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Compass Diversified Holdings Message Board

  • yamahacruser yamahacruser Dec 1, 2011 12:45 PM Flag

    What am I missing

    The payout ration is over 1,000 percent.
    Does not sound good

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    • Ok you asked so here goes.

      CODI trades on multiples of cashflow available for distribution or what it refers to as CAD. The company generates $1.50 or more per year in CAD, and tries to payout between 70-85% of its cashflow to shareholders in the form of distribution.

      You do not need earnings to generate cashflow. Example:

      1. CODI buys a company for 50 million which earns 5 million a year. However the "book value" of that company is only 5 million so CODI now has 45 million in "goodwill" on its books that it can depreciate at 4.5 million a year for 10 years. Now it is year number two- the company (earns 5 million) but gets to take a 4.5 million writedown of goodwill so it only "reports .5 million in earnings instead of the 5 million it created in cash"

      Thats the idea- get it?

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