I'm a little less bothered about recurring non-recurring items. One of my favoured companies (AGCO) has a "restructuring costs" line item on its P&L. But I refuse to adjust it out.
I also adjust back in the true R&D expense (I don't like capitalised R&D, even though IFRS does), and I exclude intangibles from my valuations.
Nice article, I also look at CapEx/Sales, CapEx/Depreciation, CFO/EBITDA and FCF/Net Income.
I also pay attention to working capital trends and cash conversion cycle via days' outstanding receivables/inventory/payables.
Thanks, my friend! Really appreciate the thoughtful take.
You’re absolutely right. Consistency and transparency matter more than the label itself. If a company has a recurring “restructuring” line but it’s part of its real operating rhythm, it should stay in the numbers.
It was the recurring "non-recurring charges" that steered me away from most major pharmaceutical companies. It's staggering how often Johnson & Johnson was cited for exemplary business when it loaded its books with supposedly non-recurring charges, year after year. On a related note, if a company has to constantly use multiple pages reconciling non-GAAP earnings to GAAP, that's probably another red flag.
I couldn’t agree more. Those “non-recurring” charges that somehow recur every year are a huge red flag. Healthcare companies are masters at this. I honestly think their multiples would be much higher if they didn’t make all these adjustments (and probably a few others we don’t even know about).
I'm a little less bothered about recurring non-recurring items. One of my favoured companies (AGCO) has a "restructuring costs" line item on its P&L. But I refuse to adjust it out.
I also adjust back in the true R&D expense (I don't like capitalised R&D, even though IFRS does), and I exclude intangibles from my valuations.
Nice article, I also look at CapEx/Sales, CapEx/Depreciation, CFO/EBITDA and FCF/Net Income.
I also pay attention to working capital trends and cash conversion cycle via days' outstanding receivables/inventory/payables.
Thanks, my friend! Really appreciate the thoughtful take.
You’re absolutely right. Consistency and transparency matter more than the label itself. If a company has a recurring “restructuring” line but it’s part of its real operating rhythm, it should stay in the numbers.
It was the recurring "non-recurring charges" that steered me away from most major pharmaceutical companies. It's staggering how often Johnson & Johnson was cited for exemplary business when it loaded its books with supposedly non-recurring charges, year after year. On a related note, if a company has to constantly use multiple pages reconciling non-GAAP earnings to GAAP, that's probably another red flag.
I couldn’t agree more. Those “non-recurring” charges that somehow recur every year are a huge red flag. Healthcare companies are masters at this. I honestly think their multiples would be much higher if they didn’t make all these adjustments (and probably a few others we don’t even know about).