Archive for February, 2009

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Posted by Dan Hung

at February 12, 2009

Buy flonase without prescription, A lot of well respected economists have gone on record over the last few weeks and discussed the likelihood that our country's financial institutions are all insolvent. Buy flonase on internet, Two particularly heavy hitters - Paul Krugman and Nouriel Roubini - have gone as far as to advocate nationalizations on a wide scale. It seems that just about everyone and their moms has jumped on this idea as the perfect way to "punish irresponsible shareholders" and "hold management teams accountable." Interestingly enough, buy generic flonase, Flonase india, very few of these people ever acknowledge two very important questions that must be answered before we as a nation embark on a campaign to nationalize our financial institutions and radically alter change the course of American economic policy. Is our financial system truly insolvent, cheapest flonase online. Flonase online, How will nationalizing solve our financial woes. After all, are we looking for a scapegoat for the current recession or are we trying to get our economy back on solid footing?

What exactly is insolvency?
Insolvency is when a business has insufficient assets to cover liabilities, buy flonase without prescription. When CNBC refers to banks not having enough of an equity cushion, real flonase without prescription, Compare flonase prices, it refers natural equality set up by a balance sheet - assets = liabilities + shareholders' equity. Thus, buy flonase us, Flonase tablets, assets - liabilities = equity cushion. A business uses its assets to pay back liabilities as they come due, canadian pharmacy flonase. Cheap flonase without prescription, When this is not the case, the business becomes "insolvent", order discount flonase online. Buy flonase without prescription, In a normal environment, businesses can increase assets by raising new debt (liabilities) or equity. Flonase online sale, Given the frozen credit markets and the number of firms licking their wounds from asset deflation, new debt (known as refinancing) is not an option and, lowest price flonase, Order cheap flonase, as a result, we see the increased focus on equity capital.

Equity capital can be generated in a few ways, cheapest generic flonase. Cheap flonase in canada, A lot has been made of preferred and common equity capital raises this year. Many of the nations banks have received TARP money in exchange for preferred equity, fda approved flonase. Buy flonase low price, Goldman Sachs gave a sweetheart deal to Warren Buffett in exchange for preferred equity and warrants. Morgan Stanley recently sold $9 billion in common equity to Mitsubishi, buy flonase without prescription. These capital raises were all made in hopes of shoring up the asset base in order to cover potential liabilities, flonase overnight shipping. Flonase for order, In addition to equity raises, assets themselves can also generate return, flonase in uk. Cheap flonase no prescription, In fact, the bank business model is predicated exactly on this oft-ignored phenomenon, cheapest flonase. Flonase cheap price, Banks take on liabilities at low interest rates and then lend these assets out at higher interest rates. Buy flonase without prescription, This means that strictly speaking having less assets than liabilities is not necessarily insolvency. Provided assets generate a reasonably fast return and liabilities mature slowly, cheap flonase in uk, Buy flonase overnight delivery, it's possible that the simple passage of time could rectify such a mismatch. A quick check on big banks (Bank of America, find discount flonase online, Flonase uk, Citigroup, Wells Fargo, flonase online pharmacy, Buy flonase cheap, and JP Morgan) on Yahoo. Finance shows that they all remain significantly free cash flow positive despite accounting losses due to asset writedowns, flonase online cheap. Flonase price, Are banks insolvent today?
It's hard to say whether or not the likes of Bank of America, Citigroup, find flonase without prescription, Purchase flonase overnight delivery, or Wells Fargo are truly insolvent. The arguments of Krugman and Roubini are predicated on the likelihood that many banks have not properly "marked to market" their assets, buy flonase without prescription. So, purchase flonase online, Flonase vendors, even if they are showing positive asset-to-liability coverage, it's likely not reality given how illiquid most assets are these days, flonase prescription. Cheap flonase tablets, Taken to its logical extension, Krugman and Roubini basically make the point that most banks would be insolvent if there were a run on the bank - depositors demanding money back, discount flonase without prescription, debt holders accelerating amortization, etc. Truthfully, all banks would be insolvent in such a situation. That's why we created the federal reserve system and it's why the Fed and Treasury have worked so hard to prevent a Great Depression style run on our banks. Buy flonase without prescription, It is also why the Fed operates as a lender of last resort, guaranteeing liquidity even in markets like the ones we face today. And, no, Fed lending is not a use of tax payer dollars. The Fed is capitalized by the banks which participate in the reserve system.

In the end, a true bank insolvency is not as simple as assets < liabilities. Because of ample liquidity avenues, banks typically can maneuver any impending needs to service liabilities. Insolvency, instead, is usually a subjective decision made by regulators. These decisions are generally made by the FDIC which makes its criteria public, buy flonase without prescription. We see here that generally, they look for a Tier 1 capital (equity + cash) to Liabilities > 4%. Since the report is readily available, looking at Bank of America's most recent investor presenation, we see the bank currently with more than twice this level of asset coverage. It would seem that calls for nationalization are still somewhat premature by traditional regulation standards.

What's the point of nationalizing?
This is the big question that I've been wondering about. Honestly, I don't know enough about economic policy and financial regulation to really explain so I'll direct you to this terrifically written article by Edward Harrison of creditwritedown.com. Buy flonase without prescription, He's actually been writing about impending insolvency and the appropriate government intervention through bank nationalizations since August so he's not just some bandwagon pundit. In fact, if you read his blog, you may notice that Roubini's recent post on the need for nationalization is significantly "borrowed" from Harrison. I'll do my best to summarize.

The belief is that one way to stabilize our markets is just to force our way down to the bottom and start over. Bank nationalizations would allow this as the government could provide its own guarantee to counterparty obligations and then write down assets to their most draconian values which allows the easy management and resale of "toxic assets" at a reasonable market value. This strategy raises a few concerns.

First and foremost, with the estimated need to write down in excess of $3.6 trillion in value (Jeremy Grantham recently estimated as muc as $10-$15 trillion), is it really worth tax payer dollars to guarantee these debts simply to punish shareholders and management of our nation's banks. Why not spend a little less money and make bank shareholders pull themselves out of this mess?

Second, the highly pessimistic view of our nation's banks' solvency is built on the assumption that market value is the true value of the assets they hold, buy flonase without prescription. Unfortunately, this couldn't be farther from the case. There is a significant argument to be made that the longrun recoverable value of many "toxic" loans is probably significantly more than the 10-20 cents on the dollar that we seem to be all too willing to assign them these days. An economic policy which can help to rectify the market dislocation would go a long way to shoring up balance sheets throughout the nation, not just at banks.

In the end, I see the merit in the desire to quickly expose the extent of asset write downs and get back to putting our economy in drive But, I don't think that many people calling for nationalizations understand the real results of such actions. Nationalization of our nation's banks will require either trillions of dollars (not just hundreds of billions) and will bring about significant asset devaluation across all sector and securities. If I came to you today and gave you two choices:

The market can bottom tomorrow and we'll jump right back to growth, but you have to give up 20-40% of your asset values.

The market will bottom tomorrow, but we'll won't reappeciate for decades.

Which would you choose.

Full Disclosure: The author bought shares of Bank of America last year, but no longer has any positions in the stocks mentioned in this post. .

Curious Investments, Market Commentary

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Posted by Dan Hung

at February 10, 2009

Buy Singulair Without Prescription

Posted by Dan Hung

at February 9, 2009

1 Comment

I made the statement in a recent article that "value" does not always follow profitability Buy singulair without prescription, . And, singulair us, Singulair australia, it was to some degree motivated by a recent article I read by Fred Wilson, a VC and blogger who I follow (and highly recommend), singulair discount. Buy singulair online, He recently posted an article on profitability which criticized to some degree the business model employed by many internet startups which typically involves the scaling of headcount and resources in the hopes of revenue growth without nary a thought for the bottom line. While this is obviously not a strategy that works in the long run, singulair pharmacy online, Find cheap singulair, I was surprised that a VC would write so negatively on this . Yes, the ultimate goal for a business is to be profitable and generate cash for its shareholders, order singulair no prescription required. Find cheap singulair online, I understand that in this economy liquidity in the form of credit, follow on investments, singulair from canada, Singulair online without prescription, and much less lucrative exits - IPOs, acquisitions, get singulair, Generic singulair, etc. - are hard to find, buy singulair without prescription. As a result, buy cheapest singulair on line, Buying generic singulair, cash is king and profitability is a significant concern for investors. Let's not forget, however, singulair for sale, Certified singulair, that investment return is built on more than just profitability:

Investment Return = Dividend + Change in Valuation * Change in Profitability

The dividend portion of this formula is simple, as mentioned in my last post on capital allocation decisions, online pharmacy singulair, Cheap singulair, management of a business can always decide to return any profits made to the investors.

The next two portions of the investment return formula are less concrete. Growth in profitability typically results in increasing value in your investment, best price for singulair. Singulair online stores, For example, whenever a business reports EPS growth, drug singulair online purchase, Singulair in us, we usually see a corresponding increases in share value. Unless, buy singulair generic, Buy singulair in canada, of course, if marke valuations already anticipate said growth or if recessionary pressures are decreasing risk appetite and driving down valuations regardless of profit success, singulair. This has happened to many good companies during the current recession.

Buy singulair without prescription, For mature businesses, the likelihood of multiple expansion or outsized earnings growth is generally slower and less relied upon for returns, but, for growth businesses like the ones VCs typically invest in, it is this part of the equation which generates the bulk of returns. Compare singulair prices online, This is also true of growth businesses - retail, tech, cheap singulair overnight delivery, Singulair rx, alternative energy - that average investors can access in the public markets. Investments by a business' management in head count and other overhead may hurt profitability in the short run, singulair approved, Singulair without rx, but they create a platform for creating scale in the business. As Fred argues in his article, order singulair, Singulair drug, profitability can be attacked through the management of costs and typically it can be done quickly whenever management decides it needs to focus on this side of the equation. That is why a lot of startups, cheapest singulair prices, Cheap singulair pill, like Facebook and Google, focus instead on scaling revenue and service offerings, singulair pills. Google, already dominant in search, continues to invest in new ventures and products and continually increasing its revenue (and ultimately it's profit) potential, buy singulair without prescription. Order cheap singulair online, Yes, some companies like Craigslist, cheap singulair pharmacy, Cheap singulair tablet, are able to handle operating margin in excess of 90% through a super lean cost structure, but they offer just one specialized product and, order singulair from canada, Buy singulair lowest price, while organic growth is abundant now, they will eventually plateau and so will valuation.

Don't start buying into Dot-Bombs just yet
Am I arguing a 90s-tech-bubble style "paradigm shift". I admit that there's a real slippery slope in the arguments laid out above. If you believe valuation multiple expansion and likelihood of growth in profitability can be derived simply from metrics like revenue growth, then why not completely non-cash metrics like users, eyeballs, and hits. Buy singulair without prescription, I would never recommend going this far in trying to anticipate future performance of your investments. But, this is where I believe due diligence and familiarity with the industries you invest in are necessary and provide an advantage when investing in growth businesses. Asking the right questions of and demanding the right results from management is critical to monitoring growth businesses during the time that they focus more on revenue growth than profitability. My focus would be on the following:

In the event of a downturn or the maturation of the market, could the business quickly cut excess capacity and operate profitably?

How defensible is the current revenue level under a leaner cost structure?

How quickly are new investments expected to payback?

The answers to these questions are typically addressed during earnings calls or in quarterly and annual reporting. Analysis of historical return on invested capital both for the business as a whole and on a project by project basis can help you to determine how much to expect as return for marginal spending and at what point you should expect to see results hit the bottom line (usually after the valuation of your investment has already appreciated).

Business Analysis, Tutorials

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Posted by Dan Hung

at February 6, 2009

2 Comments

In my recent post on using free cash flows to see through GAAP income numbers Buy synthroid without prescription, , I touched on the difference between enterprise value and equity investing. Synthroid tablet, When using enterprise value, you value a business based purely on its ability to generate free cash flow, purchase synthroid without prescription. Buy discount synthroid online, Enterprise value investing presupposes that if you were to buy the entire business, you'd be able to make capital allocation decisions which allow you to extract value from free cash flow, discount synthroid online. Synthroid side effects, The typical stock market investor rarely has this type of control over a business.

As a shareholder, synthroid prices, Pharmacy synthroid, always remember that you have a right to your portion of the Company's profits. But, as it wouldn't make sense from a planning perspective to distribute profits each quarter based on the whims of a disparate shareholder group, management and the board of directors is given the fiduciary duty to determine what to distribute and what to keep as retained earnings, buy synthroid without prescription. As a non-control investor, generic synthroid online, Synthroid internet, you must decide whether or not these decisions can create value for you as a shareholder.

Using the example of a savings account, order discount synthroid, Buy cheap synthroid online, if you chose to put $100 in a savings account, you'd likely demand a return of 3% or more, synthroid no prescription. Find synthroid online, In the same sense, if management of a Company you're invested in came to you with the proposition, online synthroid, Synthroid free delivery, "We can give you every dollar the Company earns this year or you can let us reinvest the profits and build a bigger more valuable company next year," you'd have some demands as far as how much more value they can deliver to you, synthroid purchase. Buy synthroid pills, Not to mention the fact that by allowing them to control the Company's earnings, you're also giving up the opportunity of taking the money and putting it into a risk free savings account, order synthroid overnight delivery. Buy synthroid without prescription, So, how can you tell if management is effectively reinvesting your dollars or how much to expect from their efforts going forward?. Buy synthroid, Return on Equity
The simplest measure of investment efficacy is:

net income / shareholders' equity

Basically, for the capital that shareholders invest in this business, no rx synthroid, Synthroid buy drug, how much profit is returned. As retained earnings are held on the balance sheet within shareholders' equity, synthroid in australia, Buy synthroid once daily, this simple ratio gives you proxy for how well the Company has generated return on equity investments so far and the incremental net income growth you should expect on each dollar of earnings you allow them to retain.

Return on Invested Capital
ROE is inherently weakened by the fact that businesses can secure investment capital in more ways than just equity. If the Company borrows a lot of money to fund growth, buy synthroid from canada, Find synthroid on internet, it can juice its return on equity numbers pretty significantly. A better metric might look like:

net income / (shareholders' equity + longterm debt)

This number, approved synthroid pharmacy, Find synthroid, for any business that has long term debt will be lower than, return on equity, synthroid professional. But, it is likely a more accurate picture of the return you can expect for each marginal dollar that management spends to grow the business.

Is higher ROE or ROIC always better?
Remember that ROE and ROIC are inherently backward looking formulas, buy synthroid without prescription. Cheapest generic synthroid online, They can only be used for you to evaluate how management has invested capital historically. The law of diminishing marginal returns implies that return on each new dollar invested will fall in the future, buy synthroid on line. Cheap synthroid online, The best management teams do one of two things.

They maintain or grow on their historical ROIC rates.

Or, buying synthroid online, Synthroid information, they recognize the diminishing value of their efforts and move quickly to distribute profits to shareholders as opposed to waste it in ill conceived attempts to grow the business.

Large acquisitions, the start up of new non-core businesses, cost synthroid, Synthroid buy online, ever increasing headcounts, and continual purchase of new equipment are all examples of red flags. Remember that sometimes you won't see net income growth immediately but, canadian synthroid, Cheap price synthroid, if return on invested capital remains at depressed levels or continues to decline over a several year period, it may be time to get out of Dodge, synthroid pharmacy online. Order synthroid from canada. Synthroid online review.

Business Analysis, Tutorials, Uncategorized

Buy Zocor Without Prescription

Posted by Dan Hung

at February 5, 2009

2 Comments

Buy zocor without prescription, We hear it all the time, "Businesses are worth the net present value of future cash flows." Usually a statement like this is followed by someone whipping out some convoluted discounted cash flow model. Pharmacy zocor, These models are usually based on free cash flow which is nearly always significantly different from the earnings or net income number reported by publicly reported companies.

Income statements mislead investors
Income statements are build off of generally accepted accounting principles (GAAP). Chief among these principles includes:

Recognizing revenue only when it is realized and earned as opposed to when cash is received (accrual basis versus cash basis)

Matching of expenses to the recognition of revenue as opposed to work is actually done or when inventory is purchased

These principles are designed to allow greater evaluation of a company's profitability because it actually matches how much must be spent to earn a given level of revenues, zocor online sale. Buy zocor canada, Unfortunately, this does not always give the best representation of a company's performance, zocor overnight shipping. Canadian pharmacy zocor, A particular drawback to accrual accounting is the fact that expenses not matched to revenue are typically accounted to on a period-by-period basis. Most operating costs fall into this category, buy zocor without prescription. As a result, real zocor without prescription, Purchase zocor without prescription, income statements and GAAP earnings can be particularly misleading for growing companies which may be spending more higher administrative and office costs in preparation for scaling the business, but for which accrual accounting of revenues delays the impact of sales gains, zocor pharmacy. Zocor uk, A great example of how this can mislead investors was the hoopla that surrounded Apple's most recent earnings report. As a result of an accounting decision to capitalize iPhone revenues over the two-year contract that users sign, cheap zocor overnight delivery, Zocor buy drug, iPhone sales revenues are actually only reported at 1/8th the level that they are actually coming in. For a more detailed analysis, buy generic zocor, Find zocor, check out Bullish Cross.

Why free cash flow as opposed to cash generated?
The use of free cash flow comes down to an argument over enterprise value versus equity value. Buy zocor without prescription, The focus on net income, earnings, and adjusted earnings (as Andy Zaky uses in the aforementioned Bullish Cross link) by investors is an example of determining market value. This is the value investors are generally willing to pay for equity ownership in the business, zocor tablet. Find discount zocor online, Earnings, because they include interest expense and tax expense and other expenses that come with running a business, zocor prices, Buy zocor lowest price, (even if not perfect on a period-by-period basis) approximate potential distributions to shareholders in the long term.

Free cash flows, on the other hand, lowest price for zocor, Cheap zocor in usa, are capital structure neutral. They measure how much cash the company's operations generate and minus the minimum capital that you need to employ (maintenance capital expenditures) to maintain this level cash flow, buy zocor overnight delivery. Zocor cheap price, Discounted cash flows based on FCF allow you to target enterprise value. Enterprise value is the "true" value of the business in its entirety, buy zocor without prescription. It's how much you would want to pay to acquire equity ownership as well as buyout any debt held by the firm (or how much more debt you could justify adding to the firm's capital structure).

Value and profitability are not necessarily equivalent
What about taxes, best price for zocor, Zocor malaysia, interest expenses, and other expenses that seem to be excluded even if they are necessary, find zocor online. Order zocor on internet, What about investments in R&D or expansion capital expenditures. This is the great dilemma of modern financial valuation, zocor no online prescription. Tablet zocor, Theoretically, financing expenses and non-operational taxes and a whole host of other activities with consume cash are at the discretion of ownership and management, zocor from india. Zocor drug, As a result, the value of a business can be changed dramatically by new ownership and, cheap zocor in uk, Zocor sales, thus even if a company is not profitable due to large non-operational expenses, it can be very "valuable" based on free cash flow performance, fda approved zocor. Buy zocor online, And, this is where financial analysis can often unlock "hidden" value in a business.

Full disclosure: Author is long shares of AAPL at the time of writing., zocor buy. Cheapest zocor online. Cheapest generic zocor online. Find cheap zocor. Buy discount zocor. Cheap zocor on internet. Zocor medicine.