ValuFocus Investing: A Cash-Loving Contrarian Way to Invest in Stocks

Chapter 6

The Corporate Perspective

This chapter is written primarily for the managers of businesses whose equity and debt form the securities markets. Vitally, we believe the messages presented here are just as important to the investment community. It has been our goal, indeed our dream for the past three decades, to encourage corporate managers and investors to apply the same valuation principles and methods in pricing stocks and bonds.

Thus, our framework for modeling value concentrates on two prime audiences—investors and company managers. We believe it is equally important to apply the thinking, process, and methodologies to the business side—namely, how our corporations are managed. In this context, we view our economic, cash-based foundation serving as an excellent tool for business management.

Imagine the benefits of having both the investment and corporate communities working from the same template. It forms a clear picture that everyone can follow. Executives base their decisions and management processes on fundamental economics, namely, cash flows. Decisions on strategies, business unit performance, financial structure, and compensation are all based on cash returns from existing assets and new cash investments.

In this joined world, investors' stock portfolios follow the same economics-based foundation. Metrics to measure results are common in the two constituencies. Managements possess a good understanding of how investors will react to material events involving strategies, ...