Strict Alternative For Identifying Value Constructive Enterprise : PDD Case Study
Strict Alternative For Identifying Value Constructive Enterprise : PDD Case Study
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An enterprise is said to be value constructive if the following criteria is met:
ROA > CTAC
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It's a far more stringent criteria as compared to ROIC > Cost of Capital.
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Where:
CTAC = 100 × (CTAC Factor - 1)
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CTAC Factor
= Clean Total Assets Cost Factor
= 30Y Government Bond Yield Factor × (1 + Total Liabilities/Total Equity × (1 + Prime Ratio + Spread Ratio) ÷ (1 + Total Liabilities/Total Equity)
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Conventions:
CTAC Factor
= 1 + CTAC Ratio
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CTAC
= Clean Total Assets Cost
= 100 × CTAC Ratio
= 100 × (CTAC Factor - 1)
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PDD Case Study:
(1)
ROA = 16.6638511789
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(2)
CTAC Factor
= Clean Total Assets Cost Factor
= 30Y Government Bond Yield Factor × (1 + Total Liabilities/Total Equity × (1 + Prime Ratio + Spread Ratio) ÷ (1 + Total Liabilities/Total Equity)
= 1.04864×(1+0.5680113735×1.10)÷(1+0.5680113735)
= 1.0866269341
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CTAC = 8.66269341
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(3)
ROA 16.6638511789 > CTAC 8.66269341
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(4)
Conclusion:
PDD is value constructive.
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(5)
Mental Model:
“All new projects should return at least 20% on total assets.”
— Henry Singleton, co-founder, Chairman, and CEO of Teledyne, Inc. from its founding in 1960 until 1986, and continued as chairman until 1991.
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Warren Buffett once said: “Henry Singleton of Teledyne has the best operating and capital deployment record in American business.”
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https://25iq.com/2014/11/08/a-dozen-things-ive-learned-from-henry-singleton-about-value-investing-venture-capital/
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(6)
How many stocks in US have achieved ROA more than 15%?
Just a few.