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Geoffrey Rocca  

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  • HollyFrontier: Enormous Free Cash Flow Yields Make A Compelling Opportunity [View article]
    Based on the share price, 19%. The reason to treat excess cash as separable is a somewhat complicated question. First, the company does not need it for its operations, since their operating cash flows are positive and their cash holdings dwarf their projected capital needs, and therefore that money is just sitting there waiting to be returned to shareholders through dividends, buybacks, etc. or put into an expansion project.

    Second, it is unfair to charge the company its equity cost of capital against assets that earn the cash rate. That would create the paradox that companies become worth less and less the more cash they hold.
    Jun 18, 2013. 06:25 PM | 2 Likes Like |Link to Comment
  • Apple Trading At 2.56x 2016 Cash Flow [View article]
    Well, interest rates aren't 15%, are they?

    Fine, you pick a number for your required return on equity, compound it for five years, and tell me if the result is significant or not. I'm all ears.
    Dec 11, 2012. 02:43 PM | Likes Like |Link to Comment
  • Apple Trading At 2.56x 2016 Cash Flow [View article]
    Did you ever consider why interest rates are so low? The economy is fragile, which calls for a bigger risk premium. If anything, 10% is low.
    Dec 11, 2012. 02:23 PM | Likes Like |Link to Comment
  • Apple Trading At 2.56x 2016 Cash Flow [View article]
    So pick a discount rate and do the math. If you use a historical 10%, then over five years the difference is 61.05%. Are you telling me that 61% is not material?
    Dec 11, 2012. 01:30 PM | 1 Like Like |Link to Comment
  • Apple Trading At 2.56x 2016 Cash Flow [View article]
    If one were considering lending money to Apple, maybe, but the equity risk premium doesn't just go away when interest rates are low.
    Dec 11, 2012. 01:57 AM | Likes Like |Link to Comment
  • Apple Trading At 2.56x 2016 Cash Flow [View article]
    So you discount equity cash flows based on Treasury rates?

    I don't know which is worse; not discounting at all or thinking that Apple's cash flows are as good as the United States'.

    Maybe I'm getting into Finance 102 territory now.
    Dec 11, 2012. 01:04 AM | 2 Likes Like |Link to Comment
  • Apple Trading At 2.56x 2016 Cash Flow [View article]
    Cute story, but $335 billion on the balance sheet in 2016 isn't worth $335 billion today, nor is $60 billion in cash flow to be received at the end of 2016 worth $60 billion today.

    Discounting to present value is Finance 101.
    Dec 10, 2012. 09:05 PM | 2 Likes Like |Link to Comment
  • Has Paul Krugman Gone Too Far This Time? [View article]
    "The 'Bush tax cuts' resulted in dramatically increased Federal tax receipts, eliminating the recession he inherited..."

    On an inflation-adjusted basis, it took until 2006 for tax receipts to equal what they were in 2000, and by then the real estate bubble was in full swing anyway.

    Restricting it to income taxes, tax receipts have never exceeded those in 2000 on an inflation-adjusted basis.
    Nov 13, 2012. 04:17 PM | 1 Like Like |Link to Comment
  • Treasurys continue to sell off, the yield on the 10-year of 1.78% is the highest since May, and up from 1.39% in 3 weeks. Prices are far from cheap though. A buyer today would lose 6.78% of his/her principal - equal to more than 3 years of coupons - with an increase in yields of just another 50 basis points (h/t tradefast). TLT -5.4% since July 24. [View news story]
    So a 10 year bond has a duration of 13.56 years?
    Aug 15, 2012. 03:18 PM | Likes Like |Link to Comment
  • U.K. GDP -0.7% Q/Q in Q2 vs. consensus of -0.2%. (PR)  [View news story]
    I see the austerity is working as intended, then.
    Jul 25, 2012. 05:26 AM | Likes Like |Link to Comment
  • Owens-Illinois: A Leading Glass Company At A Very Good Price [View article]
    I agree that the debt level is significant but in my view Owens-Illinois can handle it. Setting aside the adequacy of the interest coverage ratio, the long term contracts with inflation adjustments give the company stability of margins. Also, the company's major customers produce consumer staples (soda, beer, wine), and glass bottles have no direct substitutes considering the consumer preference for them.
    Jul 22, 2012. 08:08 PM | Likes Like |Link to Comment
  • Chiquita: Valuation And Analysis Series (Part 2) [View article]
    As a frustrated long of CQB I may not be in a strong position to argue for the defense of the company, but I don't think the $1.9 billion in purchase commitments for bananas and other produce should necessarily count as part of the enterprise value. What they purchase, they can resell (hopefully) at a profit, unlike the other obligation which are in respect of value already received, and also if they didn't purchase under those obligations they would presumably be buying the same produce on the open market anyway when the times comes.
    Jun 23, 2012. 02:35 AM | Likes Like |Link to Comment
  • A Simple Formula For The Fair Price Of Gold [View article]
    Or it means that people mining gold by spending more than its fair value are just wasting money.

    Just sayin'.
    Jan 3, 2012. 03:45 PM | Likes Like |Link to Comment
  • A Simple Formula For The Fair Price Of Gold [View article]
    More volatile? Prior to the Federal Reserve, we had financial panics like clockwork every 20 years.
    Jan 3, 2012. 03:09 PM | 1 Like Like |Link to Comment
  • CSG Systems Underpriced and Attractive [View article]
    If I understand your question correctly, you're wondering why I don't subtract long-term debt as well as current liabilities from a company's cash position to arrive at excess cash.

    As I see it, on a going concern basis, a company's optimum capital structure will include a certain level of long-term debt, and so it is unnecessary to assume that a company will have to allocate its existing cash towards debt repayments when, as here, the overall debt level is sustainable.

    A firm's excess cash, then, is simply cash that is unlikely to be needed by the firm's operations, and is therefore capable of being considered separately, as it were, from the firm's operating assets. I have noticed that the excess cash level, as calculated, does tend to fluctuate significantly among firms on a quarterly basis, and so it would be optimistic to assume that the company could just declare a special dividend of all its excess cash and have no liquidity-related difficulties (although many companies could in fact do so).

    But the point of excess cash is that separating it out, and of course separating out the income that it produces, lets us assess the market value of a company's purely operating assets, and also the earnings power that those operating assets are capable of producing. Thus, it allows us to assess what should be the key source of returns for shareholders without having our figures distorted by non-operating income and assets.

    I hope this was helpful to you.
    Nov 20, 2011. 08:41 PM | Likes Like |Link to Comment