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Thanks for your advice rukawa. I appreciate your response. My intention with the checklist here is to avoid making these mistakes before they happen. I agree that a company with complicated off-balance sheet liabilities is best avoided, but you have to first identify all these liabilities. Even Tobias Carlisle discussed missing off-balance sheet liabilities in one of his articles and he's incredibly intelligent. My personal opinion is that searching annual and quarterly reports using keywords like these could save time and avoid trouble down the line. I don't think it would consume more than a couple of minutes to cntr-f these terms either.

In line with Pabrai's advice I'm currently forming a checklist, but specifically with off-balance sheet liabilities in mind here. I'm interested in net-nets and Martin Whitman's approach so I'm trying to make adjustments based on asset values rather than cash flows. I've provided what I have so far and have attached links to sources I have used from Moodys and S and P, but would greatly appreciate any feedback and book/article recommendations to build knowledge about off-balance sheet liabilities. Parts b, d and e are probably what I am least unclear about. Net Current Asset Value (NCAV) Adjustments: a) Unfunded Pension Obligations and Self-Insurance Claims Subtract from NCAV Nb- unfunded pension obligation liability recognised on the balance sheet in US GAAP b) Executory contracts- Subtract from NCAV- • operating leases • forward purchase or sale commitments • take-or-pay contracts I've read that these are often cancelled on liquidation so perhaps no need to subtract? c) Options Issued – Reduce NCAV by the dollar % of value of options/market cap This is because the NCAV will be dispersed among a great number of shares when the options are exercised Example: 2 mil (options value)/ 18 mil (market cap)= 11.1% 1-.11= 0.89 40mil (NCAV) x 0.89= 35.6mil Adjusted NCAV d) Contingent obligations Subtract from NCAV 1) Contractual- these include: • Guarantees • Standby liquidity agreements (typically provided by financial institutions) • Letters of Credit 2) Non-contractual- these include: • Lawsuits- search report/articles for any estimated liabilities • Environmental Remediation e) Related Legal Entities Subtract RLE exposure from NCAV 1) Assets are sold to a Special Purpose Entity, but significant loss exposure to the assets and related liabilities has been retained e.g. in Securitization. In many securitization transactions, credit support is either provided by the originator (for example, a cash reserve account) or retained by the originator (if the subordinated tranches or equity is held) 2) Company has partial ownership in an Off-Balance Sheet Entity f) LIFO reserve Add back the LIFO reserve for companies using a FIFO method of inventory accounting. Net Present Value used Moodys- https://www.moodys.com/sites/products/AboutMoodysRatingsAttachments/2002900000432882.pdf S and P- https://www.nact.org/sponsorPubs/S&P_encyclopedia_of_analytical_adjustments.pdf

Thanks for the replies. The Enterprise Discounted Cash flow model McKinsey discusses is really on point. Huge help. Also a big fan of Pabrai and I've read the Dhando Investor too.

Hi all, Curious to know what items from the cash flow statement you include/exclude when you are calculating cash flows and why? I've read that some use DCF and that Warren Buffett uses a variation of this- Owner's Earnings (Operating cash flows- maintenance capex). I've read arguments for excluding cash flows from investing and financing include that these items don't represent the 'core' business. However, I find it difficult to accept that items such as payment of long-term debt should be excluded given we are trying to find intrinsic value- the net value of all cash inflows and outflows discounted at an appropriate rate. Discussion of any items you include/exclude in your cash flow calculation would be much appreciated. Cheers