Liquidating working capital
Jae Jun’s back-test methodology was to create two concentrated portfolios, one of 15 stocks and the other of 10 stocks.He rolled the positions on a four-weekly basis, which may be difficult to do in practice (as Aswath Damodaran pointed out yesterday, many a slip twixt cup and the lip renders a promising back-tested strategy useless in the real world).Kind Regards, Pratham You seem to understand this issue well. I could take you through some specific company examples. If you have time – here are some companies you could look at for examples of companies where constantly increasing working capital (in the very long run) has been a drag on the business: · Lakeland Industries (NASDAQ: LAKE) · ADDvantage Technologies (NASDAQ: AEY)Both companies tend to reinvest profits into additional inventory. The downside is they had little or no ability to buy back stock, pay dividends, etc.The important thing is looking at how the cash flow is being generated. This means that as long as they are growing they can't afford to pay out any cash. Now for the other side – look at Taitron Components (NASDAQ: TAIT).If that company then sells for million, the VC gets more than 50% of the million.The VC gets his or her million out first, and then half of the remaining million (.5 million) for a total return of .5 million. Where startup employees can get really screwed is when preferred stock owners have 2x or 3x liquidation preferences. Imagine a VC that buys the 50% of a company for million, at the same 0 million post-money valuation. In fact, common stock holders would get zero money unless the company sold for more than twice the amount the investors put in — in this case, 0 million.
(One of the companies I’m analysing in Australia has been showing negative changes in working capital for the last few years: after it began divesting from unprofitable operations, improving margins and boosting return on equity.Keeping good records of the sale of your property will protect you in case you file for bankruptcy or a creditor later questions your asset liquidation process.You may also need this information for your tax returns.One of those three ways is through the difference between "preferred stock," which investors get, and "common stock," which employees get.Among other special rights, the owners of preferred stock get "liquidation preferences." What that means is that when the startup sells, or liquidates, the owners of preferred stock get a guaranteed amount of money from the sale.Since the requirement is that NNWC is greater than 0, most large caps automatically fail to make the cut due to the large quantity of intangibles, goodwill and total debt.portfolio was a surprise, eeking out just a 5% gain over the period, which is nothing to write home about, but still significantly better than the S&P500.The 10 stock portfolio’s returns are simply astonishing: Jae Jun writes: Amazing stuff.Here’s Jae Jun’s NNWC formula: NNWC = Cash (0.75 x Accounts receivables) (0.5 x Inventory) Here’s Graham’s suggested discounts (extracted from Chapter XLIII of ): Excluding the “Fixed and miscellaneous assets” from the NNWC calculation provides an austere valuation indeed (it makes Graham look like a pie-eyed optimist, which is saying something).The good news is that Jae Jun’s NNWC methodology seems to have performed exceptionally well over the period analyzed.Inventory the assets your business owns and wishes to liquidate.Your list should include a detailed description of each item, photograph, purchase information, condition, warranty certificates and repair records, if applicable.