Revised and updated to reflect the latest thinking in the area of cash flow analysis, Cash Flow and Security Analysis, is written with the underlying assumption that cash flow analysis is the most important tool at the investor's disposal. You will discover why cash flow is quickly replacing earnings as the primary tool among securities analysts and how they can identify undervalued securities using cash flow analysis. This important reference shows you how to avoid common costly mistakes.
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Kenneth S. Hackel is founder and President of CT Capital LLC, an institutional investment advisory firm specializing in the analysis of corporate cash flow and cost of capital in investment decision making. Until 1996, he was President of Systematic Financial Management Inc., (SFM) a multi-billion dollar institutional investment firm he founded in 1982. At SFM, Kenneth successfully implemented his free cash flow-based investment philosophy in managing funds for institutional investors across multiple US equity investment disciplines.
Kenneth's upcoming book, "Security Valuation and Risk Analysis: Assessing Value in Investment Decision-Making", to be published by McGraw Hill later this November, significantly extends the theories and analysis presented in his earlier book, "Cash Flow and Security Analysis," 2nd edition (McGraw Hill, 1995). His new book provides extensive analysis and discussion of innovative, fundamental methods and models for a more accurate determination of cost of capital and return on invested capital. The models are based on cash flows and extensive credit analysis. To this end, half the book is devoted to the understanding of cash flow; half to cost of capital, as risk to cash flows are meticulously expounded upon. The analysis of risk and credit represents, according to Mr. Hackel, the single most important under-explored factor in security analysis and the primary reason for investor disappointment of their investment returns.
He posits that using fundamental factors to calculate cost of equity capital (reflecting a company's operating and financial risk, capital structure, and miscellaneous intrinsic items) and return on invested capital based upon free cash flow generation (in lieu of traditional earnings or EBITDA-based measures) more accurately reflect the underlying financial profitability and stability of a firm, its growth potential and value enhancement level. Using a more robust discount rate (to model and discount free cash flows) to arrive at 'fair value' will provide a more accurate comparison to current valuation levels, thus leading to more accurate trading signals. He illustrates the use of a comprehensive cost of capital credit worksheet utilizing 60+ credit variables in place of the popular Capital Asset Pricing Model in divining an entity's true cost of equity, which results in superior investment performance with considerably lower risk.
Also explored in detail are those necessary adjustments to cash flow from operating activities to give the analyst a normalized computation.
He also explains how return on invested capital should be measured, including firms which are service-based.
Ken is the author of many articles on security valuation and analysis, and pioneered the analysis of determining savings in supply chain and other discretionary areas, which could boost free cash flows. He is internationally recognized as a leading expert in valuation analysis, having also created the use of free cash flow in lieu of EBITDA in ROIC analysis. EBITDA, he explains, is a deficient metric, in many respects.
Ken is accepted to be the sole investment advisor in US equity mutual fund history to take over management of the worst performing mutual fund, and in a single year turn it into the best performing fund.
With over 35 years of investment experience, he has consulted on mergers and acquisitions, including fairness opinions. His work has been published in leading academic journals as well as leading financial news media, and is quoted worldwide. He is a graduate of City College of New York and earned his MBA (Finance) from Baruch College.
His blog may be read at www.credittrends.com and his twitter @credittrends.
Kenneth's upcoming book, "Security Valuation and Risk Analysis: Assessing Value in Investment Decision-Making", to be published by McGraw Hill later this November, significantly extends the theories and analysis presented in his earlier book, "Cash Flow and Security Analysis," 2nd edition (McGraw Hill, 1995). His new book provides extensive analysis and discussion of innovative, fundamental methods and models for a more accurate determination of cost of capital and return on invested capital. The models are based on cash flows and extensive credit analysis. To this end, half the book is devoted to the understanding of cash flow; half to cost of capital, as risk to cash flows are meticulously expounded upon. The analysis of risk and credit represents, according to Mr. Hackel, the single most important under-explored factor in security analysis and the primary reason for investor disappointment of their investment returns.
He posits that using fundamental factors to calculate cost of equity capital (reflecting a company's operating and financial risk, capital structure, and miscellaneous intrinsic items) and return on invested capital based upon free cash flow generation (in lieu of traditional earnings or EBITDA-based measures) more accurately reflect the underlying financial profitability and stability of a firm, its growth potential and value enhancement level. Using a more robust discount rate (to model and discount free cash flows) to arrive at 'fair value' will provide a more accurate comparison to current valuation levels, thus leading to more accurate trading signals. He illustrates the use of a comprehensive cost of capital credit worksheet utilizing 60+ credit variables in place of the popular Capital Asset Pricing Model in divining an entity's true cost of equity, which results in superior investment performance with considerably lower risk.
Also explored in detail are those necessary adjustments to cash flow from operating activities to give the analyst a normalized computation.
He also explains how return on invested capital should be measured, including firms which are service-based.
Ken is the author of many articles on security valuation and analysis, and pioneered the analysis of determining savings in supply chain and other discretionary areas, which could boost free cash flows. He is internationally recognized as a leading expert in valuation analysis, having also created the use of free cash flow in lieu of EBITDA in ROIC analysis. EBITDA, he explains, is a deficient metric, in many respects.
Ken is accepted to be the sole investment advisor in US equity mutual fund history to take over management of the worst performing mutual fund, and in a single year turn it into the best performing fund.
With over 35 years of investment experience, he has consulted on mergers and acquisitions, including fairness opinions. His work has been published in leading academic journals as well as leading financial news media, and is quoted worldwide. He is a graduate of City College of New York and earned his MBA (Finance) from Baruch College.
His blog may be read at www.credittrends.com and his twitter @credittrends.
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Most Helpful Customer Reviews
13 of 14 people found the following review helpful:
4.0 out of 5 stars
Great book to read, and excellent example,
This review is from: Cash Flow and Security Analysis (Hardcover)
The best thing I like about this book is that the author guide you step by step in calculating free cash flow of the firm.He also talked about how to estimating corporate fat, off balance sheet liabilities, and many insighful idea to the investment world. Personally, I would recommend you to buy this book. I personally like it. Not like a bunch of academic theoritical BS that is floating around.
13 of 15 people found the following review helpful:
5.0 out of 5 stars
Value Investing is the clear winner -- ask any CFA!,
By A Customer
This review is from: Cash Flow and Security Analysis (Hardcover)
Contrary to what the other reviews on this page suggest, value investing is the clear winner over growth. Don't listen to one or two readers who lost money over a few months. Take the long view. Though you may not get rich quick reading this book, you will coming away with a richer understanding of how to read financial statements in terms of what drives value.
4 of 6 people found the following review helpful:
5.0 out of 5 stars
UP 45% LAST YEAR THANKS TO THIS BOOK!!,
By Bob Stewart (ATLANTA, GA) - See all my reviews
This review is from: Cash Flow and Security Analysis (Hardcover)
I'VE COMPLETELY AVOIDED THE INTERNET HIGHFLYERS-THEY DON'T GENERATE FREE CASH FLOW. ON THE OTHER HAND THE BOOK PUT ME INTO COMPANIES WHOSE UNDERVALUED STOCKS QUICKLY TURNED AROUND WITH THERE LOW DEBT HIGH FREE CASH FLOW. I PARTICULARLY LIKED THE WAY THE AUTHORS LOOK AT CORPORATE FAT
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