Step 9: Red Flags
Value investors don't have to look for red flags pointing to future disaster, because usually the disaster has already happened. However, there is still one earnings quality issue that should be assessed.
Capital Expenses vs. Depreciation
Smart managers know that they must continue to invest in new capital equipment, even when times are tough. Generally, capital expenditures should at least equal depreciation charges. Table 16-15 shows ATI's record on that score.
The data shows that despite its temporary setbacks, ATI continued to invest in new capital equipment, a positive sign.
Get Fire Your Stock Analyst! Analyzing Stocks on Your Own now with the O’Reilly learning platform.
O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.
