Both approaches view savings as financing investment, which is assumed to take the form of
tangible capital formation rather than a stock market or real estate bubble.
The effect will be to limit real estate lending to loans for the actual construction or purchase of buildings and other capital improvements, i.e.,
for tangible capital formation.
Profits were a return
on tangible capital investment and current expenses on labor, raw materials and other inputs.
The depreciated cost of these fixed assets is added to the net working capital requirements to derive the estimate for
tangible capital employed.
Capital cost recovery: Income tax features intended to allow businesses to deduct over time the costs of
tangible capital assets that are used to produce income.
Its statistics would show how much of the rise in wealth (and expenditure) in China — or any other nation — is a result of
new tangible capital formation as compared to higher rents, lending and interest, or the stock market.
Depreciation An accounting procedure that aims to distribute the cost
of tangible capital assets, less any expected salvage value, over the estimated useful life of the asset in a rational and systematic manner.
Savers / creditors
load tangible capital assets and real estate down with debts that in many cases are not repayable except by transferring ownership to creditors.
If 20 % of the uninsured underwater residential loans are losses, the impact on
tangible capital levels becomes meaningful with a 30 % -40 % reduction in pricing.
It has averaged over 60 % return on
tangible capital over its history, and trades at 11.5 x earnings, as it manages through what we see as temporary issues.
Outerwall has historically produced high returns on capital, and it's a business that doesn't need
much tangible capital to produce huge amounts of cash flow (an attractive business), but it has been run similar to companies that get purchased by private equity firms — leverage up the balance sheet, issue a dividend (or buyout some shareholders), thus keeping very little equity «at risk».
Here, ROC is the ratio of the pre-tax operating earnings (EBIT) to
tangible capital employed (Net working capital + Net fixed capital).
The most valuable resources have been sold to officials, former managers and bankers who in turn have sold (or are selling) their shares to foreigners and moving the proceeds abroad rather than investing them in
new tangible capital formation.
An economy either is in trouble or has lost its sense of balance when investors shy away
from tangible capital formation in favor of buying postage stamps and similar collectibles.
But in the end the economy shrinks precisely because this «faux wealth» serves as a distraction, drawing savings away from direct investment in
tangible capital formation.
This is despite virtually infinite returns on
tangible capital, monopolistic strongholds on their respective industries, large addressable markets, and huge growth — FB recently traded at around 20 times what it will earn this year, despite growing its sales at 49 % and its profits at 63 % last year.
On an accrual basis,
tangible capital assets are based on the amortization of the stock over its «economic» life.
HSNI also generates returns on
tangible capital (Joel Greenblatt's metric) over 50 % and cash returns on invested capital over 24 %.
Need to negotiate
a tangible capital ratio, and a transition period.
They are valued at 22.0 x and 26.1 x earnings, respectively, with high return on
tangible capital but low growth.
China Mobile is another example - high returns on
tangible capital and reasonable growth at a 14.3 x multiple of earnings.
Joel Greenblatt develops a «magic formula» that uses return on capital (ROC)(namely, EBIT /
Tangible Capital) as a key metric to select quality value stocks.
Or a business may have low FCF because it has low owner earnings in relation to
tangible capital employed and the business has to spend a lot of money to replace obsolete plant and machinery.
Instead of comparing EBIT to total assets, we compare it to the cost of the assets used to produce those earnings (
tangible capital employed).
Insured commercial banks had high capital levels at the time of the crisis — 10 % (DM: but look at
the tangible capital ratios)
Tangible capital employed is defined as the Net Working Capital + Net Fixed Assets.
It is the ratio of pre-tax operating earnings to
tangible capital employed.