Gurufocus is a website that presents historical financial data in one giant table. You can use Google Sheets to pull that data into a spreadsheet and perform your own calculations. This is much faster than going into a 10-K to copy+paste the financial data. Here is my spreadsheet that automatically pulls data from Gurufocus. (EDIT 9/9/2017: unfortunately the spreadsheet does not work very well anymore due to changes to the Gurufocus website.) To use it, sign in to your Google account (registration is free) and then make a copy of the spreadsheet.
Calculations that I like to perform
Free cash flow
I like to look at free cash flow because it often contains fewer distortions than GAAP earnings. There are many different definitions of free cash flow.
Gurufocus’ definition is:
cash flow from operations – capital expenditures
Gurufocus’ definition is a good one. In most cases however, I am not worried about management playing games with working capital. Examples of shenanigans would be:
- Fake cash
- Fake inventory
- Channel stuffing
- Booking revenue too early, creating dubious receivables
In the majority of cases, adjusting for changes in working capital presents a more accurate picture of what a business is actually making. Suppose that a company is turning cash into inventory to stock new stores or to stock up for the holiday shopping season. The cash spent reduces cash flow from operations (CFO). With the Gurufocus definition of free cash flow, lower CFO means lower free cash flow. If the inventory is real, then free cash flow would be unfairly penalized/distorted.
The second adjustment that I like to make is to subtract stock-based compensation from free cash flow. If an employee is paid with stock rather than cash, the stock-based compensation should also be considered an expense. However, I think that GAAP overstates stock-based compensation when a company’s stock is overpriced. So for certain hot tech stocks, you might want to make adjustments for stock-based compensation.
Free cash flow multiple
Usually this is more accurate than a P/E ratio.
For pharma companies whose only business is to develop new drugs, I like to look at G&A spending versus R&D. See the section “My approach to shorting bioturds” in my blog post “Year in review 2014”.
For oil and gas, the ratio between G&A and revenues is one way to measure how low-cost an operator is. See “My approach to shorting oil and gas“.
4-wall pre-tax return
I use this to measure how well retailers are run. I look at how much operating income is generated by the company’s inventory and PP&E. My metric can be thrown off by:
- Intangible assets such as software, capitalized advertising, etc.
- Seasonal fluctuations in inventory and differences in the year-end between retailers.
Cash conversion cycle
If I think that there might be something suspicious going on with a company’s working capital, I would like to examine:
- Changes in inventory turns / days inventory.
- Changes in days receivables.
- Changes in days payables.
- Changes in the cash conversion cycle.
For example, a company that is creating fake/phantom inventory would likely see its inventory days go up unusually over time. To examine these things, it is probably better to go to the Gurufocus site directly.
Gurufocus data issues
In some cases, Gurufocus might display the HTML table differently (e.g. recent IPOs may have their historical data replaced by other data) which can cause issues with my spreadsheet. Try unhiding the columns between A and L.
Feel free to copy the spreadsheet and make your own adjustments. Because the Gurufocus historical financial data is now in a spreadsheet, you can perform any calculation that you’d like.