Skip Olinger

The 15 Most Cash Rich Companies

GOOD ONE!! YOU SAID, "Just as you would not extend your mortgage to pay for day to day living....." I assume you meant that as a joke as that is exactly what people were doing over that 5 years that brought on the current Depression?


On Mar 16 05:13 PM Anna Coulling wrote:

> Finding a cash rich company in which to invest is an important first
> step but trying to establish where the cash is coming from and where
> it is going is even more important. I was given these tips by some
> specialist insolvency accountants (and they should know!).
>
> It seems we all need to understand a balance sheet these days and
> short of becoming forensic accountants at the very least we should
> try to find answers to the following three questions. Number 1
> - Where is the cashing coming from? Companies can boost short term
> cash flow by borrowing or selling assets. However, there are only
> so many assets that can be sold and without a regular inflow on cash
> a company will soon run into trouble. The number to look for is
> “cash flow from operating activities” – this shows how much cash
> is generated from the company’s core business activity. A negative
> number is a red flag and always check back a few years to see if
> there is any pattern. Highly volatile operating cash flows can suggest
> trouble – Enron was a classic case in point before it failed.
>
> A firm can also enhance operating cash flows by delaying payments
> to suppliers just before the financial year end so always take a
> look at the note that supports the cash flow figure (usually placed
> a few pages back) and look for the number showing “change in creditors”.
> If this number has jumped without a corresponding rise in activity
> – “cost of sales” – in the profit and loss account, be suspicious.
> It is also worth comparing the firm’s “operating profit” to its “operating
> cash flow”. Big variations, or an operating profit not matched by
> a similar amount of operating cash flow are both warning signs.<br/>
>
> Number 2: Where does all the operating cash flow go? Analysts often
> quote “free cash flow” which should be positive and ideally consistent
> with past years, allowing for changes in activity. For example if
> sales have decreased 10%, free cash flow will probably have fallen
> as well and should be in proportion. Companies such as Tesco have
> been able to expand rapidly by using huge free cash flows to buy
> freehold sites. However, if a company is enjoying high levels of
> free cash flow and not expanding or paying it back to investors as
> a dividend, be concerned. Also consider the relationship between
> free cash flow and the equity dividend. If free cash flow does not
> cover the dividend at least twice, future payouts could be at risk.
>
>
> Number 3: The final area to look at is the “cash flows from financing
> activities” section. Just as you would not extend your mortgage
> to pay for day to day living, a typical bankruptcy candidate will
> raise long term finance as new debt or equity and then use it to
> keep trading. So compare the total raised as debt or equity in the
> “cash flows from financing activities” section and the amount being
> spent on new assets in the “cash flows from investing activities”
> above it. A big mismatch with no explanation from directors is another
> warning signs.
>
> In addition look at a company's “Altman-Z score” This indicates
> the probability of a company entering bankruptcy within the next
> 2 years. The higher the Z score, the lower the probability of
> bankruptcy. An Altman score above 3 indicates that bankruptcy is
> unlikely; a score below 1.8 indicates that bankruptcy is possible.
>
>
>
> Finally always look at the directors' dealings - are they buying
> or selling.

'AAA' Rated Companies: And Then There Were Six

A few comments:
- I'll go out on a limb here, Freddie MAC is not AAA. In fact it and Fannie Mae are virtually insolvent save for Government support. You may be looking a certain trenches of their securitized debt which may be rated AAA. But the company is not, unless you think the US Gov will support all its paper.

- If Moodys downgraded Pfizer, then they ain't AAA anymore. I think you need both to be in the club. They took a big bite with Weyth

- Note that Fitch downgraded Berkshire from AAA

US Bancorp: A $1.7B Loss for Berkshire Hathaway?

Is this an analysis of USB or BRK? I don't get the point of this post. Whatever your point, it is certainly not a well reasoned, in-depth analysis that is useful.

15 Value Hedge Funds - Portfolio Update

I guess I am dumb like you. I think seeing what some pretty bright people are buying and selling is a pretty good place to get ideas to do my own research. It also provides a good benchmark to compare to my own portfolio.

You should do some further research on whether Buffett sold COP. I saw another post that he, in fact, got an expemption from the SEC to not report is position in that stock. Therefore, it simply droppped from the list and not sold. Given that COP is pretty cheap compared to the rest and that he and Gates were up in Canada looking at oil sands, it seems unlikely that he just punched out of this position in one quarter

Why Kass Is Wrong About Berkshire Hathaway

I never considered the idea that this could be a marketing play rather than a financial one. Good insight.

As far as shorting BRK, it does not make a lot of sense to me. The company has little leverage, other than its derivative portfolio, it has an extremely solid balance sheet. Everyone including WEB knows that company will not grow as fast in the future due to its size. And, the company does not sell for a huge valuation. Therefore, I see no catalyst that could occur that would suddenly drive the stock price down. Aren't there more interesting shorts out there? There has to be some highly leveraged companies selling for high valuations with yet to be determined true values of assets on their balance sheet.