# Gullible finance?

I own AAPL, and I have no idea what it's actual valuation should be, but when I saw this article about an analyst who thinks AAPL should be valued at $240 coming in over the Daring Fireball feed, I couldn't help but look.

What could this guy possibly be thinking? What are the financial reporters that give him a platform thinking? I'll admit, I couldn't help it. I don't know much about this stuff, but I dug in a little bit to try to figure it out.

Of course, the fact that David Trainer's PDF calculation pegs Apple's Net Operating Profit After Tax (NOPAT) for 2012 at under $11 billion is a little fishy since it was actually around $41 billion. Turns out, the analysis is based on a "what if" scenario assuming that Apple had a Return On Invested Capital (ROIC) for 2012 of 70% and for 2013 (to date) of 52%. These drive a calculated Economic Book Value per Share around $240, which is apparently Trainer's target.

Of course, Apple didn't have these ROICs, by Trainer's own calculations, so it's a bit foolish to run a "what if" scenario on them. The actual ROIC for 2012, shown here, was 271%. 270% vs. 70%, but who's counting? God knows how Trainer is calculating the "Total Capital" denominator in the ROIC calculation. It looks pretty close to Working Capital. But for 2013 I'd expect the ROIC to drop somewhat versus the 2012 level even if Net Income remains constant. This is because dividends have gone up and Total Capital should as well, according to Horace Dediu's analysis on Asymco. But for ROIC to drop to 52% by Trainer's calculations would take a truly massive drop in income or a much larger spike in capital expenditure than is indicated by Apple's 10K.

But really, I don't know anything about this stuff. Don't take my word for it. Take Trainer's. Given Apple's actual ROICs, what does David Trainer's analysis indicate the Economic Book Value per Share is today? Well, he conveniently cuts off this PDF one line before he reveals his value, but if we do a little math based on the Price to Economic Book Value per Share ratio we get:

$443 / 0.56 = $791

(Don't worry, I've saved the PDFs in case Trainer decides he needs to cut off a little bit more of the unadjusted calculation.)

Now, of course, there is a decent chance that Apple's ROIC will decline to something a little closer to its rivals over the next several years, but it's exceedingly unlikely it will fall off a cliff in 2013 and hit 52%. And it's a bit more than disingenuous to retroactively assume that a company reported different financial performance than it actually did.