunking 'Debunking Myths of a U.S. Monetary Collapse' Redux [View article]
I checked the figures given, and I presume they are from Valueline; but they do not match what was reported in ABT’s annual fillings to the SEC.
In regards to working capital there was a very large drop from 2000 to 2001. From $3.07 Billion to $.49 Billion and this is why there was a 1027% increase in working capital from 2001 to 2010. There percentage increase in working capital from 2000 to 2010 was 164%. From looking at the data from 2000-2010, ABT has a very “noisy” series of changes in working capital in my opinion; both up and down.
Here is where the data is different from that reported to the SEC. The 2000 Operating Margin was 24.7%, in 2001 it was 11.6% and the 2010 was 17.3%. The 2001 operating income was reduced by $1.33 Billion for having to automatically write-off in process R&D because of an acquisition, I also did this calculation for 2010 but there was none in 2000. If this write-off had not occurred then pro-forma operating margins would have been 19.8% for 2001 and 18.2% for 2010. This was computed by taking the line item “Operating Earnings” and dividing by the Net Sales (in thousands), where pro-forma added back acquired in process R&D.
The 2010 operating margin is substantially lower than the 30+% reported. Also the operating margin can be seen to having declined over time.
The information presented about the percentage increase in long term debt and equity also does not match what was reported to the SEC. Here is the data (in thousands):
Since it appears the data you have is incorrect I will not respond further. Readers can verify from the original sources here: 2000 report: http://1.usa.gov/oGdkef
Debunking 'Debunking Myths of a U.S. Monetary Collapse' Redux [View article]
“Is this your way of admitting that you got it wrong on the cash flow analysis? OK - I used the wrong number, FCF IS $7+ billion. Are you at least owning up to your error by putting my quote up there? “
“Bottom line - you stated I was wrong and needed to check my free cash flow math. I did, and stand by it. FCF yields on the market cap of ABT are currently approaching 10%. That is a fact, that you attempted to refute. Now you won't own up to your mistake and want to hammer on ABT from other metrics. That is fine if you want to do that, but at least admit your first loss in this debate. Then we can move on to your other valuation metrics.”
No, I was merely using an argumentation technique. As in, let’s say you are correct, however I don’t believe you are, then what are the ramifications? I don’t think we will agree about how cash flow is computed. I used a different data source which used a different way of computing free cash flow. Why should one not ask to double check reported figures?
I think readers should know that the 2007 study referenced above found, " Contrary to the common perception that operating cash flows are better than accounting earnings at explaining equity valuations, recent studies suggest that valuations derived from industry multiples based on reported earnings are closer to traded prices than those based on reported operating cash flows. The question addressed in the article is whether the balance tilts in favor of cash flows when the following are considered: (1) forecasts rather than reported numbers, (2) dividends rather than operating cash flows, (3) individual industries rather than all industries combined, and (4) companies in non-U.S. markets. In all cases studied, earnings dominated operating cash flows and dividends." The Financial Analysts Journal is where this study was published and it has an excellent reputation, and is also a 3rd party to this discussion.
Debunking 'Debunking Myths of a U.S. Monetary Collapse' Redux [View article]
"I could decide to keep that $11 billion and put it in my pocket if I wanted to." Remember according to your calculations:
"$8.735 Billion in Cash flow from operating activities in fiscal 2010, minus $1.015 billion in capital expenditures. That totals $7.72 billion of FCF. " ABT had to get about $3.6 Billion from somewhere other than operations to get future cash flows.
ABT in 2000 had a tangible book of $1.14 and in 2010 it was -$3.68.
Intangibles are 125% of book value vs. 18% in 2000.
Total Debt/Equity rose from 18% to 85%.
Asset Turnover has decreased from .9 to .6. Not as much revenue from those assets they are acquiring. Are they buying higher margin drugs?
SG&A as % of Revenues has risen from 21.1% to 29.5%
EBITDA / Revenue decreased from 29.8% to 25.7%.
Receivables as % of Revenue has increased from 15.9% to 20.4% More generous credit terms.
Total Liabilites increased $30.36 Billion while Equity increased $13.82 Billion.
I don't know ABT's drug portfolio but any slipups with a levered company that keeps growing by aqcuisition would not be beneficial to owners.
Further this 2007 study (PDF) showed that EPS multiple analysis usually does better in forcasting valuation:
"Is cash flow king in equity valuation? Our analysis suggests that it is not. In Liu et al. (2002), we found that reported earnings dominate reported cash flows as summary measures of value in the United States. In the current study, we extended the analysis to other markets and used forecasts of operating cash flows, dividends, and earnings. We found that, although moving from reported numbers to forecasts improves the performance of operating cash flows, it improves the performance of earnings to an even greater extent. EPS forecasts represented substantially better summary measures of value than did OCF forecasts in all five countries examined, and this relative superiority was observed in most industries."
Stay Far Away From YPF And Its High Dividend Yield [View article]
Negative 15 Cents: A Year Full Of Nothin' For SPY [View article]
GM: Avoiding Auto Giant After Quick Look Under The Hood [View article]
and
"Net Income was inflated mainly due to the sale of Delphi. The sale of Delphi is classified under "cash from investing activities." There are other issues to consider, but if you strip out the sale of Delphi from net income, net income virtually matches cash flow from operations. "
I wrote, "Operating cash flow is down over 19% over this same time period as reported in the article."
My question is: what figure are you going to use for the growth of net income then?
Also, for full disclosure, do you or your firm have a position in GM?
GM: Avoiding Auto Giant After Quick Look Under The Hood [View article]
However, Operating cash flow is down over 19% over this same time period as reported in the article. As a CFA you should know that Net Income and Operating Cash Flow will not diverge forever.
"Global light vehicle sales are expected to exceed 100 million by 2015, up from a forecast of 75 million this year, which will benefit GM tremendously. US sales this year will be approximately 13 million, well below their long-term trend average of 15 plus million and their high of over 17 million. GM will benefit as this demand recovers from its trough in 2009. The forecast in global auto sales has not only to do with recovery in the US market but also increasing demand from emerging markets."
In 2015, GM could have increased sales. What about the cost of its inputs? What is the expectation of inflation? Studies have shown a correlation between P/E ratios and inflation. If the economy has improved I think it would be reasonable that interest rates would be higher, and as you know a higher discount rate lowers the value of future cash flows. If rates are still the same this would seem to suggest that the economy has not recovered and in turn this would put the sales forecast in doubt.
"Accounts and notes receivable of $10.5 billion increased by $1.8 billion (or 20.8%) due primarily to: (1) increase related to the termination and modification of wholesale advance agreements with Ally Financial in GMNA, which had provided for accelerated receipt of payment on dealer sales financed through Ally Financial of $2.2 billion."
Ally Financial used to be GMAC. Now the credit risk of these receivables is back with GM. Also, this does not explain the large increase in inventory.
"Net income is down Q3 of 11 compared with Q3 of 10 but that does not have to do with GM's operating performance, as operating income is up. It has to do with non-operating issues such as lower interest income and a tax expense as opposed to a tax benefit. To analyze GM, you must look at its core operations as there is other stuff that can cloud the numbers such as asset sales, interest/equity income, and tax benefits. Operating income the first nine months of 2011 compared with the first nine months of 2010 looks even better if you consider the goodwill impairment charge is a non-recurring, non-cash expense."
Operating income grew 4.2% for Q3 YoY compared to the 7.8% increase in sales. For the 9 months Automotive sales (not financial) grew 12.7% while the cost of automotive sales (not financial) grew 13.3%. Not much operating leverage.
"You also forgot to mention that GM has increased liquidity and lower pension liabilities. Since the end of 2010, cash/ms/inv excluding restricted cash has increased from $35.15 billion to $39.51 billion and pension liabilities have been reduced from $31.2 billion to $27.5 billion."
I would also point to the Increase in Accounts Payable going up from $22.1 Billion to $25.6 Billion and $28.6 Billion of Goodwill still left on the Balance Sheet.
Fed's Balance Sheet Vs. U.S. GDP [View article]
The increase in CPI from Q1 2008 to Q3 2011 was 6.32%.
CPI Q1 2008: 213.464
CPI Q3 2011: 226.955
The GDP inflation data was 6.5% * (1-9.3%) = 6.05%
6.5% Nominal growth
9.3% of Nominal growth was attributed to Real GDP growth
This closely matches with the difference being real GDP using implicit price deflator instead of CPI to account for inflation.
I did make the mistake of saying this was a period of 2.5 years instead of 3.5. Opps!
Anglo American (AGPPY.PK) agrees to buy the Oppenheimer family's 40% stake in De Beers for $5.1B, thereby increasing its stake to 85%. However, the Botswana government has a pre-emption right over the Oppenheimer holding that would lift its stake to 25% and limit Anglo American to 75%. (PR) [View news story]
Evaluating Abbott Labs: Just How Do You Formulate Cash Flow? [View article]
Here is a link explaining the differences between the two and potential integration if the future. http://pwc.to/rsTmN0
free cash flow to firm from Chartered Financial Analyst study materials (Schweser)
FCFF = CFO + [Int x (1 - tax rate)] - Fixed Capital Investments
My opinion is that purchasing another company is a Fixed Capital Investment. If a company replicated another company, instead of just purchasing, then this would be recorded as a capital expense.
As an example, ABT spends $100 acquiring a business. If, for sake of argument, the business bought yields a return of 10%, then ABT spent $100 and will receive $10 per year in the coming years (assuming no growth). However the future is uncertain, hence a discount is made on those future flows of cash into a company. There is even potential for a bad investment and loss.
What should be clear is that ABT should not get to count $100 for the base year and also $10 for years 1, 2, 3, etc... as cash flow in. $100 went out from ABT for the base year and the will be inflows of $10 per year, in the future, for this example.
My opinion varies from IAS' recommendation (it's not an absolute) and that is fine with me.
As this article reports one can't ignore the distortions that arise in the calculation of cash flow from operations from continual acquisitions.
USDA Crop Report: Just What Is Growing In The Back 40? [View article]
http://seekingalpha.co...
The equation is a bit different because the data is from September and not October, but I did show the output and the statistical significance of the Illinois data. In this article I only showed the graph of the data. I can't paste a graphic of the regression output into a comment, but I can assure you that it was significant even with the small sample size. I used 5 years instead of 30 because of the growth in yield related to technology, such a GMO seeds.
Preparing For The October 12 USDA Corn Report [View article]
Grain Traders Hold On For USDA's Corn Report Monday [View article]
http://seekingalpha.co...
Grain Traders Hold On For USDA's Corn Report Monday [View article]
Pay careful attention to the acerage number in the report. Which way it changes and by how much. I have heard recommendations on farming websites that farmers should sell into any 50 cent + rally in corn. I bet a lot were shocked by the sharp selloff, so I would guess there is some over hanging supply of unhedged crops.
Debunking 'Debunking Myths of a U.S. Monetary Collapse' Redux [View article]
“
This is incorrectly reading into what I wrote. I stated clearly, “There are just times a trader wants to be long things and not companies.” I did not convey anything such sentiment to be invested in things at all times; any such speculation is a misrepresentation.
“So I throw out my worthless data to trump yours, that is all. All with the intent of showing that it is meaningless to use, and then I stated as such afterwards.” Look up begging the question. What is the point of arguing if you concede your data is worthless?
“By your argument grid in your article, we must conclude stuff was much better than paper for a few weeks, and now it is horrible compared to paper. But you and I both know you don't feel that way. For you, it's stuff till death.”
You are incorrect, for most of my marketocracy fund was/is invested in mining companies instead of metals over the last 10 plus years. This is an empirical fact.
“Again not helpful information. But it seems you are still more focused on not wanting to be wrong, rather than getting to the truth. That truth being that the point in your article about out performance of "things" being better than stocks mentioned in my article, in such a short period of time, did nothing more than waste time of the reader. We all know that time is worth something. “
Who made you the arbiter of truth and measurer of the value other people’s time?
“I'm just using your flawed foundation in the same manner you did to "make a point". The point being that data can be skewed to say what ever someone wants it to say, which you did in this article.”
I wrote, “So far it looks okay for “things” compared to companies, but without a time horizon it is difficult to have a “hard science” comparison.” I have reported the data that is common to measure investment performance in the article and comments, especially the Rogers commodity index. The attempt at showing the underperformance of “things” there failed and was a misuse of empirical methods by you. My opinion is that your postings are malicious, as evidenced by the various personal comments previously made. There will not be a reply to any response you provide.
Debunking 'Debunking Myths of a U.S. Monetary Collapse' Redux [View article]
In regards to working capital there was a very large drop from 2000 to 2001. From $3.07 Billion to $.49 Billion and this is why there was a 1027% increase in working capital from 2001 to 2010. There percentage increase in working capital from 2000 to 2010 was 164%. From looking at the data from 2000-2010, ABT has a very “noisy” series of changes in working capital in my opinion; both up and down.
Here is where the data is different from that reported to the SEC. The 2000 Operating Margin was 24.7%, in 2001 it was 11.6% and the 2010 was 17.3%. The 2001 operating income was reduced by $1.33 Billion for having to automatically write-off in process R&D because of an acquisition, I also did this calculation for 2010 but there was none in 2000. If this write-off had not occurred then pro-forma operating margins would have been 19.8% for 2001 and 18.2% for 2010. This was computed by taking the line item “Operating Earnings” and dividing by the Net Sales (in thousands), where pro-forma added back acquired in process R&D.
2000 Operating Earnings: ( 3,400,575 / 13,745,916) = 24.7%
2001 Operating Earnings: ( 1,894,032 / 16,285,246) = 11.6%
2001 Pro-forma: ((1,894,032 + 1,330,400) / 16,285,246) = 19.8%
2010 Operating Earnings: (6,087,581 / 35,166,721) = 17.3%
2010 Pro-forma: (6,400,781 / 35,166,721) = 18.2%
The 2010 operating margin is substantially lower than the 30+% reported. Also the operating margin can be seen to having declined over time.
The information presented about the percentage increase in long term debt and equity also does not match what was reported to the SEC. Here is the data (in thousands):
Tong Term Debt (2010 / 2001) = 12,523,517 / 4,335,493 = 288.9 %
Equity (2010 / 2001) = 22,476,464 / 9,059,432 = 248.1 %
Since it appears the data you have is incorrect I will not respond further.
Readers can verify from the original sources here:
2000 report:
http://1.usa.gov/oGdkef
2001 report: http://1.usa.gov/qazPM5
2010 report: http://1.usa.gov/pWYkra
Debunking 'Debunking Myths of a U.S. Monetary Collapse' Redux [View article]
“Bottom line - you stated I was wrong and needed to check my free cash flow math. I did, and stand by it. FCF yields on the market cap of ABT are currently approaching 10%. That is a fact, that you attempted to refute. Now you won't own up to your mistake and want to hammer on ABT from other metrics. That is fine if you want to do that, but at least admit your first loss in this debate. Then we can move on to your other valuation metrics.”
No, I was merely using an argumentation technique. As in, let’s say you are correct, however I don’t believe you are, then what are the ramifications? I don’t think we will agree about how cash flow is computed. I used a different data source which used a different way of computing free cash flow. Why should one not ask to double check reported figures?
I think readers should know that the 2007 study referenced above found, "
Contrary to the common perception that operating cash flows are better than accounting earnings at explaining equity valuations, recent studies suggest that valuations derived from industry multiples based on reported earnings are closer to traded prices than those based on reported operating cash flows. The question addressed in the article is whether the balance tilts in favor of cash flows when the following are considered: (1) forecasts rather than reported numbers, (2) dividends rather than operating cash flows, (3) individual industries rather than all industries combined, and (4) companies in non-U.S. markets. In all cases studied, earnings dominated operating cash flows and dividends."
The Financial Analysts Journal is where this study was published and it has an excellent reputation, and is also a 3rd party to this discussion.
http://bit.ly/otmxkL
Debunking 'Debunking Myths of a U.S. Monetary Collapse' Redux [View article]
"$8.735 Billion in Cash flow from operating activities in fiscal 2010, minus $1.015 billion in capital expenditures. That totals $7.72 billion of FCF. " ABT had to get about $3.6 Billion from somewhere other than operations to get future cash flows.
ABT in 2000 had a tangible book of $1.14 and in 2010 it was -$3.68.
Intangibles are 125% of book value vs. 18% in 2000.
Total Debt/Equity rose from 18% to 85%.
Asset Turnover has decreased from .9 to .6. Not as much revenue from those assets they are acquiring. Are they buying higher margin drugs?
SG&A as % of Revenues has risen from 21.1% to 29.5%
EBITDA / Revenue decreased from 29.8% to 25.7%.
Receivables as % of Revenue has increased from 15.9% to 20.4%
More generous credit terms.
Total Liabilites increased $30.36 Billion while Equity increased $13.82 Billion.
I don't know ABT's drug portfolio but any slipups with a levered company that keeps growing by aqcuisition would not be beneficial to owners.
Further this 2007 study (PDF) showed that EPS multiple analysis usually does better in forcasting valuation:
"Is cash flow king in equity valuation? Our analysis
suggests that it is not. In Liu et al. (2002), we found
that reported earnings dominate reported cash
flows as summary measures of value in the United
States. In the current study, we extended the
analysis to other markets and used forecasts of
operating cash flows, dividends, and earnings. We
found that, although moving from reported numbers
to forecasts improves the performance of
operating cash flows, it improves the performance
of earnings to an even greater extent. EPS forecasts
represented substantially better summary measures
of value than did OCF forecasts in all five
countries examined, and this relative superiority
was observed in most industries."
http://bit.ly/otmxkL