Hi Folks, Based on BreadTalk example in Price to Cash Flow topic,
- was it first due to scenario of high consistent revenue/cash flow yet low earnings that led to further investigation of the cause of breadtalk's earning distortion?
- its 3 year depreciation distorted the earnings. How was this discovered? Do we need to check each item (before Net Profit) against the industry average for abnormality?
- "...Both the PEG ratio and the price-to-cash-flow ratio suggested we should buy the stock..." PEG ratio uses EPS growth rate. If the earnings is distorted, wouldnt the PEG ratio fail to reveal undervalued stock as well?
- We spot it when comparing the cash flow and net profit. In most cases, the cash flow and net profit should be around the same, if not higher for cash flow.
- We read through the footnotes and compare them with the listed competitors.
- The earnings are distorted as the earnings are a lower figure compared to cash flow but not volatile. Breadtalk's earnings are still growing at that time, from $1m (2005) to $11m (2010).
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