Value Investing (CROIC)

value_investing.rb

# Margins of Safety
# 30% > $ 10B
# 50% - 30% for $1-10B Market Cap
# > 50% for < $1B

# Owner's Earnings
# Read more: http://www.oldschoolvalue.com/blog/valuation-methods/working-capital-free-cash-flow-fcf/#ixzz3O1Egljwo
# Owner earnings = Net income + depreciation & amortization +/- one-time items +/- changes in working capital - capital expenditures

def owner_earnings # Better than free cash flow
  net_income + (depreciation & amortization) +/- one-time items +-  
    changes in working capital - capital_expenditures
end

#
#  CROIC = FCF/Invested Capital
#  Invested Capital = Total Equity + Total Liabilities – Current Liabilities  – Excess Cash (DEPRECATED)
#  Excess Cash = Total Cash – MAX(0,Current Liabilities-Current Assets)
#  Read more: http://www.oldschoolvalue.com/blog/investing-strategy/croic-roic-screen-strategy-backtest/#ixzz3O15gDifW

#  http://www.oldschoolvalue.com/blog/investing-strategy/croic-roic-screen-strategy-backtest/
#  NOTE: Increasing croic in a 3 year period may point to a successful turn around! 
#
#  http://www.investopedia.com/university/ratios/
#
# CROIC > 10% is acceptable

def working_capital
  current_assets - current_liabilities
end

def free_cash_flow
  operating_cash - capital_expenditures
end

def invested_capital_DEPRECATED
  total_equity + total_liabilities - excess_cash
end

#
#  Invested Capital = Total Equity + Short Term Debt + Capital Lease Obligations + Long Term Debt
#  Excess cash was causing issues, 
#  Read more: http://www.oldschoolvalue.com/blog/valuation-methods/roe-croic-roic-formula/#ixzz3O1BJJTB2
def invested_capital
  total_equity + short_term_debt + capital_lease_obligations + long_term_debt
end
#  Invested Capital = Total Equity + Short Term Debt + Capital Lease Obligations + Long Term Debt

def excess_cash
  total_cash - [0, current_liabilities - current_assets].max
end

def croic
  free_cash_flow / invested_capital
end

#
#  Net Net Working Capital
#  Read more: http://www.oldschoolvalue.com/blog/investing-strategy/backtest-graham-nnwc-ncav-screen/#ixzz3O1DasIvH
def net_net_working_capital
  cash + (0.75 * accounts_receivables) + (0.5 * inventory) - total_liabilities
end



#
#  Discounted Cash Flow
#  http://www.oldschoolvalue.com/blog/valuation-methods/discounted-cash-flow-stock-valuation
#  No more than 15% to stay conservative
def growth_rate(earnings)
  # ["5 or 10 years of growth".to_f, 15].min
  n = earnings.size
  avgs = (0..n - 2).map do |i|
    (earnings[i + 2] - earnings[i]) / 3
  end
  # 
  avgs.inject(:+).fdiv(avgs.length)   
end

#
# “You can’t compensate for risk by using a high discount rate.”
# Read more: http://www.oldschoolvalue.com/blog/investing-strategy/explaining-discount-rates/#ixzz3O1JW2LwO
#
def discount_rate
  (greedy ? [15, 20] : [9,12]).sample
end