Zachary-An investor with common sense

Term: Net Capex: this post refers to the accounting number of capital expenditures less depreciation. R&D: research and development Reinvestment: How much the company put back into the company NOWC: Non-cash current asset-Non debt current liability, the cost the company needs to incur for day-to-day business. FCF: Free cash flow Operating profit Margin: Operating income/Revenue In my previous Oracle valuation here , I concluded that Oracle relies on mergers and acquisitions to grow while spending little on capital expenditure and R&D (research and development) to power internal growth. So, I just use the net capital expenditure/estimated M&A cost to estimate future net capex. However, as shown in Figure 1 below, Oracle’s Capex/revenue ratio doubled in 2022 and again in 2023. And the most recent quarterly report shows it does not plan to stop spending more on capex soon. So, how do I estimate how much Oracle will spend on Capex in the next ten years? In addition,...

     After calculating the free cash flow of operating assets, what academic finance teaches you is to subtract the operating assets by total debt add cash on balance, and then use the result divided by total shares outstanding to get the stock price. However, if you check “ Stock compensations in SG&A ” in  my previous post , you can find that the stock compensations are claims on part of future cash flow and that analysts' and accountants’ actions cannot reflect the actual cost of stock compensation. Since calculating the market value of debt and cash is easier for me, I decided to calculate the value of Oracle stock compensation first. Employee stock options When estimating employee stock options, we need to calculate the present value of: How much stock options did the company pay before How much stock options does the company have now How much stock options we estimate the company will issue in the future. Previous stock options: The good t...

  Earnings and Free cash flow      To estimate the future earnings, we will need to know the future revenues and profit margins.      To estimate future revenues, we need to know the future reinvestment rate and return on invested capital.      Recall that the reinvestment rates are as follows: So I first calculate: Oracle’s Capital expenditure (from financial statements)/sales ratio Depreciation/Capex ratio NOWC/Sales ratio R&D/Sales ratio to estimate future investment. (I will explain how to deal with acquisition later).      In essence, all items above should be Capital expenditure. But the “capital expenditure” we include here refers to the traditional accounting definition of capex, and you can find the explanation in my previous post by searching “Traditional accounting”. However, I got new challenges. Figure 1      As you can see, Oracle has few capital expenditures o...