Updated: Nov 23, 2021
Quick synopsis: The author here wants to bring your attention to two of the most important element we see while investing. 1) Earnings Yield 2) Profitability
The first (i.e value) can be calculated as (Eps/price) but the author uses (EBIT/Enterprise Value*), the basic idea behind the concept of earnings yield is simply to figure out how much a business earns relative to the purchase price of the business
*( EV = market value of equity + net interest bearing debt)
Second, the author uses ROCE, calculated ( EBIT/Capital Employed), to examine the value the ability of the business to deploy its capital.
* Capital Employed =(Net Fixed Asset + Working Capital**)
**Working Capital = ( Current Assets- Current Liabilities ), provided in the balance sheet.
Tactics: The author recommends buying a bunch of 20-30 companies with High Roce and High Yield ) among others in the market............ Do read these beautiful concepts laid down in this book.
I hope you will read & find this great work very helpful.
See you next time,
The Humane Opportunist.