Sunday, August 26, 2012

Olstein: Earnings vs. Cash Flow


Olstein: Net Income 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."

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
"....buy 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
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."



Saturday, August 25, 2012

Cramer Analyzes Stocks Using Operational Cash Flow

Tonight's Mad Money on CNBC TV, Jim Cramer tells the viewers that he uses OPERATIONAL CASH FLOW to analyze stocks. below is video clip from program. (at 7:40 mark)


 http://video.cnbc.com/gallery/?video=3000111453

Friday, August 24, 2012

Weakening Cash Flow at DICK'S & TITAN

Equities Research issued two new Warnings this week.

Dick's Sporting Goods, Inc (NYSE: DKS) filed their 2nd Quarter financials this morning with the Securities & Exchange Commision and reported an Operational Cash Flow decline of 46% for the first 6 months of FY2012 vs. same period FY2011.
Equities Research also believes that this weakness could negatively effect Under Armour (NYSE: UA).
Equities Research continues to recommend Under Armour as a STRONG SELL since June 11,2012.


Titan Machinery (NASDAQ: TITN). 
Equities Research issued a Strong Sell on the stock earlier this week. TITN has generated negative $300 million in operational cash for it's trailing 14 quarters and trades at a $500 million market capitalization.

Wednesday, August 22, 2012

Monday, August 20, 2012

NED DAVIS RESEARCH: "RISK ON" HAS UPPERHAND!

THE "RISK ON" RATIO! ENERGY, Materials, Commodoties, Aussie Dollar, High Yield Bonds RISK & MARKETS Walking Hand in Hand.

Wednesday, August 15, 2012

Follow Insiders At Under Armour and SELL

originally published at Equities Research

August 14,2012
Under Armour
(NYSE: UA) traded less than 1 million shares for the second consecutive day and closed yesterday @ $56.42. Since the company reported 2nd quarter financials on July 24th the stock is 16.62% higher. Increasing its market capitalization by nearly $900 million to $5.89 Billion. (Under Armour traded at an all time high on August 7th @ $58.48.)

Under Armour is on my radar as a prime Short
  • The company reported an increase in sales of $78 million while only adding a mere $427,000 in net income
  • For 6 months 2012 the company increased sales by $149 million and only increased comprehensive net income by less than $900,000.
  • The company has generated NEGATIVE FREE CASH FLOW for its trailing twelve months
  • Operational Cash Flow for the prior 3 years (2009,2010,2011) has declined from $119 million to $50 million to $15million,respectively.
  • Accounts Payable increased by $50 million vs. 1st Quarter
  • Accrued Expenses increased by $19 million vs. 1st Quarter
  • Total Liabilities (all current) increased by $69 million vs. the 1st Quarter
  • Stockholders Equity increased by only $15 million vs. the 1st Quarter

Read : "Under Armour Special Effects" to learn more.
  • The dilemma that Under Armour faces is that it only has $143 million in cash. That is not enough to pay off its Accounts Payable of $146 million and its current portion due of $42 million of its long term debt that was moved to its Current Liabilities section of its Balance Sheet in its first quarter ended March 31, 2012.

Below is a table from Yahoo finance showing daily volume with stock prices since company reported 2nd quarter financials on July 24th.

Prices

DateOpenHighLowCloseVolumeAdj Close*
Aug 14, 201257.1857.2356.2456.42888,00056.42
Aug 13, 201256.7257.0055.8256.88741,60056.88
Aug 10, 201256.9657.6056.2156.761,190,60056.76
Aug 9, 201256.8457.8056.7257.351,008,10057.35
Aug 8, 201256.4057.2256.2756.691,124,40056.69
Aug 7, 201257.9758.4856.5756.752,105,20056.75
Aug 6, 201256.1057.7355.9257.672,311,80057.67
Aug 3, 201255.1156.4054.9956.111,683,90056.11
Aug 2, 201253.3954.7953.0254.111,432,80054.11
Aug 1, 201254.9455.1053.5053.501,634,40053.50
Jul 31, 201254.9955.2053.9454.441,551,80054.44
Jul 30, 201255.1855.9054.7555.411,478,20055.41
Jul 27, 201255.4855.9954.7455.142,080,60055.14
Jul 26, 201254.8855.9554.7455.312,366,70055.31
Jul 25, 201253.0254.6152.8353.923,349,60053.92
Jul 24, 201251.7055.0051.7052.7910,197,10052.79
Jul 23, 201248.5949.2947.3348.382,906,90048.38



Use the below headlines from Dow Jones, Edgar Online, Flyonthewall and Knobias to see Insider Activity.
08/14/2012 22:54 ETDJ CFO DICKERSON Registers 5,000 Of UNDER ARMOUR INC >UA - Dow Jones
08/14/2012 17:11 ETUA: New Form 4 Filed, Change in Beneficial Ownership - Edgar
08/14/2012 17:11 ETDJ CFO DICKERSON Sells 5,000 Of UNDER ARMOUR INC >UA - Dow Jones
08/14/2012 16:19 ETUA: Filed New Form 8-K, Material Event Disclosure - Edgar
08/10/2012 22:40 ETDJ Holder CUPID FOUNDATION Registers 30,000 Of UNDER ARMOUR INC >UA - Dow Jones
08/10/2012 22:39 ETDJ Holder JSP 2009 GRAT Registers 38,964 Of UNDER ARMOUR INC >UA - Dow Jones
08/10/2012 22:38 ETDJ VP PLANK Registers 125,000 Of UNDER ARMOUR INC >UA - Dow Jones
08/10/2012 22:38 ETDJ Holder JSDM FAMILY LLC Registers 25,000 Of UNDER ARMOUR INC >UA - Dow Jones
08/10/2012 22:37 ETDJ Chmn PLANK Registers 240,000 Of UNDER ARMOUR INC >UA - Dow Jones
08/10/2012 22:35 ETDJ Holder JS PLANK & DM DICARLO FOUNDATION Registers 12,500 Of UNDER ARMOUR >UA - Dow Jones
08/10/2012 22:35 ETDJ Holder KD PLANK LLC Registers 15,000 Of UNDER ARMOUR INC >UA - Dow Jones
08/09/2012 10:34 ETDJ MARKET TALK: Under Armour's Footwear Showing Strong Stride - Dow Jones
08/08/2012 22:33 ETDJ Holder KD PLANK II LLC Registers 15,000 Of UNDER ARMOUR INC >UA - Dow Jones
08/07/2012 18:38 ETDJ VP PLANK Sells 83,082 Of UNDER ARMOUR INC >UA - Dow Jones
08/07/2012 18:36 ETUA: New Form 4 Filed, Change in Beneficial Ownership - Edgar
08/06/2012 06:03 ETUA: Filed New Form 10-Q, Quarterly Report - Edgar
08/02/2012 20:22 ETDJ Chmn PLANK Sells 38,178 Of UNDER ARMOUR INC >UA - Dow Jones
08/02/2012 20:20 ETUA: New Form 4 Filed, Change in Beneficial Ownership - Edgar
08/02/2012 19:38 ETDJ VP PLANK Sells 105,882 Of UNDER ARMOUR INC >UA - Dow Jones
08/02/2012 19:36 ETUA: New Form 4 Filed, Change in Beneficial Ownership - Edgar
08/02/2012 19:34 ETDJ Chmn PLANK Sells 231,822 Of UNDER ARMOUR INC >UA - Dow Jones
08/02/2012 19:31 ETUA: New Form 4 Filed, Change in Beneficial Ownership - Edgar
08/02/2012 12:25 ETBofA/Merrill's global retail team holds an analyst/industry conference call - theflyonthewall.com
08/02/2012 05:55 ETBofA/Merrill's global retail team holds an analyst/industry conference call - theflyonthewall.com
07/31/2012 22:52 ETDJ VP MIRCHIN Registers 15,000 Of UNDER ARMOUR INC >UA - Dow Jones
07/31/2012 15:45 ET*DJ Under Armour (UA) Mkt On Close Buy Imbalance: Shrs 88800 - Dow Jones
07/31/2012 09:48 ETBofA/Merrill's global retail team holds an analyst/industry conference call - theflyonthewall.com
07/30/2012 15:21 ETUnder Armour's Special Effects - Knobias
07/27/2012 17:11 ETDJ VP MIRCHIN Sells 15,000 Of UNDER ARMOUR INC >UA - Dow Jones
07/27/2012 17:11 ETUA: New Form 4 Filed, Change in Beneficial Ownership - Edgar
07/27/2012 17:06 ETUA: New Form 4 Filed, Change in Beneficial Ownership - Edgar
07/27/2012 17:06 ETDJ Dir COLTHARP Sells 15,000 Of UNDER ARMOUR INC >UA - Dow Jones
07/25/2012 08:01 ETUnder Armour's 2H athletic outlook looks solid, says UBS - theflyonthewall.com
07/24/2012 18:13 ETDJ US HOT STOCKS: MetroPCS, Ryder, Sanmina-SCI, Under Armour -2- - Dow Jones
07/24/2012 16:14 ETStocks Ende Lower But Cut Losses Late After Fed Says Action May Be Coming Soon - Knobias
07/24/2012 16:00 ETKnobias Sector Commentary - Knobias
07/24/2012 15:54 ETUnder Armour Uses Special Effects to Puff UP its Financial Performance and Share Price - Knobias


-----Tom Renna , Equities Research LLC. , tom@equitiesresearch.com ,908-477-4796