August 26th, 2021
1.5 minute read
1.5 minute read
- If you have down a finance degree, you probably spent quite a lot of time studying various projects to work out the IRRs, present values & payback periods.
- This was to teach about making decisions on what to invest in.
- The theory doesn’t always get used in practice… but it does work. Here’s three examples from stocks which we cover.
- First example is SIMP here in Indonesia. The last 12 months free Cashflow is 800 billion rupiah.
- The non cash assets which they invested in are now 33 trillion rupiah. This would make the payback 41 years..
- The market value of SIMP is 6.7 trillion rupiah which is 0.2X those assets & the shares are -20% the last 5 years.
- Next is world’s largest stock, AAPL. Last 12 months Cashflow is 96 billion dollars!
- The non cash & financial assets which they invested in are 136 billion dollars. That means the payback is only about 1.4 years.
- The market value of AAPL is 2.45 trillion dollars or 18X those assets & the shares are up 5.5X the last five years.
- Next is the most topical stock, Moderna… in this second quarter alone Cashflow was 7 billion dollars.
- The assets which they invested in excluding cash, receivables & financial assets is 1.9 billion dollars. That makes their payback 24 days.
- The market value is 161 billion dollars or 85X the assets & the shares are up 21.4X the last five years…
- The lessons of basic finance do work well in the real world. The faster the payback, the higher the valuation & share performance will be.
- Here in Indonesia companies don’t make big enough sales & margins are too low.
- But the current situation seems too extreme. The payback of basic materials is too low & downstream technology is too high.