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Michael Mauboussin presentation at Google (video, 2014)


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  • 9 months later...


Thanks for sharing this -- very informative... 


Quick questions:


1) do you think share-based compensation should be accounted for in determining owner's earning / free cash flow?  I know some companies like to use Adjusted EBITDA that adjusts EBITDA by adding the share based compensation back to make the cash earning look stronger since it's not a cash item.  I personally think it's a real cost and ought to be considered in valuing a business.


2)  I wonder why it's reasonable to use NOPAT  and ROIC / ROIIC  to assess a business when NOPAT does not back out the interest expense...  (NOPAT = EBIT - tax).  Isn't interest a real expense and especially true for businesses that have a lot of debt ?





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^For 1) either keep the share-based compensation as a "true" expense or add it back and use the diluted share number. Tough question especially since this line item can be quite large and since, in a way, this expense can be seen as a discounted loan from existing shareholders to management/employees where the ultimate value (value of which one could derive with company's disclosures using models but which often end up very far from estimates) to be "paid back" upon maturity is still unknown. This can "become" a more expensive owner expense over time but, fortunately, if that's the case, as a share holder, you likely end up rewarded by the market too unless management is better at timing of exercise and sale of shares.


For 2) NOPAT is an unlevered measure.

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