Hey Reader,
​
Did you know? Mark Zuckerberg is red-green colorblind, which is why Facebook's primary color is blue, as it is the color he can see most clearly.

In today's issue:

• What Charlie Munger hates EBITDA
• How to find great businesses
• How to invest through different company lifecycles
• Breaking down free cash flow yield
• Much more.....

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My friend, Thomas Chua of Steady Compounding. One of the best writers and teachers, well worth your time.

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💎NUGGETS

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My Favorite Finds

​

Charlie Munger is f​amou​s for HATING EBITDA, Brian Ferolid explains why.

Boring can be beautiful; John Deere exemplifies this perfectly. Tractors and agriculture may not be sexy, but it is necessary, we all want to eat after all.

​Moats are not static, we need to understand how they expand and contract. Even Visa is not immune (I know, shocking).

We all want to find great businesses, but what do we look for? In this podcast, John Huber breaks it down.

​What are serial acquirers? How do I analyze them? All great questions and this great paper reveals all.

​All companies go through life cycles, even Microsoft. Here Michael Mauboussin teaches us how to think about them and how to invest.

🔍DEEP DIVE

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Are you seeking a powerful metric to assess a company’s financial health and investment potential?

Let’s talk about the Free Cash Flow (FCF) Yield.

FCF Yield is a financial ratio that compares a company’s free cash flow to its market capitalization. It’s a crucial indicator of a company’s ability to generate cash relative to its valuation.

The formula is simple:

𝗙𝗖𝗙 𝗬𝗶𝗲𝗹𝗱 = 𝗙𝗿𝗲𝗲 𝗖𝗮𝘀𝗵 𝗙𝗹𝗼𝘄 / 𝗠𝗮𝗿𝗸𝗲𝘁 𝗖𝗮𝗽𝗶𝘁𝗮𝗹𝗶𝘇𝗮𝘁𝗶𝗼𝗻

Where:

• Free cash flow = Operating Cash Flow - Capex • Market cap = Diluted shares outstanding x market price

But what does this tell investors?

1. 𝗣𝗿𝗼𝗳𝗶𝘁𝗮𝗯𝗶𝗹𝗶𝘁𝘆: It shows how efficiently a company generates cash relative to its size.
2. 𝗩𝗮𝗹𝘂𝗮𝘁𝗶𝗼𝗻: It helps determine if a stock is overvalued or undervalued.
3. 𝗦𝘂𝘀𝘁𝗮𝗶𝗻𝗮𝗯𝗶𝗹𝗶𝘁𝘆: It indicates a company’s ability to fund growth, pay dividends, or buy back shares.
4. 𝗖𝗼𝗺𝗽𝗮𝗿𝗶𝘀𝗼𝗻: It allows for easy comparison between companies or against bond yields.

So, what’s a good FCF Yield to look for?

Generally, an FCF Yield above 5% is considered attractive, while anything above 8% is excellent.

However, it’s crucial to compare within industries and consider the company’s growth stage.

Remember, while FCF Yield is powerful, it shouldn’t be used in isolation. Always consider other metrics and the broader context of the company and industry.

📖Knowledge Tidbits

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Daniel @MnkeDaniel One-Pager on The Intelligent Investor: 7:24 AM • Oct 31, 2024 1453 Retweets 7401 Likes Read 39 replies

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

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