‘Predictive’ Factors

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.

Profitability Ratios

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).

Financial Strength 

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

Valuation Measures
Over time, companies we own become more valuable if they continue to manage cash-flow effectively. We measure valuation on these parameters:

  • Free-Cash-Flow (FCF)
    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.
  • Growth
    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
  • ‘Skin-in-the-game’ management
  • Current dividend yield
  • Current price-to-book value (for certain industries)
  • Potential gains in reversion-to-the-mean analysis

Qualitative Assessment
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
  • Competitive moats
  • Rare assets
  • Intellectual property
  • Natural monopolies

State ‘Edge’ Examples
Examples of countries with world class competencies:

  • Brazil (Oil/Agriculture)
  • Canada (Oil and Gas/Hydroelectricity/Mining)
  • England (Retail/Finance)
  • France (Luxury, Vanity Products/Wine/Nuclear)
  • Japan (Machine tools/ Electronics/Miniaturization/Optics
  • Norway (Petro/Fish Farming/Shipping)
  • UAE (Trading/Ports)
  • Switzerland (Pharma/Chocolate/Watches/Biotech/Private Banking/Inspection)

Foreign companies must have corporate and country edges, or other beneficial core competencies.