tag:blogger.com,1999:blog-5389144729834496735.post839515375492828708..comments2024-03-17T05:15:55.634-04:00Comments on The Brooklyn Investor: 10x Pretax Earnings! Case Studies: KO, BNI etc.Unknownnoreply@blogger.comBlogger82125tag:blogger.com,1999:blog-5389144729834496735.post-50638701039502238782022-12-02T15:28:46.686-05:002022-12-02T15:28:46.686-05:00Buffett says depreciation is a real expense so he ...Buffett says depreciation is a real expense so he keeps it in his calculation for multiples (pre-tax / purchase price).Vireshnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-7508818351650306592019-12-17T20:58:30.488-05:002019-12-17T20:58:30.488-05:00I think Buffett starts with a 6.5% hurdle rate or ...I think Buffett starts with a 6.5% hurdle rate or the 10yr Treasury yield if it is greater than 6.5%. He uses 6.5% because it is the long-term average. He uses the average because his holding period is forever so he doesn't assume that rates will stay low over his holding period. He's just trying to match the risk free rate (or the 6.5% hurdle rate when rates are low) and then let the business handle the rest. A 6.5% yield translates to ~10% pre-tax yield based on the old 35% tax rate.SShttps://www.blogger.com/profile/02172337456822834419noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-74408888894768589202016-06-21T20:19:02.947-04:002016-06-21T20:19:02.947-04:00Found this in Tweedy paper
<< Intrinsic
v...Found this in Tweedy paper <br /><br /><< Intrinsic<br />value for industrial companies was defined as 10x EBIT (i.e., earnings before deducting interest<br />and taxes), plus cash, less interest bearing debt and preferred stock, divided by outstanding<br />shares. In recent years, we have observed many corporate acquisitions of companies at a valuation<br />equal to about 10x EBIT. An acquisition valuation of 10x EBIT provides an acquirer with a 10%<br />pre-tax return on the total purchase price including any assumption or pay-down of the acquired<br />company’s debt.>>Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-27681603420293397362015-12-28T01:24:31.752-05:002015-12-28T01:24:31.752-05:00Per the 10K, the 2013 pretax is 19,524 and this wi...Per the 10K, the 2013 pretax is 19,524 and this will give a pretax/share of 17.7 as you have correctly shown above. There are several discrepancies between the two sources (10K and Gurufocus)such as all important total revenue that would explain the difference in the 2013 pretax figures. You have been very helpful. Thanks. <br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-35168985079052421752015-12-27T22:20:42.333-05:002015-12-27T22:20:42.333-05:00Hi, why not take a peak at the 10k and try to figu...Hi, why not take a peak at the 10k and try to figure it out yourself? It's always good to go to the source and see where people get numbers. Very often, numbers will vary according to data source for many reasons.<br /><br />If you need help, I'll be glad to point you in the right direction. Trust me, you will learn a lot by trying to figure this out (and it's not that hard!). kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-15876667646747978822015-12-27T09:12:11.933-05:002015-12-27T09:12:11.933-05:00Also, the 2013 IBM pretax per share shown above is...Also, the 2013 IBM pretax per share shown above is 17.7. Gurufocus pretax/share for IBM for 2013 is 20244/1103=18.35. Except for 2013 IBM figure of 17.7, other figures shown above are pretty close to what I calculate using Gurufocus. Any idea why this one figure differs? Thanks. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-66974598717787726592015-12-27T06:05:40.194-05:002015-12-27T06:05:40.194-05:00Hi, that's a good observation. The difference...Hi, that's a good observation. The difference is the tax-equivalent adjustment. USB reports interest income on a tax-equivalent basis (which shows a larger number than actual as you are converting tax-free yield to tax-equivalent yield. There is a number in the income statement that adjusts this back down and that adjusted figure is what Gurofocus is using. It's only 3% so doesn't change the above argument much.kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-40694575574031764002015-12-26T20:21:58.838-05:002015-12-26T20:21:58.838-05:00I am new to your website. Per Gurufocus, 2006, 200...I am new to your website. Per Gurufocus, 2006, 2007 & 2013 Pretax income figures for USB are 6863,6207 & 7764. These figures are listed under income statement and you do not need to do any calculations. The data for 2010-2014 is available for free and no membership is required. These differ from the pretax earnings you show above. I appreciate you response as to why Gurufocus figures differ from the figures you show above. Thanks in advance. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-37691050250954026862015-08-23T04:11:41.923-04:002015-08-23T04:11:41.923-04:00Sorry the EV/EBIT was based on data for year endin...Sorry the EV/EBIT was based on data for year ending Dec 14. The annual report results which include up to Jun 15 are as follows:<br /><br />EBIT 1,570<br />Shares 2,416<br />LTD 1,375<br />Cash/cash equiv 447<br /><br />EV for SP $5.50 = 14,216m<br /><br />EV/EBIT = 9.05<br /><br />ROIC 18%<br /><br />Still at 9x it looks good.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-47996888394111578142015-08-23T03:00:41.831-04:002015-08-23T03:00:41.831-04:00Thankyou for your prompt reply
I was thinking abo...Thankyou for your prompt reply<br /><br />I was thinking about this in terms of his recent stake in ASX:IAG. He took a 3.7% stake at $5.57. He also got a sweetener - 20% of insurance premiums and pays out 20% of insurance costs. Since IAG has combined ratios <100% on average, this works out better for him than current shareholders and will probably reduce EPS.<br /><br />My interest in the company was his stamp of approval on the management team. <br /><br />Do you think the stock is attractive?<br /><br />According to gurufocus the EV/EBIT is about 6. The ROE is about 17%. Despite this book value has stayed flat for a decade, I think because of the company's preference for a 100% payout ratio. (This is common in Australia - people invest for income not thinking about growth from high ROE companies). P/B is 2.<br /><br />Do you think these numbers are attractive?<br /><br />On the one hand the "owner earnings" calculation is <10.<br />On the other hand book value has 0% CAGR and the P/b is 2.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-847889391241927222015-08-21T18:54:17.990-04:002015-08-21T18:54:17.990-04:00Hi,
I forget which year, but Buffett did explain...Hi, <br /><br />I forget which year, but Buffett did explain his valuation of GEICO not too long ago; I think it was in reference to the value of goodwill. He doesn't look at insurance companies on P/B or any conventional measure like that, but he looks at the value of float and some multiple of underwriting profit if the insurance operation itself (excluding investments) is consistently profitable. He sees float as good as equity. kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-39187813328000183832015-08-21T01:52:37.266-04:002015-08-21T01:52:37.266-04:00KK, thanks for this blog post.
Do you know how Bu...KK, thanks for this blog post.<br /><br />Do you know how Buffett values insurance companies, such as GEICO? Is it mainly based on EV/EBIT or on book value? <br /><br />I have read some internet articles saying that the way to value insurance companies is P/B and ROIC.<br /><br />ThanksAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-92185074056655662572015-08-18T11:30:08.459-04:002015-08-18T11:30:08.459-04:00Hi,
Yes, it looks a little expensive. This 10x p...Hi, <br />Yes, it looks a little expensive. This 10x pretax is no hard rule or anything. Just an observation. I don't expect all deals to fit; there are a lot of other things to consider.kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-66850905659915311692015-08-18T05:32:46.940-04:002015-08-18T05:32:46.940-04:00Hello
Have you looked at Buffett"s price pai...Hello<br /><br />Have you looked at Buffett"s price paid for Precision Castparts? Exceeded his 10x pre-tax price. Any thoughts on that? Charlie has hinted that they might look for places to put more capital to work at slightly lower rates (e.g., MidAmerican). <br /><br />ThanksAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-49148256234441181532015-05-14T17:21:16.025-04:002015-05-14T17:21:16.025-04:00Do you have a similar analysis for the private dea...Do you have a similar analysis for the private deals? ie. companies he bought that are not publicly traded?<br /><br />Danhttps://www.blogger.com/profile/15136541075745913165noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-33747140842493149212015-05-07T05:22:03.529-04:002015-05-07T05:22:03.529-04:00Hi,
Thanks. I've been thinking awhile about y...Hi,<br /><br />Thanks. I've been thinking awhile about your reply and you are right of course. I guess one can also call or send emails (I've sent to a few IR and always get a reply) but still the difficult part would be to figure out which questions to ask, especially qualitative ones. While with the big mcaps the questions are all around and can be even passively absorbed over time if you read enough. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-47014760382657297862015-04-28T07:34:40.215-04:002015-04-28T07:34:40.215-04:00Hi,
I don't know about small and micro caps ...Hi, <br /><br />I don't know about small and micro caps too much. There was a time I spent a lot of time looking for them, but I would often find things that I couldn't evaluate unless I met management, but that wasn't in the cards for me. It is hard to find information on microcaps, I find. For example, if you wanted to evaluate COST, it's easy. There are a lot of public filings, long history, lots of articles in the news about the people, stores etc. You can actually go to the stores etc. But for microcaps, it's hard to find information about the business other than the usually limited filings. <br /><br />That doesn't mean you can't find interesting things in that space. I'm no specialist in the area, but I used to really enjoy going through Walker's manual, for example. It was like a S&P stock guide but for microcaps. <br /><br />Also, going through ideas at VIC (Value Investors Club) you can often find microcap ideas. Also look at the holdings of microcap mutual funds. You can screen stocks based on market cap and low valuation etc. There are a lot of things you can do. <br /><br />Anyway, good luck! <br />kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-18117622703076401892015-04-28T03:25:51.554-04:002015-04-28T03:25:51.554-04:00KK,
Thank you for sharing your time and thoughts....KK,<br /><br />Thank you for sharing your time and thoughts. For those of us who are just starting and do not have 7 or more figures (yet! :) could you write a post or a few words about small or micro caps and how you'd go about finding them? Many thanks!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-15283258236832616532015-04-26T19:29:33.196-04:002015-04-26T19:29:33.196-04:00Wow, thanks for the datapoint! Wow, thanks for the datapoint! kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-77075382159718757242015-04-26T19:05:35.303-04:002015-04-26T19:05:35.303-04:00MCD purchase 1996
Price paid $41.96
Pre-tax earn...MCD purchase 1996<br /><br />Price paid $41.96<br /><br />Pre-tax earning 3331-365 = 2966<br />Net income 1573<br />PE range for that year 19-25, price range 41-54<br /><br />Multiple of pre-tax earning paid=<br />1573x19/2966 = 10.07 PK2013noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-59498139839705465662015-04-16T09:12:36.285-04:002015-04-16T09:12:36.285-04:00Thanks KK
I would guess 10xPTE is not for all qual...Thanks KK<br />I would guess 10xPTE is not for all qualitatively eligible purchases. I guess he would use 8xPTE for high cap-ex such as XOM but will be willing to pay higher for businesses with monopoly position as he mentioned in discussion about 1992 letter about cable TV stations & local newspapers franchise.<br /><br />Based on 10xPTE, if WB were an outsider & were to buy BRK-A, he would buy at<br />140,123 (investments) + 108470 (=10x10847) == 248593 per A share (at Dec 2014 end)<br /><br />So, BRK is cheap even by WB criteria<br /> Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-19491928837807049452015-04-16T08:25:33.673-04:002015-04-16T08:25:33.673-04:00Depreciation is deducted but capex is a cash flow ...Depreciation is deducted but capex is a cash flow item. The best way to go about this is to just go get a 10-K of a company (simple company is better) and then go through the income statement line by line. If there is something you don't understand, just google it. There is a lot of info on the internet explaining basic accounting. So I would just go do that. It's much faster that way. kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-12651075154528175412015-04-15T19:02:04.834-04:002015-04-15T19:02:04.834-04:00Thank you KK
So, basically, to get to pre-tax inc...Thank you KK<br /><br />So, basically, to get to pre-tax income, the only item that we would deduct from operating income is interest expense. All other items such as depreciation, cap-ex etc need not to be part of it. Correct? I guess WB uses it because it is less manipulated than other numbers such as net income. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-33627814731949568682015-04-13T22:05:18.766-04:002015-04-13T22:05:18.766-04:00Hi, pretax earnings is the item in the income stat...Hi, pretax earnings is the item in the income statement that usually comes before income tax. You have operating earnings, interest income/expense, pretax income, income tax and then net income or something like that. You can google it and you'll find plenty of simple income statement/balance sheet definitions/examples. kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-52076471302468244582015-04-11T17:28:36.247-04:002015-04-11T17:28:36.247-04:00How do I find "pre-tax earnings"?How do I find "pre-tax earnings"?Anonymousnoreply@blogger.com