Healthway Medical Corporation

[specuvestor]

We are all sharing our expertise in this forum and learning from one another. I will learn about consumer products from you But its good to know that you are the second person who read between my lines and explicitly interested to know more

There are AT LEAST 3 layers in a complete analysis IMHO but roughly we can looks at the Asset, Business and Structure layer in general

Assets can be factory to property to internet site. At a certain volume it produces certain profitability. This is primarily the ROA which many value investors look at.

Encompassing this asset is a bigger layer called the business layer which many business minded investors including Buffett analyses which includes working capital, SG&A, positioning, bargaining power, porter's 5 forces etc. Sometimes u might need low ROA asset to support other parts of the business, for example SMRT having low ROA rail biz so that it can have high ROA advertising biz. Those who just focus on assets and ROA and concluding whether assets should be sold to improve ROA, or evaluating business on ex cash basis, etc is missing the point. Thats what happened during the boom years of sale and leaseback. They don't understand the business and just looking at the asset layer. This is the ROIC of the business.

3rd layer is the structure which often is done to benefit the major shareholders, from directors' remuneration to company registration in Caymen, to dividend payouts and leverage is part of this structure. This is where most analysts look at, ROE and DDM, without understanding the purpose of the structure. And like Gautam pointed out, it can be a superb business miserable to opmi. The more extreme case is the chinese internet structure that the offshore entity do not own the underlying assets but have economic interests linked to the business. This is also the layer where the legality issues apply at the holdco, which most of the time does not operate any of those business but owns stakes in it. Listed equity in itself is a "derivative"

So in order to understand what we are investing, when we buy the holdco that is wrapped within the listing framework, we need to understand how these 3 layers interact instead of purely focusing on assets and ending up in a value trap, or looking at a business like lion gold without knowing the assets, or investing in a cash rich s-chip without knowing the structural layer.

My 2cts

Hi,

i think the main thing about investmentm in healthway or any other company concerned is that how does the benefits(or profits) to the company translate to shareholder benefits(or rather minority shareholder benefit in most cases). in most cases, we are talking of price going up ie capital gains and/or dividend payout.

Exactly... the business is wrapped under a listed structure. It is important that we understand the business but we also need to know how the structure works in terms of corporate actions and controlling shareholders' intent

Like an onion, there are 3 different layers: Assets, Business and Structure. Focusing on just either one is not going to be helpful

Hi Specuvestor

Is it possible to elaborate on the 3 different layers that you have mentioned? It's a good point that you raised, but I would like to learn more from you on this part.

Thanks in advance.