Present Value of Future Cash Flows

Value Hunter said:

Craft cheer up about Sirtex, a 15% CAGR over that time frame is still much better than the market and better than what most on ASF have achieved!!

Its like the billionaire with a net worth of $21 billion who is disappointed because his net worth "only" increased by a billion in the past year!! Its still a billion dollars and nobody is going to have much sympathy for him!

At the end of the day you made a return that is higher than the market and higher than most people in percentage terms. Also the amount (I am guessing) in dollar terms is probably an amount that most normal people could not save in a ten year time-frame.

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Ves said:

Hey guys,

Return on invested capital (ROIC) and / or Return on Capital Employed (ROCE).

I am currently playing around with this. It's fairly easy to calculate it on a basic level, although obviously there are many different subtleties.

Does anyone have (or would like to personally discuss) a link to an in-depth discussion around the Funds Employed equation? I would like to explore issues surrounding goodwill / other indeterminable life intangibles, working capital in more detail, and other adjustments that could be made to get to the bottom of the true economic reality of a balance sheet, if at all possible. For instance, it is possible that a company has overpaid for an acquisition in the past (ie Wesfarmers and Coles) and the true return on this asset is technically being understated by the goodwill on the balance sheet.

Feel free to let me know if no such discussion exists and I will gladly keep beating away at it in my own head.

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Ves said:

Hey guys,

Return on invested capital (ROIC) and / or Return on Capital Employed (ROCE).

I am currently playing around with this. It's fairly easy to calculate it on a basic level, although obviously there are many different subtleties.

Does anyone have (or would like to personally discuss) a link to an in-depth discussion around the Funds Employed equation? I would like to explore issues surrounding goodwill / other indeterminable life intangibles, working capital in more detail, and other adjustments that could be made to get to the bottom of the true economic reality of a balance sheet, if at all possible. For instance, it is possible that a company has overpaid for an acquisition in the past (ie Wesfarmers and Coles) and the true return on this asset is technically being understated by the goodwill on the balance sheet.

Feel free to let me know if no such discussion exists and I will gladly keep beating away at it in my own head.

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InsvestoBoy said:

Check out the education section of newconstructs.com ...

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Ves said:

This makes sense - but you were dead right when you once said you have to know what questions to ask before getting any answers out of the great man's letters.

There's a few other pearls of widsom in that very letter too. Just small tidbits that hopefully start to add up for me. The bit about being patient and waiting for your turn to bat again is a good reminder.

The major lesson seems to be: a premium can be paid for a business with good economics, but in the long run, if you can put large amounts of incremental capital into it and earn large returns on this the purchase price often becomes unimportant.

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