Partner Q&A (#1)
Elaborating on various topics: steady-state NOPAT, ROIIC, NFP, valuation model...
Hi subscriber!
Starting this week, we’ll be compiling and sharing the questions we've received and answered since launching our Substack.
Investment jargon and calculations can be a little deceiving, hence we'd like to break them down in these series. Some members would say: why clarify a seemingly simple concept (for instance NFP/net financial position), while others would highly appreciate this additional color. We believe a Q&A series are particularly helpful as many members are likely to remain silent if they have a question.
One of the main objectives (and hopefully differentiators) of our newsletter is to not only share information, but to help you better understand the ins and outs of durable shareholder value creation (and its pitfalls). It's about debunking financial information rather than believing the raw data from screeners is sufficient to make informed decisions. We shouldn’t just take numbers for granted, but contextualize what they’re made up of.
Hence, we started the reverse thinking blogs to juxtapose excellent and bad capital allocators and the impact on shareholder returns. These articles are now our most-read of whole 2025 (and close to our all-time best blogs), highlighting that you find great value in studying what makes excellent companies excellent and weak companies weak.
We’ll continue these discussions with a new blog to be published later this week. The importance of longevity of ROIIC and how it translates into IRR, payback time, also including the impact from structural pricing vs. just passing headline inflation onto consumers. The article will highlight Copart, Harvia, Tractor Supply, TJX, Pool Corp, Atkore as examples.
In this new Q&A series, the questions relate to:
Steady-state NOPAT: what?
ROIIC, organic reinvestment rate...
NFP (net financial position)
Defining our assumptions
Key components of the simplified CAGR model
Building a watchlist
We view this new series as a great new feature to address our members’/partners’ questions. They could also function as a “Start here” for newer members who’d like move from basic fundamental analysis toward a more nuanced view on value creation.
You’ll be able to sort through these blogs via the navigation bar as well.
Let’s jump right into it with questions on Constellation Software, using two- and three-year stacked performance to gauge performance, and the impact from R&D on Ferrari’s P&L vs. cash flow.
Constellation Software - M&A Spend, NFP, and Working Capital
First set of questions is on Constellation Software and modeling assumptions.
Q: On Constellation Software and the deep dive: the cash flow related to acquisitions (debt-free basis). Do you mean that they don't take debt for acquisitions? Also, could you mention how did you arrive at the numbers for total M&A spend (and the derived growth rate)?
