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Do It Yourself Guide To Finance

Thursday, May 13th, 2010

If you are interested in learning how to uncover the truth about the profitability and valuation of stocks, the first place I would tell you to go is the New Constructs Help section. We have put a lot of work into simplifying and boiling down the concepts behind and the process of uncovering the truth about profitability and valuation. Learn how to calculate NOPATInvested CapitalWACCROICFree Cash FlowEVA and Economic Profit/earnings and perform rigorous stock analysis yourself.

The Methodology Section gives you the inside-scoop on how to uncover the truth. For example, see

  1. List of Problems with the Old Construct for equity research
  2. Learn the differences between accounting earnings and economic earnings
  3. Learn the dangers of using P/E multiples
  4. Understand why the distinctions between growth and value investing styles are misleading
  5. Understand why cash is king and how to value stocks as Warren Buffet does

And much more on how to perform rigorous stock analysis yourself.

The Glossary Section provides detailed definitions of important finance terms such as NOPAT, NOPAT MARGIN, Invested Capital, etc. For example, see:

  1. NOPAT calculation and definition (NOPAT stands for Net Operating Profit After Tax)
  2. NOPAT Margin
  3. Invested Capital calculation and definition
  4. Invested Capital Turns
  5. WACC calculation and definition (WACC stands for Weighted-Average Cost of Capital)
  6. ROIC calculation and definition (ROIC stands for Return on Invested Capital)
  7. Economic Profit/earnings calculation and definition (note EVA is same as Economic Profit)
  8. Free Cash Flow

The MaxVal Section explains how our profit and valuation models work.

The MaxStrategy Section explains how to use our database of proprietary profitability and valuation stats.

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  1. varadha says:

    Terrific, yet simple analysis. I’ve always been a fan of ROIC as a measure of capital efficiency and believe that no size/growth outperformance can replace the quest for efficiency.

    Sort of like a big gas guzzling v8 that needs ever increasing gallons of fuel to keep its engine running

  2. David says:

    But Angie’s $90 per user acquisition cost is going to go away. That’s what their approach probably is. How would their outlook be if that $90 cost dropped down to a total cost of $3 per user?

  3. David:

    That would be great, but cost per user acquisition is not something that’s very easy for a company to fix. ANGI can slash their marketing budget to the bone, but then they would stop acquiring new members. They would probably lose members in fact, as their membership renewal rate is at ~75% and declining. If they cut marketing expense by ~95% as you seem to be suggesting, ANGI might be able to eke out 1 year of slight profits, but they would start shedding members and losing money very quickly. ANGI’s only hope is to keep its marketing budget high and hope it can reach the scale and brand awareness to be able to sustain its business while scaling back marketing costs enough to turn a profit. The fact that ANGI’s revenue growth is slowing down even as its marketing costs keep increasing makes it very unlikely it will achieve that goal.

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