The Latest from Research

  • May 7, 2020
    The Difference Between a Great Company and a Great Stock

    Overview In mid-1998, Coca-Cola’s (KO:USA) stock price traded at a high of about $88 per share. Almost eight years later, the firm’s stock price stood at half that mark: $44. Did the company lose their incredible competitive advantages? Around the same time, an incredible stock price run was taking shape. A major discount retailer watched... Read More

  • May 10, 2020
    How to Calculate Uniform Return on Assets (ROA)

    Arcane Accounting Mathematics: Destroying Valuations and Shareholder Wealth Traditional financial analysis metrics tend to muddle our insight on the intrinsic value of a company. Rather than focusing on the ability of a company to create value, which is the primary goal of the intermediate to long-term investor, these metrics lead the investors to focus on... Read More

  • May 11, 2020
    When Cash is Not Cash and Why

    The Statement of Cash Flows – Is Not Investors, other analysts, and management often rely on cash flows reported in the financials as a foundation of performance analysis and valuation. Unfortunately, those cash flows are not what they appear to be. Many use the statement of cash flows (such as “cash flows from operations”) for... Read More

  • May 7, 2020
    Good versus Bad Free Cash Flows

    Can More Free Cash Flow Be a “Sell” Signal? Home Depot (HD:USA) was a darling of the investing public from 1985 until 2001, with returns in excess of 20x the market over that period. In the era of the tech market and the internet boom, a home improvement retailer was one of the best performing... Read More

  • September 20, 2016
    R&D Is an Investment, Not an Expense – How capitalizing R&D impacts understanding corporate profitability

    In several recent Seeking Alpha articles Valens has posted, questions about R&D capitalization and R&D investment have come up in the comments section. As such, we felt it was worth writing a post about this issue, the theoretical underpinnings behind it, and how this impacts companies. In this article, we highlight the impact of these... Read More

  • June 13, 2016
    The Dark Side of M&A

    Highlights from our comments at the NYSSA panel event, “The Dark Side of M&A” held April 14: GAAP and IFRS-based M&A accounting materially distort comparability, create misleading trend analysis, as-reported results are a far cry from economic reality 70+ were in attendance at the New York Society of Securities Analysts panel, discussing the serious problems... Read More

  • June 17, 2016
    Of 2016 Forecasts, Opinions, and Advice

    Two simple yet interesting questions were posed recently at two Valens events. The first question, from our company Christmas party, is the type of simple query that can cause you to think very philosophically about life. The second question, from the recent APEC forum, is a loaded one about stock market forecasts. At some level,... Read More

  • June 17, 2016
    Failing to capitalize R&D creates havoc in accurately measuring profitability across time, across companies, and across many different industries.

    Under Generally Accepted Accounting Principles (GAAP), expensing R&D in the year spent is required. For many firms, this leads to extensive volatility in profit and return calculations, and to an inadequate measure of assets or invested capital. This doubly impacts return on asset calculations, and not consistently so, thereby creating wildly different calculations of economic... Read More