21 thoughts on “Lecture Notes – The Great, the Good and the Gruesome

  1. Hi Jana,
    Your blog articles are of high quality.Reading every time is very enlightening and provides extreme pleasure.Keep up the good work.

    Just one request to you:
    Everytime,you write a new artcile,you are simply using valuepickr forum to get it advertised to get readers easily.Is this fair? If you think this is fair,please do it.

    We need intelligent folks like you to actively particiapte in the forum so that it will be self-sustaining.I am not finding fault with with you nor to hurt you or anything.Just expressed what I felt.

    • Kumar,

      Thanks. I thought about sharing it in Valuepickr. But held back as I don’t want others to think I am trying to promote something. Let me talk to Ayush and make sure if he is ok with that.


  2. Excellent as always. Thank you so much for always sharing your lectures. A question on goodwill. You mentioned zeroing these out as they do not affect operating profit. Does that make sense for acquisitive companies like Alphabet? These arise in the process of making acquisitions, which is often is a build verse buy decision so while goodwill does not affect operating profit it represent money invested into the business that the company determined was better option than building the assets themselves. Eliminating goodwill will invariably make the ROIC of a business look much better but represent invested capital.

    • Marc,

      I use ROIC with goodwill while valuing the business. For checking if the business is great or not I remove goodwill and see what I get.


  3. Thanks Jana for your efforts



  4. Hi Jana,

    In the last part you say – Had investors looked at the base rates of shoe business, then they wouldnt have purchased the stocks.

    Well in the Indian scenario the footwear companies have done exceedingly well. Bata, Relaxo chappals, Liberty shoes have increased their revenues as well as shareholders value. One of Prof. Bakshi’s favorite stock as you know is Relaxo. Your views

  5. Thanks Jana for wonderful and well-laid thought.

    About Airline- As a stock market investor we are always looking for promising stocks/industries, which will provide the decent return.

    If we invert the question- “Which are the best industries I shall invest in” will result in “Which are the industries we should avoid” then Airline should (in my humble opinion) be one of the top industries in that list . Warren Buffett has also burned in hand by investing in American Airline.

    One day a reporter asked Richard Brandson “How to become a millionaire” to which Richard Brandson replied “Start with a billion dollar and own an airline”. If anybody has a doubt- Vijay Mallya will surely clear it.

    Thanks again and looking forward to meet you someday.


    • Parag,

      Thanks for your comments. The base rates of airline industry has been terrible across the globe. But some companies like Southwest Airlines still made tons of money for investors as the likelihood ratio worked out in their favor.

      Reading Prof. Bakshi’s https://goo.gl/Ay1gkJ and https://goo.gl/L75J2u will help us think in terms of base rates and likelihood ratio.


    • Igor,

      I am delivering this in South Bay Area. I already have 10 people attending the course. I will do one early next year and if you’re interested you can attend that.


  6. Hi Jana,

    Thanks for another great article !! Can you please explain how you arrived at 5.2 billion FCF for UNP-2014 ? I am getting 3.2 billions as per 2014 10-k.


  7. Dear Jana,

    Wonderful lessons, you are a god sent gift to the investing community.

    I had two questions on the cash flows and maintenance capex

    a) If the operating cash flows are higher than the reported EBIT no’s does it indicate better working capital management by the company or higher non cash (read depreciation) / other expenses not pertaining to operations that are getting captured there. What does one attribute this discrepancy too.
    b) Does Capex/depreciation ratio of 1 indicate that capex is maintenance capex, does a higher ratio indicate that capex is growth capex. I was going through one company and the below are the capex & depreciation figures, what is your reading of it?

    Deprication 3.9 4.13 4.79 5.49 6.16 6.95 4.41
    CAPEX 2.39 5.49 9.64 7.96 14.26 2.48 4.93

    capex/dep 0.6 1.3 2.0 1.4 2.3 0.4 1.1

    Chetan Chhabria

    • Chetan,

      I am glad that you are find my lecture notes useful.

      (1) EBIT and CFO can deviate for many reasons including depreciation, stock based compensation, and other non cash expenses. Every investor should understand the major items that make up for the difference and how does it compare with the other players in the same industry.

      (2) Take a look at my earlier blog on this https://goo.gl/ZHGjUo. Treatment of depreciation and capex is still a conundrum to me. Most of the time I end up accepting what the management claim as depreciation.


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