- Cash-adjusted owners’ multiple being low, as indication of true value
- Non-cash-adjusted owners’ earnings being low, to act as a catalyst for the company to clearly be worth more next year vs this year.
The non-cash-adjusted ratio helps exclude net-nets without clear earnings power, as their situation does not clearly change over time, limiting the probability and the size of a potential re-rating."
Can you explain in more detail how the non-adjusted OE multiple can exclude undesirable net-nets? I don't quite follow the logic here. Thank you.
Hi Flo. I have a question on the below:
"We require both ratios to be low:
- Cash-adjusted owners’ multiple being low, as indication of true value
- Non-cash-adjusted owners’ earnings being low, to act as a catalyst for the company to clearly be worth more next year vs this year.
The non-cash-adjusted ratio helps exclude net-nets without clear earnings power, as their situation does not clearly change over time, limiting the probability and the size of a potential re-rating."
Can you explain in more detail how the non-adjusted OE multiple can exclude undesirable net-nets? I don't quite follow the logic here. Thank you.
Hey Wagon thank you for the question.
We want both ratio’s to be low, so that for example a company with 100m market cap and 99m cash and 1m net income is excluded.
The company would be extremely cheap on a cash adjusted basis but doesn't add much value over time.
Also, if the company goes up 10%, their cash adjusted multiple grows from 1x to 10x so the upside is limited