Hey Reader,
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The NFL opening weekend happened, and like a heathen, I spent Sunday reading 10-ks, investing blogs, and watching YouTube videos. I think there might be something wrong with me?

In today's issue:

• How to read an income statement like a pro
• How Nvidia can teach us about the power of expectations
• Never, ever short Amazon (foolish) and what we can learn from a potential short
• Invested capital vs working capital - a grudge match (not really)
• Much more.....

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NUGGETS

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My Favorite Finds

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Brian Ferolid offers up another gem (loving this series). He teaches us how to analyze an income statement like a pro.

​Professor Aswath Damodaran breaks down the power of expectations using Nvidia as an example. (He's the best, isn't he?).

Never, ever short Amazon, but this dive into a potential short highlights some great ways to analyze a company.

I am growing to like and understand (sort of) the semiconductor space. Quartr's great newsletter offers the backstory of TSMC and Morris Chang, well worth the read.

​Classic breakdown of ROIIC (Return on Incremental Invested Capital) from Hayden Capital. ROIIC > ROIC, trust me.

​Invest in Quality teaches us how to build a portfolio from scratch. Not an easy thing to do.

DEEP DIVE

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Invested Capital

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vs Working Capital

Invested capital includes the assets Microsoft uses to grow.

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Working capital is the lifeblood Microsoft uses to function daily.

Invested Capital

𝗗𝗲𝗳𝗶𝗻𝗶𝘁𝗶𝗼𝗻: Total capital invested in a company’s operations.

1. 𝗞𝗲𝘆 𝗖𝗼𝗺𝗽𝗼𝗻𝗲𝗻𝘁𝘀: Includes equity, debt, and retained earnings.
2. 𝗣𝘂𝗿𝗽𝗼𝘀𝗲: Used to fund a company’s growth and operations.
3. 𝗖𝗮𝗹𝗰𝘂𝗹𝗮𝘁𝗶𝗼𝗻: Sum of debt and equity minus non-operating assets.
4. 𝗨𝘀𝗮𝗴𝗲: Measures the company’s use of funds for generating returns.

Working Capital

1. 𝗗𝗲𝗳𝗶𝗻𝗶𝘁𝗶𝗼𝗻: Difference between current assets and current liabilities.
2. 𝗞𝗲𝘆 𝗖𝗼𝗺𝗽𝗼𝗻𝗲𝗻𝘁𝘀: Includes cash, receivables, and inventories minus payables.
3. 𝗣𝘂𝗿𝗽𝗼𝘀𝗲: Manages day-to-day operational expenses.
4. 𝗖𝗮𝗹𝗰𝘂𝗹𝗮𝘁𝗶𝗼𝗻: Current assets minus current liabilities.
5. 𝗨𝘀𝗮𝗴𝗲: Indicates short-term financial health and liquidity.

𝗞𝗲𝘆 𝗗𝗶𝗳𝗳𝗲𝗿𝗲𝗻𝗰𝗲𝘀

1. Invested capital represents total funds used for growth; working capital focuses on daily operational liquidity.
2. Invested capital includes long-term debt and equity; working capital covers short-term assets minus liabilities.
3. Invested capital is for overall company investment; working capital ensures smooth day-to-day operations.

Understanding invested and working capital is crucial for evaluating a company’s long-term investments and short-term financial health.

Knowledge Tidbit

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The Investing for Beginners Podcast @IFB_podcast Exploring ROIC and Moats: - ROIC measures profitability - Key metrics for long-term value - Moats protect competitive advantage - High ROIC + Strong Moat = Attractive investment Learn the ins and outs of ROIC to better identify quality companies.. 12:2 PM • Sep 8, 2024 40 Retweets 210 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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