Tuesday, January 8, 2019
A Look at Climate Change Disclosures

Wednesday, January 2, 2019
Quants: Point-in-Time Data for Backtesting

Friday, December 28, 2018
Now Showing: Controls & Procedures

Thursday, December 27, 2018
A Reminder on Non-GAAP Reporting Rules

Monday, December 17, 2018
Researching PG&E’s Wildfire Risk

Wednesday, December 12, 2018
Tracking Brexit Disclosures

Thursday, December 6, 2018
Campbell Soup: Looking Behind the Label

Sunday, December 2, 2018
SEC Comment Letters: The Amazon Example

Wednesday, November 28, 2018
Measuring Big Pharma’s Chemical Dependency

Monday, November 26, 2018
Analysts, Can You Relate? A True Story

Monday, November 19, 2018
Digging Up Historical Trend Data: Quest Example

Sunday, November 11, 2018
Cost of Revenue, SG&A: Q3 Update

Monday, November 5, 2018
Lease Accounting: FedEx vs. UPS

Saturday, November 3, 2018
New Email Alerting Powers

Wednesday, October 31, 2018
PTC and Two Tales of Revenue

Tuesday, October 30, 2018
10-K/Q Section Text Change Detection

Sunday, October 28, 2018
Finding Purchase Price Allocation

Sunday, October 21, 2018
Charting Netflix Growth in Three Ways

Wednesday, October 17, 2018
Interesting Data on Interest Income

Thursday, October 11, 2018
The Decline of Sears in Three Charts

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The Calcbench Adjusted ROE Model!
Friday, October 21, 2016

Calcbench is delighted to announce that we’ve created a valuation model and to accomplish a difficult task in financial analysis: to measure and benchmark adjusted Return on Equity.

The valuation model is available to subscribers upon request; it has a few moving parts, and to make the model work for you we need to configure several variables. That effort doesn’t take much time, however, and after setup you can start evaluating companies to your heart’s content.

So why did we do this? Because ROE (net income divided by shareholder equity ) is one of the fundamental metrics financial analysts use to assess a company’s economic performance. At the same time, however, ROE can be a crude yardstick that doesn’t allow for easy, apples-to-apples comparison among multiple companies, since companies can adjust their calculations of net income and shareholder equity so many ways.

The Calcbench valuation model attempts to control for those variables, and then rates companies by adjusted ROE. That metric will give analysts better understanding of a company’s underlying economic vitality. It accounts for items such as operating lease expenses, LIFO inventory accounting, and pension gains or losses.

Financial analysts can do this exercise manually (conceptually, it’s the same as a DuPont Analysis), but Calcbench has pre-populated all those items into our valuation model to give you the answers you need more quickly.

A Bit More Detail

First, we adjusted for leverage, by taking the cost of operating leases into account and making adjustments for them. (The cost of operating leases are still technically off the balance sheet, until GAAP rules bring those costs back onto corporate balance sheets starting in 2019.) That adjustment is a bit technical to do, since operating lease costs are currently tucked away in the footnotes—but thanks to Calcbench’s database superpowers, as well as our operating lease template, we can do it.

Second, we adjusted for pension obligations by stripping out excess gains, which get reported on a company’s income statement.

Third, we attempt to adjust all inventory valuations to the LIFO method of calculating inventory.

Without those adjustments, you can’t get an accurate comparison of ROE because the distortions from those three effects can be very large. This is especially true if you’re trying to compare ROE for companies from different industries. The leasing effect for retail companies, for example, could be huge compared to the same effect for manufacturers.

As an example, here is a comparison of ROE and adjusted ROE for 10 companies we selected at random:

To take full advantage of our valuation model, then, we first need to know what companies you want to examine. We do the necessary adjusting to those companies’ line-items, and then run those adjusted numbers through our valuation model to get adjusted ROE.

Could we add other adjustments, for a custom-made valuation model? Upon request, sure. The challenge is to construct the right model, which we can do; and to have access to all the data that needs adjusting, which we have.

This valuation model is just one example of what you can do with Calcbench today, in a matter of hours or less. Our databases are just that good.

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