Tuesday, July 18, 2017

A Boardless Company

It seems that Hampton Creek, know for its eggless mayonnaise, is boardless as well. A recent report indicates that five board members have recently resigned, leaving co-founder and CEO Josh Tetrick as the only remaining board member. The company has had a string of setbacks, including allegations of food safety after it bought back products from supermarkets. The company issued a statement indicating that the lack of a board gave more power to the staff, it appears that the direction of the company is now entirely in the hands of Tetrick.

Monday, July 17, 2017

Cash Flow Rises

According to a recent study, free cash flow for 20 industries increased to 4.97 percent last year, meaning that for every dollar of sales, companies generated 4.97 cents in cash flow. An increase in operating efficiency generated .89 percent, a decrease in working capital contributed .69 percent, and lower capex contributed .17 percent. The lower capex spending may be worrisome as it is an indication of lower investment in fixed assets.

From 1.68 million to 1

In June, Greek shipping company DryShips executed a 1-for-5 reverse stock split. While this itself is not unusual, it was the 7th reverse stock split by the company in the last 13 months! In fact, if you had owned 1.68 million shares of the company stock on March 12, 2016, you would currently own only one share. And the company stock has dropped over 99.9 percent. The stock would have to increase by 17.79 billion percent to reach its all-time high. One investor, who had invested $220,000, the bulk of his nest egg, currently has less than $1 invested in the company. Hopefully, this will drive home the importance of diversification. The story of DryShips is long and may involve "pseudo-underwriting", and one investor, Kalani Securities, Ltd., appears to have made millions on the stock.

Wednesday, July 12, 2017


High CEO pay is often in the news, with many pundits arguing that CEOs are paid too much. However, if a good CEO can increase the value of the company by an amount greater than the pay, then the CEO is a positive NPV investment. A recent study finds that companies with a CEO-worker pay ratio in the 85th percentile had an ROA 13 percent greater than the industry median and a Tobin's q that was 2.1 percent greater than the median. In other words, firm's with a high CEO-worker pay ratio tend to outperform other companies when evaluated with these metrics.

Monday, July 10, 2017

Toyota's Manufacturing Option

Toyota recently spent $1.3 billion to overhaul its plant in Georgetown, Kentucky. The plant was originally designed to build the Camry and Avalon, which are both assembled on the same platform. However, a shift in consumer purchasing patterns has increased the sales of SUVs. The Georgetown plant could not manufacture these more profitable vehicles, an opportunity cost to the company. The plant remodel means that Toyota can produce 11 different models at the plant, allowing the company to switch production more quickly and cheaply in the future to meet consumer demand more efficiently. Toyota also plans to mix and match more components between its models, another increase in manufacturing optionality.

Sunday, May 14, 2017

Spotify Direct To Market?

Spotify was one of the most eagerly awaited IPOs of this year, but it appears that the company may bypass the IPO market entirely. Recently, sources said that Spotify would be the first major company to carry out a direct listing on the NYSE. In a traditional IPO, the company sells stock to investors through investment banks. The company receives the funds raised, less the underwriter's commission. In a direct listing, the exchange lists the stock, allowing employees to buy and sell shares on the market. No new shares are created and no funds are raised by the company.

Wednesday, May 3, 2017

Long-Term Treasuries

In 1977, 30-year Treasury bonds first started being regularly issued. The issuance of these bonds was discontinued in 2001, then reintroduced in 2006. Although longer maturity Treasury bonds have been issued, for example, the 50-year bonds used to finance the Panama Canal, for about 40 years, 30-year bonds have been the longest term bonds issued by the U.S. government. With historically low interest rates, several countries have chosen to go the really long-term route. For example, Ireland, Belgium and Mexico have issued 100-year bonds, and Austria has issued 70-year debt. Recently, Steve Mnuchin, the United States Secretary of the Treasury, indicated that the Treasury was considering the issuance of 50-year Treasury bonds to lock in long-term interest rates. Opponents argue that the liquidity in the 50-year maturity market is not sufficient to support regular auctions for these bonds. Finding the necessary demand needed because of low liquidity could prove costly. Only time will tell if the U.S. Treasury decides to issue 50-year maturity bonds.