share buybacks are creating distortions in stock market data
TRANSCRIPT
Share Buybacks Are
Creating Distortions in
Stock Market Data
FSA Valuation
Service Inc.
Accounting statements are created for taxes purposes, not investing.
Find out how to adjust accounting statement for better investing!
Over the past decade share buybacks have increased substantially
Among other distortions, share buybacks are massively distorting ROE metrics
What happens to the equity account when a
buyback is executed?On the balance sheet, a share repurchase reduces the company’s cash by the amount of cash expenditure on the buyback.
Simultaneously, this will shrink shareholder’s equity by the same amount.
Sounds reasonable and it’s prescribed by GAAP. The problem is it creates a massive distortion in the equity account if
repurchased shares are substantially higher than when they were issued.
Imagine a company that originally issued one hundred million public shares at $5.00 for a total raise of $500M. The cash account
goes up by $500M and to make the balance sheet balance the equity account goes up by the same $500M.
Now suppose for the next few years the company starts executing its strategy and shares rise to $25 per share as investors
applaud the strategy. Also suppose the retained earnings of the company are improving but not nearly as fast as the shares
have appreciated in the market. Through retained earnings the equity account has risen to $10 per share.
Despite the run up in shares to $25 management decides their shares are undervalued and decides to repurchase 50% of the
outstanding shares.
This will reduce the cash account by 5M x $25 per share = $1.25Billion. Simultaneously, this will shrink the shareholder’s equity
by $1.25Billion. Now the equity account stands at:
+ $5 x 100M: the original equity raise $500M
+ $500M: retained earnings
- $1.25B in share repurchases.
= (-$250M)
You may be thinking this illustrative example is contrived and would never happen in the real world. But it happens all the time.
Take a look at these high-profile examples:
ROE vs. CFIRR Lens
FSA Valuation
Service Inc.
Hundreds of companies have massive distortions in their ROE. We have
identified over 250 stocks with distorted ROE’s, including high profile
companies like Home Depot, AutoZone, Wynn Resorts and many more.
2021-11-13 5
ROE vs. CFIRR Lens – AutoZone Inc.
AutoZone Inc ROE LensAZO
$0.0
$500.0
$1,000.0
$1,500.0
$2,000.0
$2,500.0
Ne
t In
com
e (
$M
)
-$3,000.0
-$2,000.0
-$1,000.0
$0.0
$1,000.0
Equ
ity
($M
)
(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
No
v-0
6
Feb
-07
Ma
y-0
7
Au
g-0
7
No
v-0
7
Feb
-08
Ma
y-0
8
Au
g-0
8
No
v-0
8
Feb
-09
Ma
y-0
9
Au
g-0
9
No
v-0
9
Feb
-10
Ma
y-1
0
Au
g-1
0
No
v-1
0
Feb
-11
Ma
y-1
1
Au
g-1
1
No
v-1
1
Feb
-12
May
-12
Au
g-1
2
No
v-1
2
Feb
-13
Ma
y-1
3
Au
g-1
3
No
v-1
3
Feb
-14
Ma
y-1
4
Au
g-1
4
No
v-1
4
Feb
-15
May
-15
Au
g-1
5
No
v-1
5
Feb
-16
Ma
y-1
6
Au
g-1
6
No
v-1
6
Feb
-17
Ma
y-1
7
Au
g-1
7
No
v-1
7
Feb
-18
Ma
y-1
8
Au
g-1
8
No
v-1
8
Feb
-19
Ma
y-1
9
Au
g-1
9
No
v-1
9
Feb
-20
Ma
y-2
0
Au
g-2
0
No
v-2
0
Feb
-21
Ma
y-2
1
Au
g-2
1
RO
E
$0.0$9.9
$19.8$29.7$39.6$49.5$59.4$69.4
Shar
es
(M)
$-
$200.0
$400.0
$600.0
$800.0
$1,000.0
$1,200.0
$1,400.0
$1,600.0
$1,800.0
$2,000.0
Sto
ck P
rice
AutoZone Inc CFIRR LensAZO
$0.0
$1,000.0
$2,000.0
$3,000.0
CFO
PS
($M
)
$0.0
$5,000.0
$10,000.0
$15,000.0
Gro
ss In
v C
apit
al
($M
)
21
.0%
20
.9%
20
.6%
20
.9%
20
.4%
20
.4%
20
.4%
20
.3%
20
.4%
20
.6%
21
.1%
21
.7%
22
.0%
22
.3%
22
.2%
22
.3%
22
.4%
23
.3%
23
.3%
23
.6%
23
.8%
23
.8%
23
.7%
24
.3%
24
.1%
23
.2%
23
.0%
22
.8%
22
.6%
22
.5%
22
.4%
22
.6%
22
.4%
22
.5%
22
.5%
22
.6%
22
.5%
22
.3%
21
.9%
21
.9%
21
.7%
20
.0%
19
.9%
18
.8%
18
.8%
20
.3%
20
.2%
21
.7%
21
.7%
20
.6%
19
.1%
19
.7%
19
.2%
18
.5%
20
.2%
20
.2%
(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
Nov
-06
Feb
-07
May
-07
Aug
-07
Nov
-07
Feb
-08
May
-08
Aug
-08
Nov
-08
Feb
-09
May
-09
Aug
-09
Nov
-09
Feb
-10
May
-10
Aug
-10
Nov
-10
Feb
-11
May
-11
Aug
-11
Nov
-11
Feb
-12
May
-12
Aug
-12
Nov
-12
Feb
-13
May
-13
Aug
-13
Nov
-13
Feb
-14
May
-14
Aug
-14
Nov
-14
Feb
-15
May
-15
Aug
-15
Nov
-15
Feb
-16
May
-16
Aug
-16
Nov
-16
Feb
-17
May
-17
Aug
-17
Nov
-17
Feb
-18
May
-18
Aug
-18
Nov
-18
Feb
-19
May
-19
Aug
-19
Nov
-19
Feb
-20
May
-20
Aug
-20
Nov
-20
Feb
-21
May
-21
Aug
-21
CFI
RR
$0.0
$50.0
$100.0
Shar
es
(M)
$-
$200.0
$400.0
$600.0
$800.0
$1,000.0
$1,200.0
$1,400.0
$1,600.0
$1,800.0
$2,000.0
Sto
ck P
rice
Increasing Net Income Increasing CFOPS
Share buybacks lead to NEGATIVE Equity and NEGATIVE ROE
In reality the Company was growing and earning a good return on capital
ROE does not explain the share price appreciation CFIRR does explain the share price appreciation
2021-11-13 6
ROE vs. CFIRR Lens – Wynn Resorts Ltd.
Wynn Resorts Ltd ROE LensWYNN
-$3,000.0
-$2,000.0
-$1,000.0
$0.0
$1,000.0
$2,000.0
Ne
t In
com
e (
$M
)
-$1,000.0
$0.0
$1,000.0
$2,000.0
$3,000.0
$4,000.0
Equ
ity
($M
)
12
.9%
12
.1%
22
.4%
22
.0%
12
.5%
7.9
%(-
7.0
%)
(-7
.8%
)2
.8%
7.5
% 10
.4%
9.2
%1
5.4
%2
2.4
%2
5.3
%
(-8
.6%
)(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
Sep
-06
De
c-0
6
Ma
r-0
7
Jun
-07
Sep
-07
De
c-0
7
Ma
r-0
8
Jun
-08
Sep
-08
De
c-0
8
Ma
r-0
9
Jun
-09
Sep
-09
De
c-0
9
Ma
r-1
0
Jun
-10
Sep
-10
De
c-1
0
Ma
r-1
1
Jun
-11
Sep
-11
De
c-1
1
Mar
-12
Jun
-12
Sep
-12
De
c-1
2
Ma
r-1
3
Jun
-13
Sep
-13
De
c-1
3
Ma
r-1
4
Jun
-14
Sep
-14
De
c-1
4
Mar
-15
Jun
-15
Sep
-15
De
c-1
5
Ma
r-1
6
Jun
-16
Sep
-16
De
c-1
6
Ma
r-1
7
Jun
-17
Sep
-17
De
c-1
7
Ma
r-1
8
Jun
-18
Sep
-18
De
c-1
8
Ma
r-1
9
Jun
-19
Sep
-19
De
c-1
9
Ma
r-2
0
Jun
-20
Sep
-20
De
c-2
0
Ma
r-2
1
Jun
-21
RO
E
$0.0
$200.0
Shar
es
(M)
$-
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
Sto
ck P
rice
Wynn Resorts Ltd CFIRR LensWYNN
-$500.0
$0.0
$500.0
$1,000.0
$1,500.0
CFO
PS
($M
)
$0.0
$5,000.0
$10,000.0
$15,000.0
$20,000.0
Gro
ss In
v C
apit
al
($M
)
8.1
%8
.6%
7.5
%7
.3%
6.5
%4
.4%
3.9
%3
.5%
4.0
%4
.7%
5.6
%5
.9%
6.2
%8
.5%
10
.1%
10
.8%
11
.9%
11
.8%
11
.2%
11
.2%
11
.0%
11
.0%
11
.3%
11
.1%
11
.5%
12
.2%
11
.8%
11
.8%
11
.5%
9.8
%8
.2%
6.8
%5
.2%
4.5
%4
.0%
3.8
%3
.5%
3.9
%5
.1%
6.1
%7
.2%
7.6
%6
.5%
6.5
%6
.5%
6.1
%7
.2%
6.7
%5
.9%
5.7
%2
.7%
(-2
.6%
)(-
6.8
%)
(-1
1.2
%)
(-9
.9%
)(-
4.3
%)
(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
Sep
-06
Dec
-06
Mar
-07
Jun-
07
Sep
-07
Dec
-07
Mar
-08
Jun
-08
Sep
-08
Dec
-08
Mar
-09
Jun
-09
Sep
-09
Dec
-09
Mar
-10
Jun
-10
Sep
-10
Dec
-10
Mar
-11
Jun
-11
Sep
-11
Dec
-11
Mar
-12
Jun
-12
Sep
-12
Dec
-12
Mar
-13
Jun
-13
Sep
-13
Dec
-13
Mar
-14
Jun
-14
Sep
-14
Dec
-14
Mar
-15
Jun
-15
Sep
-15
Dec
-15
Mar
-16
Jun
-16
Sep
-16
Dec
-16
Mar
-17
Jun
-17
Sep
-17
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun
-19
Sep
-19
Dec
-19
Mar
-20
Jun
-20
Sep
-20
Dec
-20
Mar
-21
Jun
-21
CFI
RR
$0.0
$100.0
$200.0
Shar
es
(M)
$-
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
Sto
ck P
rice
Equity was nearly $0 which produced absurdly high ROE.Then Equity turned negative which made ROE negative
In reality, the Company was cyclical and only produced moderate returns. Furthermore the company continued investing, and did not fluctuate between growing and shrinking as equity would have you believe
2021-11-13 7
ROE vs. CFIRR Lens – The Home Depot Inc.
The Home Depot Inc CFIRR LensHD
$0.0
$5,000.0
$10,000.0
$15,000.0
$20,000.0
CFO
PS
($M
)
$0.0
$20,000.0
$40,000.0
$60,000.0
$80,000.0
Gro
ss In
v C
apit
al
($M
)
14
.7%
14
.2%
12
.5%
11
.6%
11
.3%
9.4
%9
.7%
9.2
%9
.0%
9.7
%1
0.0
%1
0.2
%1
1.7
%1
2.1
%1
2.0
%1
2.1
%1
2.4
%1
1.4
%1
1.6
%1
1.9
%1
2.0
%1
2.5
%1
3.0
%1
3.7
%1
4.4
%1
4.5
%1
4.7
%1
5.2
%1
5.5
%1
6.2
%1
6.6
%1
6.8
%1
7.5
%1
8.1
%1
8.6
%1
9.1
%1
9.5
%2
0.0
%2
0.4
%2
0.7
%2
1.1
%2
1.4
%2
1.4
%2
2.0
%2
2.4
%2
3.1
%2
3.3
%2
3.1
%2
2.8
%2
2.2
%2
1.3
%2
2.2
%2
2.5
%2
2.7
%2
4.8
%2
5.2
%
(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
Oct
-06
Jan
-07
Ap
r-0
7
Jul-
07
Oct
-07
Jan
-08
Ap
r-0
8
Jul-
08
Oct
-08
Jan-
09
Ap
r-0
9
Jul-
09
Oct
-09
Jan
-10
Ap
r-1
0
Jul-
10
Oct
-10
Jan
-11
Ap
r-1
1
Jul-
11
Oct
-11
Jan
-12
Apr
-12
Jul-
12
Oct
-12
Jan
-13
Ap
r-1
3
Jul-
13
Oct
-13
Jan
-14
Ap
r-1
4
Jul-
14
Oct
-14
Jan
-15
Apr
-15
Jul-
15
Oct
-15
Jan
-16
Ap
r-1
6
Jul-
16
Oct
-16
Jan
-17
Ap
r-1
7
Jul-
17
Oct
-17
Jan
-18
Ap
r-1
8
Jul-
18
Oct
-18
Jan
-19
Ap
r-1
9
Jul-
19
Oct
-19
Jan-
20
Ap
r-2
0
Jul-
20
Oct
-20
Jan
-21
Ap
r-2
1
Jul-
21
CFI
RR
$992.1$1,189.7$1,387.3$1,584.9$1,782.5$1,980.1
Shar
es
(M)
$-
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
$350.0
$400.0
Sto
ck P
rice
Share buybacks lead to low equity and unrealistically high ROE, then ROE actually turned negative when the equity account went negative
In reality, the Home Depot continued to grow and produce consistent returns
ROE does not explain the share price while the CFIRR does explain the share price
2021-11-13 8
ROE vs. CFIRR Lens – Papa John’s International
Papa John's International IncROE LensPZZA
-$200.0
$0.0
$200.0
$400.0
Ne
t In
com
e (
$M
)
-$400.0
-$200.0
$0.0
$200.0
$400.0
Equ
ity
($M
)
29
.4%
19
.9%
16
.4% 2
6.8
%
18
.8%
(-6
.8%
)(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
Sep
-06
De
c-0
6
Ma
r-0
7
Jun
-07
Sep
-07
De
c-0
7
Ma
r-0
8
Jun
-08
Sep
-08
De
c-0
8
Ma
r-0
9
Jun
-09
Sep
-09
De
c-0
9
Ma
r-1
0
Jun
-10
Sep
-10
De
c-1
0
Ma
r-1
1
Jun
-11
Sep
-11
De
c-1
1
Mar
-12
Jun
-12
Sep
-12
De
c-1
2
Ma
r-1
3
Jun
-13
Sep
-13
De
c-1
3
Ma
r-1
4
Jun
-14
Sep
-14
De
c-1
4
Mar
-15
Jun
-15
Sep
-15
De
c-1
5
Ma
r-1
6
Jun
-16
Sep
-16
De
c-1
6
Ma
r-1
7
Jun
-17
Sep
-17
De
c-1
7
Ma
r-1
8
Jun
-18
Sep
-18
De
c-1
8
Ma
r-1
9
Jun
-19
Sep
-19
De
c-1
9
Ma
r-2
0
Jun
-20
Sep
-20
De
c-2
0
Ma
r-2
1
Jun
-21
RO
E
$0.0
$100.0
Shar
es
(M)
$-
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
Sto
ck P
rice
Papa John's International IncCFIRR LensPZZA
-$200.0
-$100.0
$0.0
$100.0
$200.0
CFO
PS
($M
)
$0.0
$500.0
$1,000.0
$1,500.0
Gro
ss In
v C
apit
al
($M
)
0.0
%0
.0%
0.0
%0
.0%
0.0
%1
1.4
%1
3.4
%1
5.1
%1
6.2
%1
3.4
%1
2.7
%1
4.2
%1
5.1
%1
6.9
%1
6.5
%1
5.7
%2
0.3
%1
.9%
1.6
%2
.4%
(-3
.4%
)6
.3%
6.1
%5
.9%
6.2
%1
3.4
%1
3.6
%1
3.5
%1
4.0
%(-
9.5
%)
(-7
.2%
)(-
6.3
%)
(-5
.8%
)1
6.0
%1
6.3
%1
7.0
%1
7.5
%1
7.6
%1
7.5
%1
7.5
%1
7.1
%1
6.6
%1
4.9
%1
3.8
%8
.9%
3.3
%1
.9%
(-0
.3%
)2
.1%
2.4
%2
.0%
4.3
%6
.0%
8.4
%1
1.0
%1
2.4
%
(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
Sep
-06
Dec
-06
Mar
-07
Jun-
07
Sep
-07
Dec
-07
Mar
-08
Jun
-08
Sep
-08
Dec
-08
Mar
-09
Jun
-09
Sep
-09
Dec
-09
Mar
-10
Jun
-10
Sep
-10
Dec
-10
Mar
-11
Jun
-11
Sep
-11
Dec
-11
Mar
-12
Jun
-12
Sep
-12
Dec
-12
Mar
-13
Jun
-13
Sep
-13
Dec
-13
Mar
-14
Jun
-14
Sep
-14
Dec
-14
Mar
-15
Jun
-15
Sep
-15
Dec
-15
Mar
-16
Jun
-16
Sep
-16
Dec
-16
Mar
-17
Jun
-17
Sep
-17
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun
-19
Sep
-19
Dec
-19
Mar
-20
Jun
-20
Sep
-20
Dec
-20
Mar
-21
Jun
-21
CFI
RR
$0.0
$50.0
$100.0
Shar
es
(M)
$-
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
Sto
ck P
rice
Papa John’s equity account is all over the place. ROE shows periods of unrealistically high ROE and unrealistically low ROE. The last several periods show negative ROE yet the stock is rising.
In reality, Papa John’s continued to invest.
ROE has 0 correlation with the stock price
CFIRR is highly correlated with the stock price
Negative ROE
2021-11-13 9
ROE vs. CFIRR Lens – Valvoline Inc
Valvoline Inc CFIRR LensVVV
$0.0
$100.0
$200.0
$300.0
$400.0
$500.0
CFO
PS
($M
)
$0.0
$1,000.0
$2,000.0
$3,000.0
Gro
ss In
v C
apit
al
($M
)
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
1.6
%1
4.5
% 22
.3%
26
.9%
25
.3%
22
.4%
18
.7%
16
.6%
16
.0%
16
.2%
16
.4%
16
.7%
17
.7%
18
.2%
18
.0%
18
.1%
18
.4%
18
.4%
17
.4%
15
.6%
15
.4%
15
.0%
15
.2%
17
.0%
(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
Sep
-15
Dec
-15
Mar
-16
Jun-
16
Sep
-16
Dec
-16
Mar
-17
Jun-
17
Sep
-17
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun-
19
Sep
-19
Dec
-19
Mar
-20
Jun-
20
Sep
-20
Dec
-20
Mar
-21
Jun-
21
CFI
RR
$160.0
$180.0
$200.0
$220.0
Shar
es
(M)
$-
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
$40.0
Sto
ck P
rice
ROE has been negative for a long period of time, yet the stock has move up.
In reality, returns have been consistently good lead to share price appreciation.
2021-11-13 10
ROE vs. CFIRR Lens – Choice Hotels International
Choice Hotels International IncCFIRR LensCHH
$0.0
$100.0
$200.0
$300.0
CFO
PS
($M
)
$0.0
$500.0
$1,000.0
$1,500.0
Gro
ss In
v C
apit
al
($M
)
36
.6%
38
.0%
39
.7%
40
.1%
41
.6%
39
.5%
37
.5%
35
.1%
31
.6%
30
.6%
28
.8%
29
.0%
29
.8%
30
.0%
29
.0%
28
.1%
28
.4%
28
.2%
28
.0%
24
.5%
24
.2%
23
.8%
23
.7%
23
.5%
26
.3%
26
.9%
27
.4%
28
.0%
28
.2%
28
.7%
27
.4%
26
.7%
26
.8%
26
.4%
25
.4%
24
.6%
24
.1%
18
.4%
17
.6%
18
.6%
19
.1%
24
.1%
24
.5%
27
.1%
29
.6%
29
.9%
31
.1%
30
.2%
28
.6%
28
.9%
25
.7%
17
.2%
13
.2%
9.8
%9
.2% 16
.0%
(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
Sep
-06
Dec
-06
Mar
-07
Jun-
07
Sep
-07
Dec
-07
Mar
-08
Jun
-08
Sep
-08
Dec
-08
Mar
-09
Jun
-09
Sep
-09
Dec
-09
Mar
-10
Jun
-10
Sep
-10
Dec
-10
Mar
-11
Jun
-11
Sep
-11
Dec
-11
Mar
-12
Jun
-12
Sep
-12
Dec
-12
Mar
-13
Jun
-13
Sep
-13
Dec
-13
Mar
-14
Jun
-14
Sep
-14
Dec
-14
Mar
-15
Jun
-15
Sep
-15
Dec
-15
Mar
-16
Jun
-16
Sep
-16
Dec
-16
Mar
-17
Jun
-17
Sep
-17
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun
-19
Sep
-19
Dec
-19
Mar
-20
Jun
-20
Sep
-20
Dec
-20
Mar
-21
Jun
-21
CFI
RR
$40.0
$50.0
$60.0
$70.0
Shar
es
(M)
$-
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
$160.0
Sto
ck P
rice
Equity has been negative for a long time, leading to negative ROE, yet the stock has done quite well.
In reality, the Company has produced consistent returns except during covid19 shutdowns.
Covid19 shutdowns
Covid19 shutdowns
Covid19 shutdowns
2021-11-13 11
ROE vs. CFIRR Lens – AbbVie Inc
AbbVie Inc ROE LensABBV
$0.0
$2,000.0
$4,000.0
$6,000.0
$8,000.0
$10,000.0
Ne
t In
com
e (
$M
)
-$10,000.0
$0.0
$10,000.0
$20,000.0
Equ
ity
($M
)
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
56
.5%
47
.6%
48
.4%
58
.8%
52
.3%
47
.7% 58
.4%
(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
Mar
-11
Dec
-11
Mar
-12
Jun-
12
Sep
-12
Dec
-12
Mar
-13
Jun
-13
Sep
-13
Dec
-13
Mar
-14
Jun
-14
Sep
-14
Dec
-14
Mar
-15
Jun-
15
Sep
-15
Dec
-15
Mar
-16
Jun
-16
Sep
-16
Dec
-16
Mar
-17
Jun
-17
Sep
-17
Dec
-17
Mar
-18
Jun
-18
Sep
-18
Dec
-18
Mar
-19
Jun
-19
Sep
-19
Dec
-19
Mar
-20
Jun
-20
Sep
-20
Dec
-20
Mar
-21
Jun
-21
Sep
-21
RO
E
$1,000.0
$1,500.0
$2,000.0
Shar
es
(M)
$-
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
Sto
ck P
rice
AbbVie Inc CFIRR LensABBV
$0.0
$5,000.0
$10,000.0
$15,000.0
$20,000.0
$25,000.0
CFO
PS
($M
)
$0.0
$20,000.0
$40,000.0
$60,000.0
Gro
ss In
v C
apit
al
($M
)
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%0
.0%
0.0
%
30
.0% 38
.9%
56
.5%
58
.2%
37
.6%
36
.0%
30
.2%
28
.0%
24
.0%
24
.4%
23
.4%
22
.3%
15
.0%
16
.7%
18
.8%
22
.2% 3
3.5
%3
6.0
%3
8.4
%4
1.0
%4
2.6
%4
2.7
%4
3.2
%4
3.5
%4
0.8
%4
1.6
%4
4.4
%4
7.2
%3
3.5
%3
8.7
%4
5.1
%4
0.5
% 50
.4%
39
.2%
37
.5% 44
.6%
48
.4%
(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
Mar
-11
Dec
-11
Mar
-12
Jun-
12
Sep
-12
Dec
-12
Mar
-13
Jun
-13
Sep
-13
Dec
-13
Mar
-14
Jun
-14
Sep
-14
Dec
-14
Mar
-15
Jun-
15
Sep
-15
Dec
-15
Mar
-16
Jun
-16
Sep
-16
Dec
-16
Mar
-17
Jun
-17
Sep
-17
Dec
-17
Mar
-18
Jun
-18
Sep
-18
Dec
-18
Mar
-19
Jun
-19
Sep
-19
Dec
-19
Mar
-20
Jun
-20
Sep
-20
Dec
-20
Mar
-21
Jun
-21
Sep
-21
CFI
RR
$1,000.0
$1,500.0
$2,000.0
Shar
es
(M)
$-
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
Sto
ck P
rice
Sudden flip from unrealistically high ROE to negative ROE when equity account went negative. In reality, the Company has been a consistently high
producer of good return on capital which has lead to share price appreciation.
2021-11-13 12
ROE vs. CFIRR Lens – Colgate-Palmolive Co
Colgate-Palmolive Co ROE LensCL
$0.0
$1,000.0
$2,000.0
$3,000.0
$4,000.0
Ne
t In
com
e (
$M
)
-$1,000.0
$0.0
$1,000.0
$2,000.0
$3,000.0
$4,000.0
Equ
ity
($M
)
(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
Sep
-06
Dec
-06
Mar
-07
Jun-
07
Sep
-07
Dec
-07
Mar
-08
Jun
-08
Sep
-08
Dec
-08
Mar
-09
Jun
-09
Sep
-09
Dec
-09
Mar
-10
Jun
-10
Sep
-10
Dec
-10
Mar
-11
Jun
-11
Sep
-11
Dec
-11
Mar
-12
Jun
-12
Sep
-12
Dec
-12
Mar
-13
Jun
-13
Sep
-13
Dec
-13
Mar
-14
Jun
-14
Sep
-14
Dec
-14
Mar
-15
Jun
-15
Sep
-15
Dec
-15
Mar
-16
Jun
-16
Sep
-16
Dec
-16
Mar
-17
Jun
-17
Sep
-17
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun
-19
Sep
-19
Dec
-19
Mar
-20
Jun
-20
Sep
-20
Dec
-20
Mar
-21
Jun
-21
RO
E
$0.0
$2,000.0
Shar
es
(M)
$-
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
$90.0
Sto
ck P
rice
Colgate-Palmolive Co CFIRR LensCL
$0.0
$1,000.0
$2,000.0
$3,000.0
$4,000.0
CFO
PS
($M
)
$0.0
$5,000.0
$10,000.0
$15,000.0
Gro
ss In
v C
apit
al
($M
)
26
.0%
25
.5%
25
.7%
25
.9%
26
.5%
27
.0%
27
.6%
28
.3%
29
.4%
30
.7%
29
.4%
31
.7%
35
.0%
36
.6%
38
.0%
36
.7%
33
.3%
28
.4%
27
.9%
27
.5%
27
.4%
27
.3%
25
.6%
24
.9%
24
.6%
25
.9%
24
.6%
24
.6%
23
.9%
25
.0%
26
.5%
26
.5%
27
.5%
24
.8%
25
.3%
25
.5%
25
.6%
27
.1%
27
.4%
27
.4%
27
.0%
26
.6%
27
.4%
28
.4%
28
.3%
28
.5%
28
.3%
28
.0%
27
.9%
28
.3%
28
.8%
29
.5%
30
.9%
30
.4%
30
.9%
30
.6%
(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
Sep
-06
Dec
-06
Mar
-07
Jun-
07
Sep
-07
Dec
-07
Mar
-08
Jun
-08
Sep
-08
Dec
-08
Mar
-09
Jun
-09
Sep
-09
Dec
-09
Mar
-10
Jun
-10
Sep
-10
Dec
-10
Mar
-11
Jun
-11
Sep
-11
Dec
-11
Mar
-12
Jun
-12
Sep
-12
Dec
-12
Mar
-13
Jun
-13
Sep
-13
Dec
-13
Mar
-14
Jun
-14
Sep
-14
Dec
-14
Mar
-15
Jun
-15
Sep
-15
Dec
-15
Mar
-16
Jun
-16
Sep
-16
Dec
-16
Mar
-17
Jun
-17
Sep
-17
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun
-19
Sep
-19
Dec
-19
Mar
-20
Jun
-20
Sep
-20
Dec
-20
Mar
-21
Jun
-21
CFI
RR
$0.0
$1,000.0
$2,000.0
Shar
es
(M)
$-
$10.0
$20.0
$30.0
$40.0
$50.0
$60.0
$70.0
$80.0
$90.0
Sto
ck P
rice
Sudden flip from unrealistically high ROE to negative ROE when equity account went negative.
In reality, the Company has been a consistently high producer of good return on capital which has lead to share price appreciation.
2021-11-13 13
ROE vs. CFIRR Lens – Boeing Co
Boeing Co ROE LensBA
-$15,000.0
-$10,000.0
-$5,000.0
$0.0
$5,000.0
$10,000.0
$15,000.0
Ne
t In
com
e (
$M
)
-$20,000.0
-$10,000.0
$0.0
$10,000.0
$20,000.0
Equ
ity
($M
)
50
.9%
41
.1%
34
.5%
36
.2% 4
7.4
% 58
.8%
57
.1%
50
.7%
41
.2%
41
.4%
38
.6%
40
.5% 48
.3%
50
.8%
19
.4%
38
.5%
51
.4%
59
.4%
55
.0%
(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
Dec
-06
Mar
-07
Jun-
07
Sep
-07
Dec
-07
Mar
-08
Jun-
08
Sep
-08
Dec
-08
Mar
-09
Jun-
09
Sep
-09
Dec
-09
Mar
-10
Jun-
10
Sep
-10
Dec
-10
Mar
-11
Jun-
11
Sep
-11
Dec
-11
Mar
-12
Jun-
12
Sep
-12
Dec
-12
Mar
-13
Jun-
13
Sep
-13
Dec
-13
Mar
-14
Jun-
14
Sep
-14
Dec
-14
Mar
-15
Jun-
15
Sep
-15
Dec
-15
Mar
-16
Jun-
16
Sep
-16
Dec
-16
Mar
-17
Jun-
17
Sep
-17
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun-
19
Sep
-19
Dec
-19
Mar
-20
Jun-
20
Sep
-20
Dec
-20
Mar
-21
Jun-
21
Sep
-21
RO
E
$0.0
$1,000.0
Shar
es
(M)
$-
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
$350.0
$400.0
$450.0
$500.0
Sto
ck P
rice
Boeing Co CFIRR LensBA
-$10,000.0
-$5,000.0
$0.0
$5,000.0
$10,000.0
$15,000.0
CFO
PS
($M
)
$0.0
$50,000.0
$100,000.0
$150,000.0
Gro
ss In
v C
apit
al
($M
)
9.6
%9
.9%
9.0
%8
.0%
6.0
%5
.1%
6.0
%(-
0.3
%)
4.4
%4
.7%
4.3
%1
1.5
%9
.7%
9.2
%9
.2%
9.6
%8
.8%
9.2
%8
.9%
8.3
%8
.5%
8.2
%8
.3%
8.5
%8
.5%
8.8
%9
.0%
9.5
%1
0.2
%1
0.6
%1
0.4
%1
0.8
%9
.7%
9.4
%6
.9%
6.7
%9
.0%
9.6
%1
3.4
%1
4.0
%1
4.4
%1
5.3
%1
5.8
%1
5.4
%1
6.9
%1
6.4
%8
.8%
7.6
%(-
4.3
%)
(-1
7.3
%)
(-1
0.4
%)
(-1
2.2
%)
(-1
7.6
%)
(-9
.6%
)(-
9.0
%)
(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
Dec
-06
Mar
-07
Jun-
07
Sep
-07
Dec
-07
Mar
-08
Jun-
08
Sep
-08
Dec
-08
Mar
-09
Jun-
09
Sep
-09
Dec
-09
Mar
-10
Jun-
10
Sep
-10
Dec
-10
Mar
-11
Jun-
11
Sep
-11
Dec
-11
Mar
-12
Jun-
12
Sep
-12
Dec
-12
Mar
-13
Jun-
13
Sep
-13
Dec
-13
Mar
-14
Jun-
14
Sep
-14
Dec
-14
Mar
-15
Jun-
15
Sep
-15
Dec
-15
Mar
-16
Jun-
16
Sep
-16
Dec
-16
Mar
-17
Jun-
17
Sep
-17
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun-
19
Sep
-19
Dec
-19
Mar
-20
Jun-
20
Sep
-20
Dec
-20
Mar
-21
Jun-
21
Sep
-21
CFI
RR
$0.0
$500.0
$1,000.0
Shar
es
(M)
$-
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
$350.0
$400.0
$450.0
$500.0
Sto
ck P
rice
Negative Net Income along with Negative Equity produces a positive ROE. This is clearly the wrong signal. ROE is a ratio. When the numerator and denominator are negative the ratio is positive.
Negative CFOPS has lead to negative CFIRR as you would expect. CFIRR is an IRR not a ratio so it correctly calculates a negative return when Cash Flow is negative
2021-11-13 14
ROE vs. CFIRR Lens – Starbucks Corp
Starbucks Corp CFIRR LensSBUX
$0.0
$1,000.0
$2,000.0
$3,000.0
$4,000.0
$5,000.0
CFO
PS
($M
)
$0.0
$10,000.0
$20,000.0
$30,000.0
$40,000.0
Gro
ss In
v C
apit
al
($M
)
17
.2%
16
.8%
15
.0%
13
.0%
9.8
%7
.5%
7.4
%8
.4%
10
.4%
12
.0%
12
.8%
14
.0%
12
.7%
13
.4%
13
.0%
13
.7%
(-5
.4%
)(-
4.6
%)
(-4
.0%
)(-
4.2
%)
14
.8%
14
.9%
15
.7%
16
.5%
(-4
.5%
)(-
2.7
%)
(-1
.9%
)(-
0.6
%)
19
.7%
19
.9%
20
.8%
21
.9%
22
.9%
23
.6%
23
.9%
23
.8%
24
.7%
24
.6%
24
.2%
23
.9%
22
.7%
22
.8%
23
.1%
23
.5%
22
.1%
21
.6%
20
.9%
20
.7%
20
.5%
20
.1%
16
.2%
7.3
%4
.6%
2.7
%4
.8%
12
.6%
(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
Sep
-06
Dec
-06
Mar
-07
Jun-
07
Sep
-07
Dec
-07
Mar
-08
Jun-
08
Sep
-08
Dec
-08
Mar
-09
Jun-
09
Sep
-09
Dec
-09
Mar
-10
Jun-
10
Sep
-10
Dec
-10
Mar
-11
Jun-
11
Sep
-11
Dec
-11
Mar
-12
Jun-
12
Sep
-12
Dec
-12
Mar
-13
Jun-
13
Sep
-13
Dec
-13
Mar
-14
Jun-
14
Sep
-14
Dec
-14
Mar
-15
Jun-
15
Sep
-15
Dec
-15
Mar
-16
Jun-
16
Sep
-16
Dec
-16
Mar
-17
Jun-
17
Sep
-17
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun-
19
Sep
-19
Dec
-19
Mar
-20
Jun-
20
Sep
-20
Dec
-20
Mar
-21
Jun-
21
CFI
RR
$0.0
$1,000.0
$2,000.0
Shar
es
(M)
$-
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
Sto
ck P
rice
Starbucks Corp ROE LensSBUX
-$4,000.0
-$2,000.0
$0.0
$2,000.0
$4,000.0
$6,000.0
$8,000.0
Ne
t In
com
e (
$M
)
-$10,000.0
-$5,000.0
$0.0
$5,000.0
$10,000.0
Equ
ity
($M
)
28
.9%
29
.5%
28
.1%
13
.9%
12
.9%
5.9
%(-
2.4
%)
10
.1%
6.1
%1
3.3
%2
3.0
%2
2.6
%2
4.7
%2
7.0
%2
7.9
%2
9.1
%(-
6.4
%)
(-4
.1%
)(-
2.7
%)
(-1
.5%
)
(-9
.5%
)(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
Sep
-06
Dec
-06
Mar
-07
Jun-
07
Sep
-07
Dec
-07
Mar
-08
Jun-
08
Sep
-08
Dec
-08
Mar
-09
Jun-
09
Sep
-09
Dec
-09
Mar
-10
Jun-
10
Sep
-10
Dec
-10
Mar
-11
Jun-
11
Sep
-11
Dec
-11
Mar
-12
Jun-
12
Sep
-12
Dec
-12
Mar
-13
Jun-
13
Sep
-13
Dec
-13
Mar
-14
Jun-
14
Sep
-14
Dec
-14
Mar
-15
Jun-
15
Sep
-15
Dec
-15
Mar
-16
Jun-
16
Sep
-16
Dec
-16
Mar
-17
Jun-
17
Sep
-17
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun-
19
Sep
-19
Dec
-19
Mar
-20
Jun-
20
Sep
-20
Dec
-20
Mar
-21
Jun-
21
RO
E
$0.0
$2,000.0
Shar
es
(M)
$-
$20.0
$40.0
$60.0
$80.0
$100.0
$120.0
$140.0
Sto
ck P
rice
Equity turns negative along with ROE
In reality, SBUX continued to grow, not shrink as the equity account would lead you to believe.
ROE is all over the place
Equity turns negative along with ROE
CFIRR is consistent with a couple of blips along the way.
2021-11-13 15
ROE vs. CFIRR Lens – Domino’s Pizza Inc
Domino's Pizza Inc CFIRR LensDPZ
$0.0
$200.0
$400.0
$600.0
$800.0
CFO
PS
($M
)
$0.0
$500.0
$1,000.0
$1,500.0
$2,000.0
Gro
ss In
v C
apit
al
($M
)
29
.9%
29
.7%
29
.0%
25
.1%
25
.8%
27
.8%
(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
Jun
-07
Sep
-07
Dec
-07
Mar
-08
Jun
-08
Sep
-08
Dec
-08
Mar
-09
Jun
-09
Sep
-09
Dec
-09
Mar
-10
Jun
-10
Sep
-10
Dec
-10
Mar
-11
Jun
-11
Sep
-11
Dec
-11
Mar
-12
Jun
-12
Sep
-12
Dec
-12
Mar
-13
Jun
-13
Sep
-13
Dec
-13
Mar
-14
Jun-
14
Sep
-14
Dec
-14
Mar
-15
Jun
-15
Sep
-15
Dec
-15
Mar
-16
Jun
-16
Sep
-16
Dec
-16
Mar
-17
Jun
-17
Sep
-17
Dec
-17
Mar
-18
Jun
-18
Au
g-1
8
Sep
-18
Dec
-18
Mar
-19
Jun
-19
Au
g-1
9
Sep
-19
Dec
-19
Mar
-20
Jun
-20
Sep
-20
Dec
-20
Mar
-21
Jun
-21
Sep
-21
CFI
RR
$0.0
$50.0
$100.0
Shar
es
(M)
$-
$100.0
$200.0
$300.0
$400.0
$500.0
$600.0
Sto
ck P
rice
Domino's Pizza Inc ROE LensDPZ
$0.0
$200.0
$400.0
$600.0
Ne
t In
com
e (
$M
)
-$5,000.0
-$4,000.0
-$3,000.0
-$2,000.0
-$1,000.0
$0.0
Equ
ity
($M
)
(-7
.3%
)(-
6.2
%)
(-4
.2%
)(-
4.8
%)
(-5
.8%
)(-
6.0
%)
(-6
.7%
)(-
6.8
%)
(-6
.9%
)(-
7.3
%)
(-7
.7%
)(-
8.2
%)
(-8
.8%
)(-
8.1
%)
(-8
.0%
)(-
8.1
%)
(-8
.5%
)(-
9.4
%)
(-9
.8%
)(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
Jun-
07
Sep
-07
Dec
-07
Mar
-08
Jun-
08
Sep
-08
Dec
-08
Mar
-09
Jun-
09
Sep
-09
Dec
-09
Mar
-10
Jun-
10
Sep
-10
Dec
-10
Mar
-11
Jun-
11
Sep
-11
Dec
-11
Mar
-12
Jun-
12
Sep
-12
Dec
-12
Mar
-13
Jun-
13
Sep
-13
Dec
-13
Mar
-14
Jun-
14
Sep
-14
Dec
-14
Mar
-15
Jun-
15
Sep
-15
Dec
-15
Mar
-16
Jun-
16
Sep
-16
Dec
-16
Mar
-17
Jun-
17
Sep
-17
Dec
-17
Mar
-18
Jun-
18
Aug
-18
Sep
-18
Dec
-18
Mar
-19
Jun-
19
Aug
-19
Sep
-19
Dec
-19
Mar
-20
Jun-
20
Sep
-20
Dec
-20
Mar
-21
Jun-
21
Sep
-21
RO
E
$0.0
$100.0
Shar
es
(M)
$-
$100.0
$200.0
$300.0
$400.0
$500.0
$600.0
Sto
ck P
rice
Equity and ROE have been negative for 15 years yet they stock has been one of the best stocks in the past 15 years
In reality, the company has been growing and earning high returns which explains the stock price.
2021-11-13 16
ROE vs. CFIRR Lens – Lennox International Inc
Lennox International Inc ROE LensLII
$0.0
$200.0
$400.0
$600.0
Ne
t In
com
e (
$M
)
-$500.0
$0.0
$500.0
$1,000.0
Equ
ity
($M
)
16
.9%
16
.2%
14
.7%
14
.6%
12
.5%
9.9
%8
.6%
2.0
% 5.9
% 8.6
% 12
.3%
15
.6%
13
.0%
13
.0%
11
.5%
9.9
% 12
.3%
13
.3%
14
.6%
15
.4%
16
.7%
20
.1%
24
.0%
(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
Dec
-06
Mar
-07
Jun
-07
Sep
-07
Dec
-07
Mar
-08
Jun
-08
Sep
-08
Dec
-08
Mar
-09
Jun
-09
Sep
-09
Dec
-09
Mar
-10
Jun
-10
Sep
-10
Dec
-10
Mar
-11
Jun
-11
Sep
-11
Dec
-11
Mar
-12
Jun-
12
Sep
-12
Dec
-12
Mar
-13
Jun
-13
Sep
-13
Dec
-13
Mar
-14
Jun
-14
Sep
-14
Dec
-14
Mar
-15
Jun-
15
Sep
-15
Dec
-15
Mar
-16
Jun
-16
Sep
-16
Dec
-16
Mar
-17
Jun
-17
Sep
-17
Dec
-17
Mar
-18
Jun
-18
Sep
-18
Dec
-18
Mar
-19
Jun
-19
Sep
-19
Dec
-19
Mar
-20
Jun
-20
Sep
-20
Dec
-20
Mar
-21
Jun
-21
Sep
-21
RO
E
$32.3$38.6$44.9$51.3$57.6$63.9$70.3$76.6
Shar
es
(M)
$-
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
$350.0
$400.0
Sto
ck P
rice
Lennox International Inc CFIRR LensLII
$0.0
$200.0
$400.0
$600.0
CFO
PS
($M
)
$0.0
$1,000.0
$2,000.0
$3,000.0
Gro
ss In
v C
apit
al
($M
)
12
.8%
12
.4%
12
.3%
12
.2%
11
.6%
10
.4%
9.1
%8
.1%
7.8
%9
.1%
9.9
%9
.9%
9.0
%8
.3%
7.6
%7
.2%
8.3
%9
.0%
9.1
%9
.8%
9.7
%9
.9%
10
.8%
11
.7%
12
.7%
12
.6%
12
.8%
12
.9%
13
.2%
12
.7%
13
.0%
13
.7%
14
.0%
14
.2%
14
.9%
15
.7%
16
.6%
16
.7%
16
.9%
16
.9%
17
.0%
16
.9%
17
.7%
18
.0%
17
.9%
17
.3%
14
.5%
14
.5%
15
.0%
13
.8%
14
.6%
15
.4%
16
.5%
18
.5%
20
.5%
20
.4%
(-10.0%)
(-5.0%)
0%
5%
10%
15%
20%
25%
30%
Dec
-06
Mar
-07
Jun-
07
Sep
-07
Dec
-07
Mar
-08
Jun-
08
Sep
-08
Dec
-08
Mar
-09
Jun-
09
Sep
-09
Dec
-09
Mar
-10
Jun-
10
Sep
-10
Dec
-10
Mar
-11
Jun-
11
Sep
-11
Dec
-11
Mar
-12
Jun-
12
Sep
-12
Dec
-12
Mar
-13
Jun-
13
Sep
-13
Dec
-13
Mar
-14
Jun-
14
Sep
-14
Dec
-14
Mar
-15
Jun-
15
Sep
-15
Dec
-15
Mar
-16
Jun-
16
Sep
-16
Dec
-16
Mar
-17
Jun-
17
Sep
-17
Dec
-17
Mar
-18
Jun-
18
Sep
-18
Dec
-18
Mar
-19
Jun-
19
Sep
-19
Dec
-19
Mar
-20
Jun-
20
Sep
-20
Dec
-20
Mar
-21
Jun-
21
Sep
-21
CFI
RR
$32.3$38.6$44.9$51.3$57.6$63.9$70.3$76.6
Shar
es
(M)
$-
$50.0
$100.0
$150.0
$200.0
$250.0
$300.0
$350.0
$400.0
Sto
ck P
rice
Share buybacks turned the equity account negative along with the ROE
In reality, the company has been growing and improving their returns. The CFIRR lens correctly explains the stock price.
Screening for positive ROE missed HUNDREDSof high quality stocks
ROE screening missed 214 high quality companies
▪ We found 214 companies with Negative ROE and Positive CFIRR three years ago
▪ On average those companies returned an 18% 3-Year CAGR in the stock market
▪ The top 20 by market cap returned 25.5% 3-Year CAGR in the stock market
▪ Several “missed” stocks were high profile names like Eli Lilly, Coca-Cola,
McDonald’s, Advanced Micro Devices and many more
ROE screening missed 214 high quality stocks
FAILED the ROE screening testROE < 0
But PASSED the CFIRR screening testCFIRR > 0
3-year stock market return
▪ We found 214 companies with Negative ROE and Positive CFIRR three years ago
▪ On average those companies returned an 18% 3-Year CAGR
▪ The top 20 by market cap returned 25.5% in the stock market
▪ Several “missed” stocks were high profile names like Eli Lilly, Coca-Cola, McDonald’s, Advanced Micro Devices and many more
There are Numerous
Distortions in
Accounting Data
FSA Valuation
Service Inc.
Contact FSA Valuation Service Inc. and find out how our data platform can
help you find opportunities in the stock market.
Matt Kacur
220 Victoria Street
Suite 2006
Toronto, ON
M5B 2R6
There are numerous distortions in accounting data
1) Share Buybacks Reduce Equity Distorting ROE and Price to Book• Equity can be near zero and can even go below zero if buybacks are significant. The original investment is completely
wiped out. ROE can be unrealistically high then flip to negative without any change in operating cash flow.
2) Original Investment is Lost with Traditional Performance Metrics• Net Assets conceals the original amount of money invested by capital providers.
3) Inflation Distortion• Assets are carried on the balance sheet at historical dollars but income and cash flow is in today’s dollars. When the
balance sheet is adjusted for inflation investors can assess real returns which provide a clearer picture of the true
economics compared to nominal returns.
4) Companies Spend Cash Not Earnings• Earnings are for tax reporting, cash is the true indicator of value
5) Performance Ratios Do Not Account for Asset Life• Companies operate and invest in capital projects with assets lives. Management assess viability and success of capital
projects using an internal rate of return not a ratio. Investors should assess the business the same way management
assess internal capital projects.
6) ROE Has a Leverage Distortion• Management teams compensated on ROE would have incentive to lever up the balance sheet which increases ROE
without improving operations
7) Traditional Metrics Make No Distinction Between Working Capital and Long-term
Invested Capital• Cash and equivalents on the balance sheet are liquid assets an do generate material returns for shareholders so they
are a drag on return on capital. However, the cash is easily returned to shareholder’s in the form of dividends, paying
down debt or share buybacks. Shareholder’s really want to know the return on deployed capital, then determine if the
excess cash and equivalents is better off deployed in the business or return to shareholders.
Are Accounting Distortions
Causing You to Miss Out
Stock Market Opportunities?
FSA Valuation
Service Inc.
Contact FSA Valuation Service Inc. and find out how our data platform can
help you find opportunities in the stock market.
Matt Kacur
220 Victoria Street
Suite 2006
Toronto, ON
M5B 2R6