We consider profitability ratios, financial strength, valuation and qualitative assessments.
Screening is a central tenet of the Barrack Yard Advisors risk mitigation strategy. It is a way to minimize avoidable mistakes and align investments with our Enduring Principles.
Barrack Yard Advisors look for 10-years of uninterrupted profitability, and Return on Invested Capital (ROIC) higher than the company’s Weighted Average Cost of Capital (WACC).
We favor companies that:
Employ little or no long-term debt
Do not rely on the capital markets for short-term funding
Exceptions are fixed asset infrastructure-type investments
Over time, companies we own become more valuable if they continue to manage cash-flow effectively. We measure valuation on these parameters:
Cash available for distribution to shareholders after all planned capital expenditures and cash taxes. Cash allows companies to pay dividends, buy-back shares, reduce debt levels, or make acquisitions.Barrack Yard divides FCF by the enterprise value of the company to determine FCF yield. We then compare this yield with other available investments.
To measure growth, we compare current earnings-per-share (EPS) versus EPS on a date 10-years prior. In calculating EPS, we average 3-years of trailing earnings, then compare this number to the average trailing 3-year EPS from 10-years ago.
Additionally, we evaluate:
Money-making reinvestment opportunities
Current dividend yield
Current price-to-book value (for certain industries)
Potential gains in reversion-to-the-mean analysis
Does the company offer beneficial goods or services that consumers will continue to need or want? Does it have an Edge? Corporate ‘Edge’ Examples
High barriers to entry
Ability to conduct one-sided price negotiations
Leverage over customers or suppliers
State ‘Edge’ Examples
Examples of countries with world class competencies:
Canada (Oil and Gas/Hydroelectricity/Mining)
France (Luxury, Vanity Products/Wine/Nuclear)
Japan (Machine tools/ Electronics/Miniaturization/Optics