Accruals are the gap between what a company reports as earnings and what it actually collects in cash. Under accrual accounting, companies record revenue when earned and expenses when incurred, regardless of when cash changes hands. If a company reports $100M in net income but only $60M in...
Charles “Chuck” Akre manages ~$11.8B from a small town in rural Virginia, far removed from the frenzy of Wall Street. His team dedicates their time to hunting for what they call “compounding machines,” and their track record speaks for itself (1.2% outperformance over 16 years). To find these...
Share-based compensation has become an increasingly prominent expense for public companies, particularly in the technology sector. Under GAAP accounting rules, share-based compensation must be recorded as an expense. The problem is that many companies report non-GAAP "adjusted" earnings figures that strip out this expense entirely. Terry Smith, Chief...
If we had to create 10 rules for successful long-term investing, they wouldn't differ much from what Peter Seilern presents in his 2024 book "Only the Best Will Do." Seilern discovered that from ~50,000 publicly quoted companies in OECD countries, fewer than 60 meet the 10 golden rules...
Look at this chart of Adobe’s (ADBE) EPS and y/y growth over the last 10 years: While growth hasn’t been perfect, EPS is trending in the right direction (CAGR of 29.8%). Most investors would stop here, satisfied with what they see. The reality, however, is that many companies...
Novice investors may attribute pricing power, what Warren Buffett calls "the single most important decision in evaluating a business," to a business that can raise the cost of its products/services every year, ideally keeping up with inflation. But more seasoned investors recognize that businesses with real pricing power...
When you research a stock, the challenge isn't finding information. It's filtering through endless data, news, and opinions to identify what actually matters. But what truly matters? Ensemble Capital uses three overlapping criteria to answer this question: President and CIO Sean Stannard-Stockton presented the framework during the firm's...
Return on invested capital (ROIC) measures company profits expressed as a percentage of invested assets or capital. There are different variants, but at its core, ROIC captures how much money a company earns on the capital it has invested in its business. Companies consistently generating high returns on...
When trying to estimate a company’s future potential and valuation, many investors take the quick/lazy approach and rely on analyst estimates for guidance. But as I’ve written about before, this is a flawed approach. David Dreman’s "Contrarian Investment Strategies: The Psychological Edge" (2012) provides extensive evidence that builds...