Archive for the ‘CT Capital LLC’ category

Return of the “Hostile” Takeover?

July 19th, 2010

Sounds crazy, no?

Given corporate Boards remaining relentless in cash maximization policies, alongside reluctance to spend without a confident payback period, the obvious outlet is stepped-up acquisitions. Given a strategic free cash flow-based acquisition, firms could put themselves in a position of stepping up their return on invested capital, given the very low cost of debt that might need to be raised to fund the purchase. A well-priced and timed acquisition can significantly add to shareholder value, while of course, an ill-priced, ill-executed  and poor candidate would severely destroy value.

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What Part of Market Volatility Don’t You Understand?

February 4th, 2010

We’ve been saying for years investors DO NOT understand risk. The numerator (cash flow) has not shifted much over the past quarter-it’s the denominator, cost of capital, as only can be measured by our comprehensive credit model, factoring everything from tax rate and revenue stability, free and operating cash flows, yield spreads, and 50 other metrics, all carefully defined.

The problem is, in a nutshell, investors are setting risk thru the Capital Asset Pricing Model, which is terribly flawed. They look towards EDITDA, which is terribly flawed.

COMING THIS FALL: Cash Flow, Cost of Capital, and Security Valuation, McGraw-Hill

Central Tenet: The risk premium should not be set by stock volatility, as implied by the capital asset pricing model, but by the cash flows and credit worthiness of the entity.