Founder of Equities Research. Stockdiagnostics Specialist

Founder of Equities Research. Stockdiagnostics Specialist
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Friday, July 1, 2016

Newsletter Pick Up 31%

Equities Research Newsletter pick Hershey UP 31% vs 1.7% gain for the S&P500.

Equities Research July 1, 2015 Newsletter featured a STRONG BUY  on HERSHEY @ $86.53 (dividend adjusted). 

Hershey closed yesterday @ $113.49, for a gain of $27 in exactly 1 year.
The Standard and Poors 500 index over the same 12 month period rose from 2063.11 to 2098.86 for a gain of 36 points.

Today, Readers should subscribe to Equities Research July 2016 Newsletter available NOW.

I've given plenty of great research in 27 years. My July 2016 pick is best risk/reward that I've ever found.
Order here and forward this to your friends.


about founder Tom Renna
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Disclaimer. All Newsletters, published by Equities Research, LLC , does not constitute a recommendation by Equities Research, LLC to buy, sell, hold any security, or to follow any particular trading or investment strategy. Also, the information provided should not be construed as an offer, or a solicitation of an offer, to buy or sell securities. An investor's best course of action must be based upon individual circumstances. shall not be liable for any damages or costs of any type arising out of or in any way connected with your use of The Newsletters, or any of our services. All readers and subscribers and customers should consult a licensed financial advisor., its officers and employees may buy and sell any position in the securities or companies mentioned. Content copyright 2010-2016. Equities Research LLC. All rights reserved

Thursday, June 30, 2016

End of Quarter: Time to Paint the Tape

June 30th is End of Quarter. Mutual Funds and Money Managers are Notorious for MARKING up Stocks, aka Painting the Tape, to increase the asset value of their Equity Positions into the Month end. It is based on tonight's closing prices that many money managers get their fees (percentage of money under management. So, this afternoon is a great time to Sell into the Inflated Prices and to even Short stocks, especially with the 3 day holiday weekend approaching.

#EquitiesResearch: ORDER Equities Research Newsletter & Research

Wednesday, April 27, 2016

Related Party Transactions Appear to Be Slippery

Titan Machinery (NASDAQ: TITN $12.93)  recently filed annual audited financial statements for FY2016 10K which ended on January 31,2016. Titan today filed their Definitive 14 proxy statement with the Securities and Exchange Commission for its upcoming June Shareholder meeting.
(4 of 8 directors that sat on Board from last May 2015 have now resigned according to latest 10K, including the founder of company who also quit as the president without any explanation, No new president has been named since he quit as president in June 2015.)

TITN stock has sky rocketed UP 62% from $8 on February 11th to $12.93 in 10 weeks. A Penny Stock Brokerage Firm out of Minnesota , FELTL,has said after the company reported over a (-$30 Million) Loss for the 2nd consecutive FY that the stock could "easily" go to $40 as reported by Dow Jones on the morning of March 18th when shares had one of top volume days of the year. IN November FELTL estimated that TITAN would have net income of $20 Million in FY2017, Titan said on CC that they would NOT be profitable in FY17.

Normally a Definitive proxy filing would be a run of the mill cookie cutter disclosure naming directors and small proposals up for a vote that are usually insignificant, but not when it involves  Titan Machinery!

Equities Research first raised a red flag on the issuer based on poor fundamentals, specifically a pattern of Cashless Earnings with significant amounts of negative operational cash flow. A further examination learned that the company was no more than a roll up story consisting of mom and pop retailers that the company was financing through the issuance of debt and more debt. But it wasn't until the company filed a PROXY Statement in April of 2013 that it was discovered this company was being financially raped by management's related party transactions.

Today we won't discuss the DEF 14 filed in April 2013 that the Securities and Exchange Commission  Division of Corporate Finance spent 8 months exchanging comment letters on with the company.

Today we won't discuss the Proxy Proposal that was voted down by the Shareholders in June 2013.

Today we won't discuss the DEF 14 filed in 2015 when the Company asked for shareholders to give their proxy vote to the President of the company only to have the President suddenly resign from the company (3 days after the filing) without updating the DEF14. (Company has still not disclosed why the founder resigned from the board, stepped down as president and left the company. The company has not had a president since June 2015. Severance Agreement has been disclosed.)

OWNER (& Spouse) of a Titan Machinery Related Party, Charged with 29 FELONY TAX CRIMES

In 2012 the Minnesota Department of Revenue Charged the owner of C.I. Construction with 21 felonytax crimes.
Since the charge, C.I. Construction has generated revenue of $13 million directly from Titan Machinery. (prior to the charge we are to believe that C.I. Construction did not do any business with Titan)

MAY 2013 Titan Machinery for the First time Included C.I. Construction as a Related Party
Its peculiar that C.I. Construction was not disclosed as Related Party prior to 2013 considering Titan Machinery grew from 2 stores to 100 stores over that time span.
Here is A Video from YouTube that CI CONSTRUCTION advertises for the work they did for Titan Machinery in FY2012. But there was NEVER ANY DISCLOSURE OF THIS RELATED PARTY DEAL IN SEC FILING FY2012.
Fact is C I Construction was a related party with Titan prior to FY2013 but there was no disclosure.

Today we will shed light on the RELATED PARTY TRANSACTION  that the company discloses with a construction company which is also a reseller of the company's products.
The company discloses in their filings that the contractor, C.I. Construction, owner is a brother in law of two brothers that founded TITAN MACHINERY and sit on the board. (one brother is the president who recently resigned and the other who also is the investment banker to Titan still sits on the board.)

C I Construction is disclosed in SEC filings as a RELATED PARTY because the Owner, Rob Thompson, is the (3) brother in law of the two founders (directors) and the Treasurer of the company.

C.I.CONSTRUCTION (RELATED PARTY) Received the following Payouts:
FY2013: $6.7 Million
FY2014: $3.9 Million
FY2015: $1.9 Million
FY2016: $0.5 Million 
total 4 years: $13 Million
In the past year C.I. advertises on their website they are building 2 of the biggest projects in the history of Titan and its peculiar that they ONLY earned $500K in FY2016? hmmm

Ted Christensen is the treasurer of Titan Machinery but is also listed as an officer of C.I.Construction.
TITAN Disclosure (Ted Christianson is our Treasurer and Vice President, Finance. He joined Titan in 2003 and is responsible in his senior financial role to secure access to capital both domestically and internationally as well as managing overall financial risk.)

Ted Christensen is also listed as an officer of Dealer Sites, LLC which is also disclosed as a RELATED PARTY of TITAN MACHINERY. DEALER SITES is an entity that many of the Management of TITAN have an EQUITY INTEREST (Christensen family members and the Chairman of TITAN, David Meyer.) Dealer Sites has recently disclosed it has increased contracts with DEALER SITES from under $50 Million to over $100 Million.

IT GETS MORE BIZZARE. IS C.I.Construction and Dealer Sites one in the same? According to this TAX document , YES. And this GOVERNMENT Document too. C.I CONSTRUCTION shares the Same Address of DEALER SITES on certain other Documents with Ted Christensen as the contact person.

Another RELATED PARTY DISCLOSURE in Titan Machinery Disclosure  is C.I. FARM POWER refers to a company owned by company's founder , Peter Christensen who recently Suddenly stepped down as a Board Member and resigned from company.
THERE is no disclosure whether C.I.FARM POWER is related to C.I. Construction. I am assuming that C.I. in the Farm Power company and the C.I. Construction are both created from Christensen Incorporated.
In 2011 when Peter Christensen disclosed in his sale of 200,000 shares of stock @ $27.80 the position that he sold was shares of C.I. Farm Power.

According to this Article: C.I. stands for Christenson Incorporated and is owned by ROB THOMPSON and PETER CHRISTENSON.  But there is NO DISCLOSURE in SEC Filings pertaining to Thompson owning CI Farm Power nor Christenson owning CI CONSTRUCTION.

  • "Earl Christianson became the sole owner of Christianson’s Inc. and, Earl’s son Peter and son-in-law Rob Thompson are assuming leadership positions in what has become a three-generation family business" 

2016    Construction Management Services Performed by C.I. Construction, LLC
C.I. Construction, LLC ("CI"), performs construction management services for certain of the Company's new store construction projects, shop additions, and remodel projects. CI is owned by Rob Thompson, who is the brother-in-law of Peter Christianson (our former President and former member of our Board of Directors) and of Tony Christianson (a member of our Board of Directors). CI performs construction management services including developing designs/specifications and drawings, preparing bid packages, advising on the selection of suppliers and contractors, and overseeing the construction process. CI is also an authorized reseller of certain steel buildings that the Company frequently incorporates into its construction projects.
CI receives a fee equal to 4.5% of the construction costs, excluding expenditures for certain fixtures and fixed assets that the Company originates. CI is also reimbursed for the labor costs of CI's site supervisors and on-site staff, and utilities, equipment rental, travel, and other direct costs incurred by CI in performing the services. CI also receives payment as a reseller of the steel buildings used in certain of our construction projects. We are not obligated to retain CI on an ongoing basis, and this decision will be made for each project based on the best interests of the Company. During fiscal 2016, CI received an aggregate amount of $474,717 in direct or indirect payments from the Company for the performance of construction-related services and the purchase of steel buildings, as well as reimbursement for other construction-related costs.
2015  Construction Management Services Performed by C.I. Construction, LLC

C.I. Construction, LLC, ("CI") performs construction management services for certain of the Company's new store construction projects, shop additions, and remodel projects. CI is owned by Rob Thompson, who is the brother-in-law of Tony Christianson (a member of our Board of Directors) and Peter Christianson (a member of our Board of Directors and our President). CI performs construction management services including developing designs/specifications and drawings, preparing bid pack ages, advising on the selection of suppliers and contractors, and overseeing the construction process. CI is also an authorized reseller of certain steel buildings that the Company frequently incorporates into its construction projects.

CI receives a fee equal to 4.5% of the construction costs, excluding expenditures for certain fixtures and fixed assets that the Company originates. CI is also reimbursed for the labor costs of CI's site supervisors and on-site staff, and utilities, equipment rental, travel, and other direct costs incurred by CI in performing the services. CI also receives payment as a reseller of the steel buildings used in certain of our construction projects. We are not obligated to retain CI on an ongoing basis, and this decision is made for each project based on the best interests of the Company. At times, we have utilized a competitive bidding process for construction management services.

During fiscal 2014, CI received an aggregate amount of $3.9 million in direct or indirect payments from the Company for the performance of construction-related services and the  purchase of steel buildings, as well as reimbursement for other construction-related costs. We do not believe the terms of any of the transactions and agreements described above are any less favorable to us than could be obtained in an arm's length transaction with an unrelated party.

CLIFF NOTES (include)

  • Auditor Sudden Resignation

Wednesday, March 30, 2016

Berkshire Hathaway 2016 Shareholder Letter

FEBRUARY 27,2016 

So Sad to read this, but it's reality

"There is, however, one clear, present and enduring danger to Berkshire against which Charlie and I are powerless. That threat to Berkshire is also the major threat our citizenry faces: a “successful” (as defined by the aggressor) cyber, biological, nuclear or chemical attack on the United States. That is a risk Berkshire shares with all of American business.
The probability of such mass destruction in any given year is likely very small. It’s been more than 70 years since I delivered a Washington Post newspaper headlining the fact that the United States had dropped the first atomic bomb. Subsequently, we’ve had a few close calls but avoided catastrophic destruction. We can thank our government – and luck! – for this result.
Nevertheless, what’s a small probability in a short period approaches certainty in the longer run. (If there is only one chance in thirty of an event occurring in a given year, the likelihood of it occurring at least once in a century is 96.6%.) The added bad news is that there will forever be people and organizations and perhaps even nations that would like to inflict maximum damage on our country. Their means of doing so have increased exponentially during my lifetime. “Innovation” has its dark side.
There is no way for American corporations or their investors to shed this risk. If an event occurs in the U.S. that leads to mass devastation, the value of all equity investments will almost certainly be decimated.
No one knows what “the day after” will look like. I think, however, that Einstein’s 1949 appraisal remains apt: “I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones.” 

Berkshire Hathaway Profited On ENRON BONDS

FEBRUARY 28,2007 Berkshire Hathaway Shareholder Letter

"We continue, however, to need “elephants” in order for us to use Berkshire’s flood of incoming
cash. Charlie and I must therefore ignore the pursuit of mice and focus our acquisition efforts on much bigger game.
Our exemplar is the older man who crashed his grocery cart into that of a much younger fellow while both were shopping. The elderly man explained apologetically that he had lost track of his wife and was preoccupied searching for her. His new acquaintance said that by coincidence his wife had also wandered off and suggested that it might be more efficient if they jointly looked for the two women. Agreeing, the older man asked his new companion what his wife looked like. “She’s a gorgeous blonde,” the fellow answered, “with a body that would cause a bishop to go through a stained glass window, and she’s wearing tight white shorts. How about yours?” The senior citizen wasted no words: “Forget her, we’ll look for yours.” 

"in 2002-2003 we spent about $82 million buying – of all things – Enron bonds, some of which were denominated in Euros. Already we’ve received distributions of $179 million from these bonds, and our remaining stake is worth $173 million. That means our overall gain is $270 million, part of which came from the appreciation of the Euro that took place after our bond purchase. "

"Already the prediction I made last year about one fall-out from our spending binge has come true: The “investment income” account of our country – positive in every previous year since 1915 – turned negative in 2006. Foreigners now earn more on their U.S. investments than we do on our investments abroad. In effect, we’ve used up our bank account and turned to our credit card. And, like everyone who gets in hock, the U.S. will now experience “reverse compounding” as we pay ever-increasing amounts of interest on interest. "

"I want to emphasize that even though our course is unwise, Americans will live better ten or twenty years from now than they do today. Per-capita wealth will increase. But our citizens will also be forced every year to ship a significant portion of their current production abroad merely to service the cost of our huge debtor position. It won’t be pleasant to work part of each day to pay for the over-consumption of your ancestors. I believe that at some point in the future U.S. workers and voters will find this annual “tribute” so onerous that there will be a severe political backlash. How that will play out in markets is impossible to predict – but to expect a “soft landing” seems like wishful thinking."

"Over time, markets will do extraordinary, even bizarre, things. A single, big mistake could wipe out a long string of successes. We therefore need someone genetically programmed to recognize and avoid serious risks, including those never before encountered. Certain perils that lurk in investment strategies cannot be spotted by use of the models commonly employed today by financial institutions." 

Warren E. Buffett Chairman of the Board 
Berkshire Hathaway Shareholder letter 

Thursday, March 17, 2016

After Close: Titan Machinery Unexpectedly Pre Announces FY2016 Warning

  •  Expects FY2016 Sales Decline of $500 Million (-28%)
  • Expects Net Income  FY2016 Loss of ($37 Million) down from Fy2015 Loss of ($31 Million) 

Titan Machinery (NASDAQ: $12.50) is trading down significantly after hours after the company pre announced FY2016 Q4 and Year End Financials for the period ending January 31,2016. 
8K here

In March 2015 Titan Machinery Pre Announced FY2015 Financials and the stock was HALTED!

March 2015 FY2015 Pre Announcement:
GAAP net loss attributable to common stockholders for fiscal 2015 is expected to be in the range of $30.9 million to $32.0 million, or $1.48 to $1.53 per diluted share.  vs 
Adjusted net income attributable to common stockholders forfiscal 2014 was $16.5 million, or $0.78 per diluted share"

March 17,2016 FY2016

  • For the fourth quarter of fiscal 2016, revenue is expected to be approximately $335 million compared to revenue of $490.7 million in the fourth quarter last year.
  • Q4 the Company recorded an inventory impairment charge of approximately $27 million, or $0.77 per diluted share, related to the expanded equipment inventory reduction plan

  • Pre-tax loss for the fourth quarter of fiscal 2016 is expected to be approximately $53 million, compared to loss of $37.2 million in the fourth quarter last year.
  •  Pre-tax loss for the fourth quarter of fiscal 2016 included the $27 million impact from the equipment inventory impairment charges as well as a $6.7 million impairment charge related to long-lived assets. 
  • Pre-tax loss for the fourth quarter of fiscal 2015 included non-cash impairment charges of $31.0 million primarily related to goodwill and other intangible assets within the Agriculture segment. 
  • Total Company: Loss of $45 million, which includes equipment inventory impairment charges of approximately $27 million, compared to loss of $5.0 million for the fourth quarter last year. 

    Net loss attributable to common stockholders for the fourth quarter of fiscal 2016 is expected to be approximately $34 million, or $1.62 per diluted share, compared to net loss of $27.0 million or $1.28 per diluted share for the fourth quarter last year. Excluding all non-GAAP adjustments, adjusted net loss attributable to common stockholders for the fourth quarter of fiscal 2016 is expected to be approximately $28 million, or $1.31 per diluted share, compared to adjusted net loss of $4.1 million or $0.20 per diluted share for the fourth quarter last year.

    Preliminary Fiscal 2016 Full Year Results

    For the full year ended January 31, 2016, revenue is expected to be approximately $1.37 billion compared to $1.90 billion last year. GAAP net loss attributable to common stockholders for fiscal 2016 is expected to be approximately $37 million, or $1.76 per diluted share, compared to net loss of $31.6 million or $1.51 per diluted share last year. Adjusted net loss attributable to common stockholders for fiscal 2016 is expected to be approximately $26.5 million, or $1.25 to per diluted share, compared to adjusted net loss of $1.9 million, or $0.09 per diluted share, last year.

Equities Research Warned @ $30 

Sunday, December 13, 2015

Sunday, March 13, 2016

Under Armour Spin Leads League Schooling Wall Street's Finest

When: Monday to Friday
Time: 9:30 to 4pm
Its A Technology Company
3-D Printing
 CHINA Hyper Growth Story
Exaggerated Earnings Beat
*Note classes on each day may vary depending on the Wall Street flavor of the day.
** filings on Friday Night after the close are intentional and are not recommended reading. 
***ALL Morgan Stanley Research regarding A Downside Risk of $42 (-50%) should be ignored.

Equities Research Warning: SELL Under Armour
Equities Research is speculating that Under Armour (NYSE: UA) will announce in the next 4 weeks an equity or debt underwriting before the company announces results for the first quarter in late April 2016. Under Armour 1st quarter ends March 31,2016.
Equities Research believes Under Armour will raise capital before the Q1 report because of expections the company will miss Wall Street analyst Q1 EPS estimates of $0.05 per share. Equities Research believes Under Armour Will Report a LOSS for FY2016 Q1.  

Under Armour Needs cash and can not afford to take a risk of a poor Q1 earnings report's effect on its stock, a significantly weaker market capitalization would make any underwriting done after a poor report to adversely effect pricing.  Under Armour disclosed on their FY2015 Conference call that they would "look for Opportunities to refinance their debt".  The company's total debt increased to $669 million for the period ending December 31,2015 up from $284 million for the period ending December 31,2014.  The company also noted that FY 2016 interest on debt would increase to $35 million (approximately $0.16 per share). 

To keep the stock higher, Under Armour has put on a "FULL COURT PRESS" , literally. A day doesn't go by without a major news wire reporting Spin after Spin, from Barron's to TheStreet to every message board on the planet, the company has touted their scouting expertise at finding high school athletes in AAU  to Silicon Valley technology ventures with IBM's Watson.

The only Scoreboard that matters to Equities Research is not in the headlines, but in the BOX SCORE, also known as audited financial statements filed with the Securities & Exchange Commission.
  • December 31,2015 Cash & Cash equivalents were $129 Million down from $593 Million from December 31,2014.   (78% Decline)
  • FY2015 Cash Flow from Operations was Negative $44 Million down vs Positive $219 Million in FY2014. A Decline of $263 Million year over year. 
  • $48 million of the $129 total cash is held in foreign subsidiaries, while only $81million is available in the US. Foreign Subsidiary held cash is not expected to be used in US due to tax consequences.

Friday Night Dump
Under Armour (NYSE: 82.45) filed a DEF 14 filing with the Securities & Exchange Commission late Friday after the close, also known as a #FridayNightDump.

  • (SPIN) Kevin Plank CEO Compensation Drops 31.5% 
At first glance it looks like CEO "took less" compensation in the best interest of the Shareholders, but  after digging into the DEF14A we learn otherwise.  It turns out that in addition to the CEO, Maurath the Chief Revenue Officer also earned less compensation  This was not a shareholder friendly decision, but instead as disclosed in the filing, these two officers compensations declined by an aggregate of $1.8 million as a direct result of financial performance (or lack their of).
A small $1.8 million compensation number may sound insignificant, but as I will get to later I will show how this "little" number made a $4 Billion Increase to the Company's market capitalization within a 48 hour period. What really is even more alarming is that this disclosure is only being surfaced 6 weeks after an opaque FY2015 earnings report was hyped.

Down 17% in 3 Weeks
On Wednesday January 27th Under Armour traded at a low of $66.93 and was down $14 Year to date from its $80.61 December 31,2015 close. (-17% in 4 weeks).
Under Armour traded on October 12,2015 at an all time high above $104.74 and the following day the CFO resigned and the shares would eventual fall to a 52 week low of $66.93. (Down $38 in 3 months, a  -37% drop in 90 days)

Up 28% in 2 Days
On Thursday January 28th pre market, Under Armour announced FY2015 earnings and by the close on Friday the shares had Sky rocketed to close the week @ $85.43, UP $19 in two days or 28%.

Friday night March 11th we learned a "little more" about how Under Armour "BLEW AWAY THE WALL STREET ANALYST ESTIMATES" back January 28th.  A $0.02 Beat for a company with 220 million shares outstanding would be a beat of $4.4million. But the company beat the net income estimate by only $3.2 million based on the release. Now after finding out Friday night , 6 weeks later, that the CEO and CRO earned less than an aggregate of $1.8 million vs. FY2014 due to not meeting financial performance targets. We now need to subtract the $1.8 million from the $3.2 million beat and we end up with a beat of only $1.4 million, which is an ACTUAL BEAT of $0.006 (less than a penny and NOT $0.02 that WALL STREET FINEST USED TO PUMP MARKET CAP UP BY $4 BILLION within 2 days!

Using the Actual Math, and not the Spin Number, Under Armour DID NOT Grow Earnings by 20% in FY2015 Q4 vs. FY2014 Q4. Earnings only grew by 18%.

Stephen Curry was mentioned 27 times on the morning Conference Call and the word "CASH" was mentioned once.  

Positive EFFECT OF TAX LOSS Carry Forwards on NET INCOME (NOL)

February 22,2016 the company discloses in SEC 10K filing that Accounting Errors have been discovered in the cash flow statements for FY2015 Q1 and Q2.

Down 18% in 6 Days
Sunday, January 31st Equities Research downgrades Under Armour to a Sell, shares fell $15 over next 6 trading sessions from $85.43 to a low of $70.33, down 18%. (humble note: BOJ announcing NIRP on the 29th brought the entire Global Market to its knees, until (SPIN) Jamie Dimon and Warren Buffet   touted how the USA  market was a great buying opportunity and all is well).

Up 17% in 4 Weeks

Friday, March 11th Under Armour closed @ $82.45 up $1.45 on the day.

  • (SPIN) Under Armour, (the Technology) Company Makes Huge Splash at Consumer Electronics Show.
  • (SPIN) CEO Kevin Plank "spoke with" CEO of IBM about IBM's "HEALTH HUB"
  • (SPIN) IBM WATSON can let you know how you're feeling today on Scale of 1-10).
 •(SPIN) "Lewis: Yeah, I think when you hear IBM Watson you have that, whoa, this is some serious data analytics and serious AI-type work that they're going to be doing."
 •(SPIN) Under Armour deems it necessary to file 8K on March 4th to inform the public that The Sports Authority bankruptcy will not effect Under Armour.
On Wednesday March 2nd, a week after Under Armour filed their 10K , The Sports Authority filed bankruptcy and announced the closing of 140 of its 463 stores. Analysts estimate that The Sports Authority generated revenue of $3 billion in 2015. The bankruptcy filing lists Under Armour as one the largest creditors with $23 million in receivables. 
Under Armour immediately came out with an (8K) announcement DEFENDING its FY2016 guidance and stated The Sports Authority will not have an effect on FY2016 projections. 

Although Under Armour filed an 8K saying otherwise, Dick's CEO says company will see increase selling pressure in months to come due to liquidations at The Sorts Authority.

Thanks to the genuis of Ophir Gottlieb the founder of Capital Market Laboratories, I am able to share his TRADECARD graphs from his CMLVIZ website.

NEGATIVE $44 MILLION Cash Flow from Operations ttm
NET INCOME $232 Million ttm



OLSTEIN: Earnings vs. Cash Flow

New York Times  7/18/1999 

"EARNINGS VS. CASH FLOW -- Mr. Olstein first examines what a company generates in cash flow from its operations. A company with excess cash flow can raise dividends and survive tough times without being forced to borrow or sell assets.
To calculate a company's cash flow, start with net income. Add back what it has taken in depreciation expenses and accounts payable. Then subtract capital expenditures, inventories and accounts receivable.
Watch out, Mr. Olstein said, if net income is much higher than cash flow. The company may be speeding or slowing its booking of income or costs, perhaps to meet analysts' earnings forecasts."

 Fortune Magazine  6/26/2000

  Eight Warnings You Want to See by Herb Greenberg

"Positive free cash flow. Olstein looks at a company's financials, specifically the 10-Qs and 10-K, and makes a beeline for the statement of cash flows. We're not talking about the stated cash flow from operations, investing activities or financings. We're talking about cash flow from operations minus capital expenditures--the amount of usable cash the company actually generates, which can be used to buy back stock, pay dividends, make acquisitions, and grow the business." 6/25/01

Fund Junkie by Ian MacDonald
" Our main defense against risk is only buying companies that either are currently generating excess cash flow, or will in the next three years."

Financial Advisor Magazine August 2001
Staying Alert Pays Off by Maria Brill
"To Olstein, being right means finding companies with excess cash flow that are selling at inexpensive levels because investors are tuning them out. "Cash flow is the oil that lubricates the corporate engine," he observes."

 The Washington Post 2/17/2002
"By concentrating on cash, investors can learn enough about a company to eliminate it as a possible investment. FOr example, if you want to get a quick-and-dirty reading, look not at a firm's "income statement" but at a more obscure tables of numbers called its "statement of cash flows".

New York Times 11/14/2004 
Sometimes It Takes a Sherlock by Gretchen Morgenson
""Everyone looks at conventional price-earnings ratios but that doesn't tell you anything about the deviation between cash flow and reported earnings," Mr. Olstein said."

 Financial Advisor Magazine June 2006
Forensic Accounting by Jeff Schlegel
"Olstein believes that cash--particularly free cash flow--is king because he thinks it's a truer measure of a company's underlying performance. He and his staff analysts look for companies trading at a discount to free cash flow. Lack of free cash flow is one reason why he doesn't like (a sector) ..."

 CFA Institute 12/4/2007
Free Cash Flow & Quality of Earnings by Fred H. Speece, Jr. CFA

BloombergBusinessweek 8/17/2009 
Behind Bob Olstein's Comeback by Karyn McCormack
" quality companies that have "wide moats" (in other words, "hard to compete with out of the box"), have been generating free cash flow throughout the financial crisis, and have a great balance sheet to withstand any issues."

 New York Times 1/9/2010
Fair Game:Why All Earnings Are Not Equal by  Gretchen Morgenson
As the market goes higher, it becomes more important to measure the quality of corporate earnings, he said. You have to look behind the numbers.
Adjustments that investors need to make now, in Mr. Olstein's view, are a result of disparities between a company's reported earnings and its excess cash flow. Earnings are what investors focus on, but because these figures include noncash items, based on management estimates, the bottom line may not tell the whole story.
Cash flow, on the other hand, is actual money that a company generates and that its managers can use to invest in the business or pay out to shareholders.

SOME of the widest gulfs between earnings and cash flows, Mr. Olstein said, are showing up the ways companies account for capital expenditures."

 New York Times 9/11/2010
Cash is king, he says. He spends a lot of time crunching numbers in a search for strong cash flow, and his winnowing process goes something like this:
First, he scrutinizes a company's financial reports in an effort to determine whether they paint an accurate picture. In this work, he has considerable expertise: he was an auditor with the old Arthur Andersen & Company, and then, in the 1970s, was co-author of The Quality of Earnings, a financial newsletter that, in its day, was perhaps the foremost authority on spotting the gray areas of corporate accounting.
If you're analyzing a company, he says, you first have to understand what they're really earning, as opposed to what they say they're earning.  

 American Association of Individual Investors  October 2010
"the forensic analysis we undertake
to analyze a company's results and the quality of its
earnings for valuation purposes.
1. Using the company's cash fl ow statements, we begin by
reconciling the difference between free cash fl ow and
reported earnings under accrual accounting. (Accrual
accounting records revenues, expenses and income
when the transaction occurs, as opposed to when
the cash is actually received or spent.) The smaller
the difference between free cash fl ow and reported
earnings, the higher the quality of earnings."

 Barron's 4/30/2011
Depreciation, An Appreciation by Lawrence C. Strauss
"He grows more concerned when a company's reported earnings significantly exceed its cash flow,..."

 Value Investor  4/30/2012
"Describe where you look first in researching
a company's financials.
RO: We begin by reconciling the difference
between free cash flow and reported
earnings under accrual accounting. The
smaller the difference, the higher the
quality of earnings. The bigger the difference,
the more work we have to do to
understand the makeup and sustainability
of free cash flow."