@v587d/capital-generation 2.7.11 → 2.8.0

package/selected-skills/peter-lynch-skill/skills/peter-lynch-skill/references/deep/methodology-2.md

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+# references/deep/methodology.md · Part 2 of 4
+
+Part 2/4 of `references/deep/methodology.md` — split so each part arrives complete in one `read`; see `references/deep/methodology-1.md` for the whole guide.
+
+## 4) Balance Sheet & Financial Safety
+
+**Output format: maximum 220 words**
+
+### 4.1 Leverage
+
+Discuss:
+- debt-to-equity trend
+- net debt trend
+- interest coverage = EBIT ÷ interest expense
+
+Standard benchmark:
+- below **3x** interest coverage = monitor closely
+- below **1.5x** = red flag
+
+
+Use **interest‑bearing debt only**: short‑term borrowings + long‑term debt + current portion of long‑term debt. 
+Do NOT use total liabilities. It will distort brokers, banks, insurers, and high working‑capital businesses.
+
+**warning thresholds:**
+- If **Growth profile = Fast** → **D/E > 33%** = red flag
+- If **Turnaround status = Active or Recovering** OR **Cyclicality = High** → **D/E > 50%** = red flag
+- All others → **D/E > 80%** = red flag
+
+### 4.2 Liquidity
+
+- Current ratio = current assets ÷ current liabilities.
+  Below 1.0 means the company cannot cover near-term obligations
+  from current assets alone — flag it.
+
+- Receivables check: if receivables grow significantly faster than
+  revenue, it may signal customers are slow to pay or that sales are
+  being pulled forward artificially.
+- Inventory vs revenue growth: if inventory grows faster than revenue → warning. For cyclical businesses this is a high-priority red flag. For turnarounds and fast growers, note that additional context is needed before drawing conclusions.
+
+### 4.3 Net Cash Cushion
+
+Net cash = cash and short-term investments − total interest-bearing debt.
+Total interest-bearing debt = long-term debt + current portion of
+long-term debt + short-term borrowings.
+
+Net cash per share = net cash ÷ diluted shares outstanding.
+
+- If **positive**: state the net cash per share and note that it lowers
+  the effective purchase price (stock price − net cash per share = true
+  cost of the business) and reduces bankruptcy risk.
+- If **negative**: flag the shortfall, state the amount, and note its
+  size relative to annual operating cash flow.
+
+### 4.4 Off-Balance-Sheet Risks
+
+Check:
+- **Pension liabilities**: note whether funded or underfunded.
+- **Operating leases**: note total commitment if material relative to
+  operating income.
+- **Goodwill**: if goodwill exceeds 25% of total assets, investigate
+  acquisition history — check whether past acquisitions generated
+  earnings growth or resulted in write-downs, and whether new
+  acquisitions are still being made.
+
+### 4.5 Turnaround Survival
+
+**Only if Turnaround status = Active or Recovering**
+
+Can cash + FCF likely cover **12–24 months**?  
+Prefer turnarounds with low or no debt.
+
+---
+
+## 5) Cash Flow & Earnings Quality
+
+**Output format: maximum 220 words**
+
+### 5.1 Do Reported Profits Match Cash Generation?
+
+- Compare net income to operating cash flow over at least 3 years.
+  A persistent gap where operating cash flow is less than half of net
+  income needs a specific explanation (depreciation, stock-based
+  compensation, working capital changes). Unexplained gaps are a warning.
+- Is free cash flow positive? If negative, identify whether it is driven
+  by high capital expenditure (investment phase — requires context) or
+  by weak operating cash flow (structural concern — red flag).
+
+Red flags:
+- Rising net income with flat or declining operating cash flow over
+  multiple years
+- Repeated "one-time" charges or adjustments that recur every year
+- Free cash flow persistently negative while net income is reported positive
+
+### 5.2 Capex Logic
+
+- High capex acceptable if tied to real expansion
+- Low capex despite bold growth story → suspicious
+
+### 5.3 Dividend Policy
+
+- Dividend policy (stable, growing, cut?)
+
+Interpretation by profile:
+- **Slow + Mature** → dividends and payout safety matter
+- **Fast or Scaling/Early** → reinvestment is usually preferable
+- **Stalwart-like / mature non-cyclical** → balanced mix is acceptable
+
+## 6) Growth Drivers & “Room to Grow”
+
+**Output format: maximum 220 words**
+
+### 6.1 Specific Growth Drivers
+
+List 1–4 main growth drivers.
+
+For each:
+
+- Evidence in numbers
+- Revenue contribution % (if available)
+- Scalability
+
+### 6.2 Duplication Model Test
+
+Is growth driven by:
+- replication of a proven model (preferred), or
+- constant reinvention (riskier)?
+
+### 6.3 Expansion Possibility
+
+Discuss:
+- whitespace remaining
+- geographic penetration
+- store/location/product saturation
+- whether the company is still early in market penetration or already broadly present
+
+If most markets already penetrated → growth may slow.
+
+### 6.4 Unit Economics
+
+Discuss:
+
+- Gross margin trend
+- Pretax margin by segment
+- Basic unit profitability logic
+
+Judge: Strong / Acceptable / Weak

package/selected-skills/peter-lynch-skill/skills/peter-lynch-skill/references/deep/methodology-3.md

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+# references/deep/methodology.md · Part 3 of 4
+
+Part 3/4 of `references/deep/methodology.md` — split so each part arrives complete in one `read`; see `references/deep/methodology-1.md` for the whole guide.
+
+## 7) Competitive Position
+
+**Output format: maximum 250 words**
+
+Avoid generic "moat" language. State specifically whether the company is a cost leader, niche specialist, brand-driven, or undifferentiated competitor, and what evidence supports that label. If competitor margin data is available, compare directly; if not, note the absence.
+
+### 7.1 Industry Structure
+
+- Fragmented or consolidated? Name the 2–3 largest competitors.
+- Are margins in the industry rising, stable, or under pressure?
+- Structural tailwinds or headwinds?
+
+Use competitors and industry context already disclosed in the annual report,
+latest results, or existing research brief first. Do not ask for a separate
+external source only to make this subsection look complete.
+
+Ask the host's retrieval channel for competitor or industry material only when
+it can change the investment conclusion, such as when competitive pressure,
+market-share loss, peer margins, industry cyclicality, regulation, or structural
+industry change is central to the thesis.
+
+If peer margin data is not already available from the existing source ledger
+and is not thesis-critical, write `not available` rather than asking for another
+source only to complete this subsection.
+
+### 7.2 Diworsification Check
+
+Have recent acquisitions or strategy moved outside core competency?
+
+If yes → assess risk.
+
+### 7.3 Institutional Ownership
+
+- % held by institutions
+- Lower ownership may allow re-rating potential.
+
+Use only if available from the existing source ledger or quickly available from
+the proxy / ownership source already gathered. If not available, write
+`unknown`; do not add a new source unless ownership could materially change the
+investment conclusion.
+
+### 7.4 Management Ownership
+
+Distinct from insider *buying* signals, this is
+a one-time baseline criterion:
+
+- Does management (CEO, CFO, key executives) hold a meaningful
+  equity stake relative to their compensation?
+- Is the ownership stake a result of open-market purchases or
+  purely from option grants?
+
+Open-market purchases by management → strong alignment signal.
+Ownership purely from grants/options → weaker alignment.
+Negligible personal ownership → flag; management benefits mainly
+from salary, not stock performance.
+
+Use the proxy / ownership source if it is already in the ledger or if governance
+is thesis-critical. If management ownership is not disclosed or not gathered,
+write `unknown` and lower conviction where appropriate; do not ask for extra
+ownership sources merely to complete this subsection.
+
+## 8) Valuation
+
+**Output format: maximum 220 words**
+
+Use the valuation lens that matches the Diagnostic Profile.
+
+### 8.1 Valuation Lens by Profile
+
+Apply the most relevant lens:
+- **High cyclicality** → use normalized or mid-cycle earnings; low P/E at peak can be dangerous, high P/E at trough can be opportunity
+- **Active/Recovering turnaround** → P/E may be misleading; focus more on survival, dilution, and normalized earning power
+- **Fast growth** → PEG/PEGY, runway, and growth durability matter most
+- **Strong asset angle** → asset value, catalyst, and downside floor may matter more than P/E
+- **Stalwart-like / Slow / Mature** → P/E, dividend yield, and earnings line are more informative
+
+### 8.2 Core Metrics
+
+State:
+- trailing P/E
+- growth expectation band
+- dividend yield
+
+Compare to:
+- own history
+- the most relevant diagnostic lens
+
+If earnings are negative or distorted, say P/E is not meaningful.
+
+### 8.3 PEG & PEGY
+
+PEG = P/E ÷ growth rate  
+PEGY = P/E ÷ (growth rate + dividend yield)
+
+Use percentage terms (e.g. 15, not 0.15)
+
+Interpretation:
+- **<1** → cheap
+- **≈1** → fair
+- **1–1.5** → acceptable
+- **>1.5–2** → expensive unless exceptional
+
+### 8.4 Net Cash Adjustment
+
+Adjusted price = stock price − net cash per share  
+Recalculate effective P/E if appropriate.
+
+### 8.5 Earnings Line Check
+
+Does price sit far above or below the earnings trend?

package/selected-skills/peter-lynch-skill/skills/peter-lynch-skill/references/deep/methodology-4.md

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+# references/deep/methodology.md · Part 4 of 4
+
+Part 4/4 of `references/deep/methodology.md` — split so each part arrives complete in one `read`; see `references/deep/methodology-1.md` for the whole guide.
+
+## 9) Triggered Special Modules
+
+**Output format: maximum 250 words total**
+
+Only include the modules that are triggered.  
+If none are triggered, write: **“No additional special-case module triggered.”**
+
+### 9.1 High-Cyclicality Module
+
+**Trigger:** Cyclicality = High
+
+Check:
+- past peak/trough EPS
+- current cycle position
+- inventory behavior
+- capacity additions
+- whether new competitors are entering
+
+Remember:
+- **high P/E at trough can be opportunity**
+- **low P/E at peak can be danger**
+
+### 9.2 Turnaround Module
+
+**Trigger:** Turnaround status = Active or Recovering
+
+Identify the stage:
+1. Crisis
+2. Stabilization
+3. Recovery
+4. Full re-rating
+
+Also check:
+- balance sheet survival
+- whether liquidity is enough for the next 12–24 months
+- dilution risk
+
+**Dilution warning:**
+- Has share count grown **>10%** in the last 2 years?
+- Are convertibles or warrants outstanding?
+- Evaluate recovery on a **per diluted share** basis, not just total net income
+
+### 9.3 Asset Angle Module
+
+**Trigger:** Asset angle = Possible or Strong
+
+Check:
+- nature of hidden assets
+- evidence that value exceeds market cap
+- catalyst for value realization
+- downside floor estimate
+
+Always ask: **How much can I lose?**
+
+### 9.4 Stalwart Resilience Module
+
+**Trigger:** Growth profile = Stalwart-like AND Cyclicality is not High
+
+Check how the company performed during the last 2 major recessions or market drops:
+- Did EPS decline, and by how much?
+- Was the dividend maintained or cut?
+- Did the stock recover within 12–24 months?
+
+Prefer businesses with earnings resilience or quick recovery.
+
+### 9.5 Fast-Growth Quality Module
+
+**Trigger:** Growth profile = Fast
+
+Check:
+
+**Growth rate band**
+- **20–25%** → preferred
+- **25–50%** → acceptable but scrutinize harder
+- **>50%** → extreme skepticism
+
+If growth exceeds **25%** and the industry is hot or trendy, lower conviction to **Low** regardless of other metrics.
+
+Also assess:
+- hot industry / crowded space risk
+- expansion momentum: accelerating or decelerating?
+- replication test: proven in more than one market?
+- saturation check: how penetrated is the addressable market?
+- valuation guardrail: PEG should be near 1; **>1.5** means limited margin of safety
+
+### 9.6 Mature Income Module
+
+**Trigger:** Growth profile = Slow AND Business maturity = Mature
+
+Check:
+- dividend coverage and stability
+- buybacks versus dilution
+- whether management is returning excess cash rationally
+- whether the company is a stable cash cow or a value trap
+
+## 10) Final Score
+
+**Output format: maximum 200 words**
+
+Based on all data analyzed, assign an **attractiveness score**.
+
+**Attractiveness score: X / 10**  
+(1 = avoid entirely; 10 = very compelling opportunity)
+
+The score rates how consistent and well-evidenced the case reads from the
+sources in the brief — it is a structural read, not a forecast of price or
+returns, and it is not a buy or sell instruction.
+
+Justify the score in **3–5 sentences**.