Originally I was planning on evaluating the float of every company I have written an article on but decided to just focus on the companies whose stock I currently own. Below I am going to give you an example of the full analysis on one company and then just do an overview and chart of the rest of the companies as the calculations are all the same.
Brazil Fast Food Company (BOBS)
All numbers for BOBS are in $R million unless otherwise noted.
- Financial Assets: Cash and cash equivalents of 28.4+prepaid expenses of 1.2+advance to suppliers+deferred tax assets net of 6.8=38.5
- Operating Assets: All other assets such as goodwill, IA, AR, inventories, etc of 89.3.
- Total Assets=127.8.
Liabilities
- Equity of 38.3
- Debt of 21
- Float-Accounts payable & accrued expenses of 9.7+payroll and related accounts 6.7+taxes 4.6+deferred income tax 0.2+current portion of deferred income 2.5+current portion of contingencies and reassessed taxes 2.1+other current liabilities 0.8+deferred income 2.4+long term contingencies and reassessed taxes 17.9+other liabilities 1.2=float of 48.1
Total liabilities are 69.4
Float/operating assets=53.86%. BOBS float is supporting 53.86% of operating assets meaning that BOBS float is not completely free. The float being completely free would mean that the company’s operations are being operated generally by completely free money if the ratio was over 100% and the float is costless. A situation where float is costless is when an insurance company is earning an underwriting profit. BOBS still has a pretty good portion of its OA operated by float, as you will see in the chart below, which is always a good thing.
Pretax profits/total assets=ROA
Pretax profits/ (total assets-float) =levered ROA
17.4/79.7=21.83%
|
BOBS |
MAIN |
CMT |
STRT |
VIVHY |
DOLE |
| Float/Operating Assets |
53.86%
|
90%
|
27.27%
|
60.53%
|
37.68%
|
27.69%
|
| Unlevered ROA |
13.62%
|
9.59%
|
14.23%
|
10.65%
|
6.43%
|
1.29%
|
| Levered ROA |
21.83%
|
9.73%
|
19.25%
|
20.59%
|
9.67%
|
1.79%
|
As you can see from the chart, BOBS, MAIN, and STRT all have float supporting more than 50% of each companies operating assets and BOBS, CMT, and STRT’s levered ROA make the companies look even better than I already thought they were.
VIVHY and DOLE, my two spin off companies that I do not plan to hold for as long as the other companies above, have ratios that are generally quite a bit worse than the other four. Looks like I have been doing a decent job of spotting float in my long term companies before I even knew what it was.
To tie this whole theme up of the past several weeks I am capping it off by analyzing and evaluating an insurance company, the ultimate providers of float and a big reason why Buffett was able to compound his returns at such a fantastic rate over the past four decades. I started research last night on an insurance company whose market cap is under $75 million and will have the write up written as soon as possible. It will take me longer than usual to get this article ready because this is the first time where I have truly tried to evaluate an insurance company and need to learn as I am going; the specific terms and best ways to evaluate this type of company.
In the mean time I will probably post some links but from now on I will not be posting updates on what I am doing anymore. I am constantly reading, learning, and trying to find companies to research and evaluate so if I don’t post for a while, from here on out that just means I haven’t found a company I think deserves a full write up.
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