Lesson 7 of 7
What a downturn costs here
The six figures of this course assembled into one statement about one company, with the limits attached and nothing said about what happens next.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
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In one minute
- The output of this course is one paragraph about one company, built from six filed figures, with its limits attached.
- It is a statement about what a bad year did, in the past tense, and never about what a future one would do.
- Written that way it survives into next year, which a forecast does not.
Six lessons, six figures. This one assembles them into the single statement the whole course exists to produce, and shows what the statement may and may not say.
The six figures, for one filer, from filed statements
What the filings show
- Fixed asset turnover 0.80 times in fiscal 2025.
- Operating income fell 15,447 million dollars on a revenue fall of 15,218 million, fiscal 2022 to 2023.
- Capital spending 492 percent of operating cash flow in fiscal 2023.
- Cost of revenue rose 0.6 percent while revenue fell 49.5 percent.
- Depreciation reached 49.9 percent of revenue in fiscal 2023.
- Free cash flow negative 6,117 million in fiscal 2023.
What none of them shows
Not established
- Whether any of this recurs.
- What the company is worth.
- What any price does.
Every figure below is computed from two lines of a named filing. None of them is an estimate.
The statement
Here is the paragraph, written the way the boundary lesson of the first bridge course requires.
In the fiscal year ended 31 August 2023, this filer's revenue fell 49.5 percent from the prior year and its operating line moved from a profit of 9,702 million dollars to a loss of 5,745 million. Cost of revenue did not fall: it rose 0.6 percent, and the depreciation charge inside it rose 9.0 percent to reach 49.9 percent of revenue. Capital spending fell 36.4 percent but remained at 492 percent of the operating cash flow generated that year, so free cash flow was negative 6,117 million. On the filed record, at this company, a halving of revenue produced a slightly larger fall in operating profit in dollars and a cash outflow of about six billion dollars.
Every sentence is past tense, every figure is from a named filing, and nothing in it is a claim about any future year.
What it is for
Three things, and all three are about the years ahead without predicting any of them.
It sizes the downside in the only currency that is checkable, which is a number that actually happened. It tells you which figure would move first next time, which is the input to a condition. And it tells you which figures will not tell you anything, which saves the effort of watching them.
What it may never become
A statement about what a future downturn will cost, however carefully hedged. The boundary lesson gave the test: strip the implication and see whether a measurement remains. The paragraph above survives that test because it contains no implication at all.
Check yourself
What tense is the statement written in, and why?
- Conditional, to allow for uncertainty
- Past, because every figure in it describes a year that happened and can be checked against a filing
- Present, because the figures are current
Show the answer
Answer: B.
A past-tense statement built from filed figures survives into next year. A forecast does not, and was never supported by the statements.What are the three uses of the statement?
- Valuation, ranking and timing
- Sizing the downside in a number that happened, identifying which figure moves first, and identifying which figures say nothing
- Forecasting revenue, profit and cash
Show the answer
Answer: B.
All three are about the years ahead without predicting any of them, which is the distinction the whole bridge rests on.At the second filer the exercise produced a hole. What is the correct response?
- Use a peer company's figures instead
- Name the hole and say where the capital actually sits, which at that filer is inventory at 73.5 percent of total assets
- Estimate what a downturn would cost from the industry average
Show the answer
Answer: B.
An exercise that produces a hole and names it has worked. A confident answer where the evidence is absent has not.Sources
- Micron Technology, Inc., annual reports on Form 10-K for fiscal years 2022 through 2025, accessions 0000723125-22-000048, 0000723125-23-000054, 0000723125-24-000027 and 0000723125-25-000028.
- Toll Brothers, Inc., annual reports on Form 10-K for the fiscal years ended 31 October 2024, accession 0000794170-24-000051, and 31 October 2025, accession 0000794170-25-000112.
What this leaves out
- This is a heterodox tradition. The mainstream account of the same phenomenon differs, and nothing here is a forecast or a view on any security.
- One bad year at one company is one observation. It sizes what happened once and establishes nothing about frequency, depth or recurrence.
- The second filer has no equivalent year in its recent filed record, so the comparison between the two is a comparison of what each record contains rather than of how each business behaves.
- Nothing here is a view on either company or on any security.