Mycroft
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Morgan Stanley Analyst Cuts Accenture To Equal Weight, But I Strongly Disagree [View article]
Morgan Stanley Analyst Cuts Accenture To Equal Weight, But I Strongly Disagree [View article]
One article at a time and one day at a time.
Mycroft
Gilead Sciences: An Analysis Using Warren Buffett's OwnerEarnings Equation [View article]
2006 results
(Incr) Decr. in Receivables $(184.4)
+
(Incr) Decr. in Inventories $(358.2)
+
(Incr) Decr. in Prepaid Expenses $19.0
+
(Incr) Decr. in Other Current Assets $0
+
Decr. (Incr) in payables $264.0
+
Decr. (Incr) in Other Current Liabilities $(30.4)
+
Decr. (Incr) in Other Working Capital $64.8
=
Changes In Working Capital $(225.1)
Net Income = 1,190
+
Total Depreciation, Amortization & Depletion = +47.3
+
Other Non Cash Items = +200.7

Capital Expenditures = +105.2
+
Changes in Working Capital = 225.1 *1 = 225.1
(now since Buffett says that positive changes are negative and negative changes are positive we need to multiply all changes by 1 to get the opposite and the same goes for Special Income and Changes
+ Special Income and Changes = 2394.1 * 1 = 2394.1
So 1190+47.3+200.7105.2... =$1,572
Now as for the old school value link I do not have access to the 2012 TTM data for Microsoft to compare it, but I will do 2011 for you using YCharts.
Net Income = 23.15 Billion
Total D&A&D =2.76 Billion
Other Non Cash Items = 4.441 Billion
Capital Expenditures = 2.355 Billion
Changes in Working Capital = 3.003 Billion
Special Income and Charges = 0
23.15 + 2.766+4.4412.355 +3.003 +0 = 31.005 billion
So I came up with the exact same number he did in that example for 2011.
I just subscribed to the Old School Value site to see what his current results were for 2010 and 2011 and they are exactly what they were in that page you linked, so if he was wrong on the TTM number then he would have gone back at some point and changed the way he calculates the 1000's or so stocks he must analyze. That post was years ago and I think the author was confused on that day as his $29,065 number was accurate if you follow the formula that he currently provides in how he calculates owner earnings. Everyone has a bad day at times and I am surprised that he did not go back and state that the $29,065 is actually correct as he needed to multiply 1024 *1 and got $1024
So
Net income = $23,344
D&A = $2,859
Other non cash charges = $4,163
Capex = $2,325
Changes in working capital = ($1,024)
MSFT TTM Owner Earnings =
$23,344
+ $2,859
+ $4,163
 $2,325
+ $1,024
= $29,065
So as you can see he was actually right if you follow his 2011 example.
"Buffett says that If the business requires additional working capital to maintain its competitive position and unit volume, the increment also should be included in ( c)."
So since C = Capital Expenditures and we subtract that then we need to subtract a minus number which requires us to multiply *1 so it becomes positive and +1024 gets added and not subtracted so he was right in the first place and got temporarily confused as can happen to anyone.
Well that's it for tonight and I did various tests comparing my interpretation of Owner Earnings with Old School Values interpretation and it was exact most of the time except that my interpretation includes Special Income or Charges and OSV does not.
So our interpretation is different and to each his own but if you google Owner earnings you will find dozens of interpretations of what Buffett meant. Since Mr. Buffett has not gone public since 1986 on his equation it will remain a great debate, but I will stick with my version as it works for me. In the end you add a negative and subtract a positive. Under normal conditions you would just subtract a negative result and add a positive result but Mr. Buffett wants us to do the opposite and reward companies for a negative change in working capital and punish those with a positive result and thus we are required to multiply by 1.
Mycroft
Gilead Sciences: An Analysis Using Warren Buffett's OwnerEarnings Equation [View article]
Gilead Warns After Hepatitis Patient on Heart Drug Dies
http://yhoo.it/1xLOp6o
Gilead Sciences: An Analysis Using Warren Buffett's OwnerEarnings Equation [View article]
Sell Price Target at 30 times owner earnings = $254.37
Mycroft
Gilead Sciences: An Analysis Using Warren Buffett's OwnerEarnings Equation [View article]
Gilead Sciences: An Analysis Using Warren Buffett's OwnerEarnings Equation [View article]
Best Regards,
Mycroft
Gilead Sciences: An Analysis Using Warren Buffett's OwnerEarnings Equation [View article]
Thanks,
Mycroft
Gilead Sciences: An Analysis Using Warren Buffett's OwnerEarnings Equation [View article]
Mycroft
Gilead Sciences: An Analysis Using Warren Buffett's OwnerEarnings Equation [View article]
I am going by what Warren Buffett actually wrote in 1986 "we can gain some insights about what may be called "owner earnings." These represent (A) reported earnings plus (B) depreciation, depletion, amortization, and certain other noncash charges such as Company N's items"
AND
"Our ownerearnings equation" and that "we consider the owner earnings figure, not the GAAP figure, to be the relevant item for valuation purposes  both for investors in buying stocks and for managers in buying entire businesses."
Who is the "WE" and "OUR" = Warren Buffett and Charlie Munger because at the time the statements were written only Warren Buffett and Charlie Munger made all the investment decisions for Berkshire Hathaway.
Mycroft
Gilead Sciences: An Analysis Using Warren Buffett's OwnerEarnings Equation [View article]
That sums it up quite well. Everyone should operate based on their expectations and risk tolerance.
Thanks,
Mycroft
Gilead Sciences: An Analysis Using Warren Buffett's OwnerEarnings Equation [View article]
There are times to fish and times to mend the nets. I just use logic and common sense and refuse to pay the equivalent of $500,000 for a Toyota Prius for a stock just because everyone else is doing it, but I would rather pay below sticker. What I do is not easy and requires a ton of patience and the ability to shut out the crowd. Benjamin Graham lost his money twice, early in his career and was so conservative as a result of those losses that he went full bore Net Net Working Capital Investing after that. In 1987 at the ripe old age of 23, I lost big in one day when the market went down 23% and I was heavily margined. So experience is what man calls his mistakes as Plato said and I learned a ton of lessons on that day.
Despite what people believe, markets do not always go up and from 19282009 I did a study where the markets went up 50.4% of the time and down 49.6% of the time. When markets fall they tend to fall heavy and if you can minimize losses then you don't need huge gains in order to outperform.
Legendary Investor Irving Kahn who recently died at 109 was in the stock market since 1928 and this is how he operated:
"Until the end of his life, Mr. Kahn kept about half of his assets in stocks, with the rest in cash. “If you command a lot of cash,” he said in 2012, “you can be wrong and still not have to worry.”
This is basically what I do except when times like we are now in come around as I don't see how anyone can invest in a 30 year bond right now and lock in about 2.6% and pay historic highs in principal and get historic lows in yield. Its just a no win situation in my book.
Mycroft
Gilead Sciences: An Analysis Using Warren Buffett's OwnerEarnings Equation [View article]
YCharts has no official definition on their website but if you check with Google Finance you will see that they are the same results, therefore I have verified them to be correct.
http://bit.ly/1Ct9KJ0
Mycroft
Gilead Sciences: An Analysis Using Warren Buffett's OwnerEarnings Equation [View article]
For those interested Apple has the following results.
Owner Earnings = $33.45 Billion
Free Cash Flow = $49.90 Billion
Owner Earnings to Free Cash Flow Ratio = 0.67
Price to OE = 21.52
Price to FCF = 14.43
Those selling Apple may have noticed this as Management sold a ton of stock a while back.
Mycroft
Gilead Sciences: An Analysis Using Warren Buffett's OwnerEarnings Equation [View article]
http://bit.ly/1CsTMP5
Thanks Ben, Mario and Janet,
Mycroft