ModernGraham Quarterly Valuation Of Intuit Inc. - April 2014

Benjamin Clark for Modern Graham writes: Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Intuit Inc. fares in the ModernGraham valuation model.


INTU data by YCharts
Defensive Investor - must pass at least 6 of the following 7 tests: Score = 3/7

1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
2. Sufficiently Strong Financial Condition - current ratio greater than 2 - FAIL
3. Earnings Stability - positive earnings per share for at least 10 straight years - PASS
4. Dividend Record - has paid a dividend for at least 10 straight years - FAIL
5. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
6. Moderate PEmg ratio - PEmg is less than 20 - FAIL
7. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 4/5

1. Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - FAIL
2. Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - PASS
3. Earnings Stability - positive earnings per share for at least 5 years - PASS
4. Dividend Record - currently pays a dividend - PASS
5. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

Recent Price	$77.19
MG Value	$89.40
MG Opinion	Fairly Valued
Value Based on 3% Growth	$38.04
Value Based on 0% Growth	$22.30
Market Implied Growth Rate	10.46%
Net Current Asset Value (NCAV)	$0.20
PEmg	29.42
Current Ratio	1.42
PB Ratio	9.79

Balance Sheet - 1/31/2014

Current Assets	$2,541,000,000
Current Liabilities	$1,790,000,000
Total Debt	$499,000,000
Total Assets	$4,718,000,000
Intangible Assets	$1,453,000,000
Total Liabilities	$2,483,000,000
Outstanding Shares	283,510,000

Earnings Per Share

2014 (estimate)	$3.05
2013	$2.72
2012	$2.52
2011	$2.00
2010	$1.66
2009	$1.35
2008	$1.33
2007	$1.25
2006	$1.05
2005	$1.00
2004	$0.79

Earnings Per Share - ModernGraham

2014 (estimate)	$2.62
2013	$2.29
2012	$1.97
2011	$1.64
2010	$1.42
2009	$1.26

Dividend History

INTU Dividend data by YCharts

Conclusion:

Intuit Inc. is suitable for the Enterprising Investor but not the Defensive Investor. The company's current ratio is too low, the dividend record too short, and the PEmg and PB ratios too high for the Defensive Investor. The Enterprising Investor's only gripe with the company is the low current ratio, but the overall debt level remains acceptable. As a result, the Enterprising Investor following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company through a comparison to ModernGraham's valuation of Automatic Data Processing (ADP) and 5 Low PEmg Companies for the Enterprising Investor. 

From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.42 in 2010 to an estimated $2.62 for 2014. This demonstrated level of growth supports the market's implied estimate of 10.46% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company's prospects. What do you think? What value would you put on Intuit Inc.? Where do you see the company going in the future? Is there a company you like better?
 You can visit Modern Graham Here.

Xero shares hit four-month low on global sentiment

The Australian Financial Review writes: Xero shares have slumped to a four-month low, as New Zealand investors join a global sell-off on concern high-growth companies may struggle to turn sales growth into profits.

Xero fell as low as $NZ29.50, the lowest since December 5, and just after midday (1000 AEST) were down 13.2 per cent at $NZ30.90 while the benchmark NZX 50 Index was down just over one per cent.

The stock has soared since the Wellington-based company raised $NZ180 million ($168.70 million) in October, selling 9.92 million shares at $NZ18.15 apiece.

The cloud-based accounting software company has identified North America as a key focus for growth pitting it against dominant incumbent Intuit, which has a market capitalisation of $US21.2 billion ($22.94 billion) to Xero's $NZ3.95 billion.

Xero's North American customer numbers tripled to 18,000 in the year ended March 31, still only 6.3 per cent of its total customer base.

"The market is beginning to realise Intuit is going to be a very, very difficult competitor to roll," said Matt Goodson, executive director at Salt Funds Management, which doesn't hold Xero shares.

"The question then becomes how much cash has burned in trying to assert a strong position in the US and is there much of a wait until they cross over to positive cash flow - a couple of years, or many years?"

Xero more than doubled its annual loss to $NZ35 million in the 12 months ended March 31, while boosting revenue 84 per cent to $NZ70.1 million.

The company's paying customer numbers rose 84 per cent to 284,000 in the year, making it more than a quarter of the way to its one million customer target.

Australia is its biggest market, with 109,000 customers as at March 31, compared to 59,000 a year earlier, ahead of New Zealand with 102,000. British clients more than doubled to 47,000.

Xero wasn't the only growth stock to be sold off on Tuesday, with bladder cancer test developer Pacific Edge declining 3.9 per cent to $NZ1.24, governance app maker Diligent Board Member Services down 3.5 per cent to $NZ4.15 and A2 Milk Co falling 2.4 per cent to 83 NZ cents.

The IRS Would Make a Lousy Tax Preparer

Ryan Ellis for Forbes writes:  Maybe it’s the late winter. If you’ve noticed an odd absence of a common news meme this April, you’re not alone. This is normally the time of year when breathless liberal columnists come out with articles arguing that the IRS should prepare people’s taxes for them. Just last year, there were two of them that made the rounds that you might have seen–one by Matt Yglesias of Slate and one by ProPublica. Those were hardly the only ones.

 

This year? Crickets. I’d like to believe that the force of arguments Americans for Tax Reform and others have been making all these years has finally penetrated through–that it’s a massive conflict of interest for the IRS to both determine and collect your tax liability, that there’s ample free options available for most filers, and that the IRS is distinctly incapable of taking on this task.

 

But the real answer is probably that the obvious challenges this idea faces in 2014 are too great to overlook. Here are some fresh reasons why the IRS should absolutely not be preparing your taxes for you (on top of the old ones, which are still good):

 

The IRS Commissioner himself thinks the agency can’t do it. On April 26, 2014, IRS Commissioner John Koskinen was asked about prospects for a “return free” IRS tax preparation system. Here is what he had to say:

“We’re not doing anything with that. It would take a long time to be able to do that. We do have work going onto figure out how to get better third party information into our system earlier, so as we actually match up tax returns for identity theft or engage in audits, we’ll have more data available in a more timely manner. Right now we don’t get the W2 forms from Social Security or the 1099 forms until late in the spring, which doesn’t do us much good as everybody is filing in January or February.”

 

[Snip], the Article continues @ Forbes, click here to continue reading...

Think You’re Too Busy to Replace Quickbooks?

Socius, an Ohio ERP Solutions Partner writes for Microsoft Dynamics GP: Does this sound familiar? You started using Quickbooks as a young company. Over time, your business has grown and as you’ve grown, you’ve gotten busier. It seems natural that growing your business would keep you very busy. However, lately it seems like you are working too fast for Quickbooks – it’s struggling to keep up with processing the amount of data you have created. Not only is Quickbooks taking up your valuable time with slow processing, it is making you more busy by making you enter the same data in multiple places without delivering the type of reporting and analytics that you need to keep up with the business decisions that you need to make.
 
Microsoft recently released a 10 part series of articles titled “10 Signs You’ve Outgrown Quickbooks,” in which they highlighted indicators like using time-consuming workarounds because the system can’t handle the complexity of the business, putting off new business opportunities because the system won’t support the changes, and the continual loss of productivity of the users.

While it may take no time at all to figure out that you’ve outgrown Quickbooks, finding the time to not only identify a new solution but also to implement it and learn it can be a bigger issue when you are busy. It becomes a matter of what your time and the time of your people costs you and whether you are going to get a better return on your investment if you spend your time being busy or in updating your systems to an ERP solution that will support your company’s growth long-term.

For example, BioStorage Technologies was a busy, growing company that was relying on an entry-level accounting system and lots of spreadsheets. They described their billing process as “inefficient and impossible to maintain at [their] rate of growth.”

If BioStorage Technologies had remained on their accounting system instead of moving to Microsoft Dynamics GP, they would have been spending up to 800 employee hours per month on invoicing instead of the 20 hours it takes them now. Those 780 hours represent an enormous cost savings for them – and that’s just one of many areas of their business that were enhanced by Microsoft Dynamics GP.

Businesses, like BioStorage Technologies, who make time in the midst of their busy-ness to update their systems to ERP solutions that better support their needs and grow with them, not only see long-term benefits across their organizations, but they also find that their people are much less busy and much more efficient.

To help you take the best next steps, download a complimentary Guide for Businesses Outgrowing Quickbooks here.

 

Top Tips on Making IRA Contributions

If you made IRA contributions or you’re thinking of making them, you may have questions about IRAs and your taxes. Here are some important tips from the IRS about saving for retirement using an IRA.
 

1. You must be under age 70 1/2 at the end of the tax year in order to contribute to a traditional IRA. There is no age limit to contribute to a Roth IRA.
 

2. You must have taxable compensation to contribute to an IRA. This includes income from wages and salaries and net self-employment income. It also includes tips, commissions, bonuses and alimony. If you’re married and file a joint return, generally only one spouse needs to have compensation.
 

3. You can contribute to an IRA at any time during the year. To count for 2013, you must make all contributions by the due date of your tax return. This does not include extensions. That means you usually must contribute by April 15, 2014. If you contribute between Jan. 1 and April 15, make sure your plan sponsor applies it to the right year.

4. In general, the most you can contribute to your IRA for 2013 is the smaller of either your taxable compensation for the year or $5,500. If you were age 50 or older at the end of 2013, the maximum you can contribute increases to $6,500.

5. You normally won’t pay income tax on funds in your traditional IRA until you start taking distributions from it. Qualified distributions from a Roth IRA are tax-free.

6. You may be able to deduct some or all of your contributions to your traditional IRA. Use the worksheets in the Form 1040A or Form 1040instructions to figure the amount that you can deduct. You may claim the deduction on either form. Unlike a traditional IRA, you can’t deduct contributions to a Roth IRA.

7. If you contribute to an IRA you may also qualify for the Saver’s Credit. The credit can reduce your taxes up to $2,000 if you file a joint return. UseForm 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit. You can file Form 1040A or 1040 to claim the Saver’s Credit.

8. See Publication 590, Individual Retirement Arrangements, for more about IRAs.
 

You can get forms and publications on IRS.gov or order them by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

• Individual Retirement Arrangements (IRAs)
• IRA FAQs
• Tax Topic 451 - Individual Retirement Arrangements (IRAs)
• 1040 Central
• IRS Tax Map