Hey Reader,
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Did you know? Jensen Huang has a tattoo of Nvidia's logo on his shoulder, which he got when the company's stock price hit $100 per share. He described the experience as painful, saying it "hurts way more than anybody tells you."

In today's issue:

• The differences between depreciation and amortization
• Howard Marks drop another memo
• How to read a 10-k, ala Aswath Damodaran
• Defining operating cash flow
• Much more....

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💎NUGGETS

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My Favorite Finds

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Brian Feroldi breaks down the difference between depreciation and amortization as only he can, simply and concisely.

Howard Marks thoughts on asset allocation. If Warren Buffett reads it first thing in the morning who am I to disagree?

Big opportunity in the AI space around electricty generation and nuclear (I know, I know). Eric explains in depth, well worth the time.

Michael Mauboussin dives into company lifecycles and explains (better than I ever could) how they impact returns.

​Breaking down a basic understanding of a company's financial statements.

​50 wide moat companies, which one reigns supreme? I know but you are going to have to read to find out.

🔍DEEP DIVE

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Reading annual reports is a necessary part of analyis.

But how do we do it?

Professor Aswath Damodaran is the dean of valuation. He has developed a six-part framework for reading through the annual report to find the necessary inputs to value any company.

From these, we need to discover:

1. Cash Flows
2. Investments for Future Growth
3. Operational Efficiency
4. Quality of Earnings
5. Risks

𝗖𝗼𝗻𝗳𝗶𝗿𝗺 𝘁𝗵𝗲 𝘁𝗶𝗺𝗶𝗻𝗴 𝗮𝗻𝗱 𝗰𝘂𝗿𝗿𝗲𝗻𝗰𝘆 - Which time frame is included? - In what currency are the figures presented?

𝗠𝗮𝗽 𝘁𝗵𝗲 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗺𝗶𝘅 - What segments does the company operate in? - How is the geographic distribution structured?

𝗙𝗶𝗻𝗱 𝘁𝗵𝗲 𝗯𝗮𝘀𝗲 𝗶𝗻𝗽𝘂𝘁𝘀 𝗳𝗼𝗿 𝘃𝗮𝗹𝘂𝗮𝘁𝗶𝗼𝗻

𝘍𝘳𝘰𝘮 𝘵𝘩𝘦 𝘉𝘢𝘭𝘢𝘯𝘤𝘦 𝘚𝘩𝘦𝘦𝘵 - What is the company’s debt level? - Are current assets greater than current liabilities? - Is there significant goodwill recorded?

𝘍𝘳𝘰𝘮 𝘵𝘩𝘦 𝘐𝘯𝘤𝘰𝘮𝘦 𝘚𝘵𝘢𝘵𝘦𝘮𝘦𝘯𝘵 - Is there a consistent rise in revenues? - Does selling products require high COGS? - What portion of revenue becomes net income?

𝘍𝘳𝘰𝘮 𝘵𝘩𝘦 𝘊𝘢𝘴𝘩 𝘍𝘭𝘰𝘸 𝘚𝘵𝘢𝘵𝘦𝘮𝘦𝘯𝘵 - Are earnings largely converted to operating cash flow? - Is there a positive free cash flow (operating cash flow minus CAPEX)? - Has the cash position improved since last year?

𝗞𝗲𝗲𝗽 𝗱𝗶𝗴𝗴𝗶𝗻𝗴 𝗶𝗻 𝘁𝗵𝗲 𝗳𝗼𝗼𝘁𝗻𝗼𝘁𝗲𝘀 𝗹𝗼𝗼𝗸 𝗳𝗼𝗿 - Is there extensive use of SBCs? - What is the debt maturity schedule?

𝗖𝗼𝗻𝗳𝗶𝗿𝗺 𝗧𝗵𝗲 𝗨𝗻𝗶𝘁𝘀 - What is the total number of shares outstanding? - Are there any preferred shares? - Are acquisitions financed with stock?

𝗖𝗼𝗿𝗽𝗼𝗿𝗮𝘁𝗲 𝗚𝗼𝘃𝗲𝗿𝗻𝗮𝗻𝗰𝗲 - Are there special privileges for insiders? - Does management have significant ownership?

Good luck and may the force be with you.

📖Knowledge Tidbits

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The Investing for Beginners Podcast @IFB_podcast Operating Cash Flow: 10:3 AM • Oct 26, 2024 79 Retweets 386 Likes Read 2 replies

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Thanks,
Dave Ahern
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​einvestingforbeginners.com​
​Investing for Beginners Podcast​

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