We are primarily focused on equity research using our proprietor analytical tools. We help investors identify the components that drive value. We work using our ROCGA methodology (Return on Cash Generating Assets). The aim is to neutralise subjectivity from companies reported financial results and approach it from a wealth creation and valuation perspective.

Investor generally rely on accrual accounting measures to make investment decisions. These measures are easy to understand and are readily available. However, there may not be a clear correlation between the required valuation measure. Also, accrual measurements are subjective and vary between companies. ROCGA only looks at a company’s cash generating ability by using the accrual accounting information and converting it into a gross cash number. All cash comes at a cost, i.e. the assets employed to generate that cash. The reported balances sheet numbers go through a series of adjustments and are translated into Total Cash Generating Assets.

Now we have most of the ingredients for a like-for-like comparison and bring all companies on to an equal footing for valuation.

Returns On Cash Generating Assets

The cash flow and Total Cash Generating Assets are converted into Returns On Cash Generating Assets. This measure better approximates the underlying economics of the company. These calculations are more objective and provides an outlook into the company’s ability to create value over time.

What is ROCGA and how do we calculate it...

Total Cash Generating Asset

We are thinking of using TOCGA for short. Some of the adjustments to the balance sheet include-  inflation adjustment, capitalising operating leases and separating out non-deprecating assets. Strong growth in assets coupled with sustained positive ROCGA (above the cost of capital) gives us value crating companies.

What is TOCGA and how do we calculate it...

ROCGA Valuation

Return On Cash Generating Assets helps us understand a company’s ability to create value and it is also an input that helps us quantify it. To value the company, we use a systematic discounted cash flow method for the cash generated by the assets.

..and how do we calculate this...

ROCGA Value Range

Finally, we use what we have learned about the company and forecast forward. An estimate of forward earnings and a ±2 standard deviation for internally sustainable organic growth is used for the Value Range.

...and how do we calculate the range...