Paragon Technologies' Chairman Sham Gad's Annual Letter To Stockholders
Ultimate Objective: Maximizing Intrinsic Value per Share
The intrinsic value of any business is calculated by taking the sum of all cash flows into and out of the business and then discounting those cash flows by an appropriate interest rate. Operating under the mandate of maximizing per share intrinsic value is important because that maximization ultimately leads to growth in shareholder value. Our focus on intrinsic value maximization is crucially important for one very distinct reason: earnings per share (EPS) growth does not necessarily lead to intrinsic value per share growth. Earnings, with very little managerial effort and without running afoul of the law, can be readily altered to produce EPS growth. For example, by simply offering its customers more liberal credit terms, a business can manufacture earnings growth. Purchases on credit create a legitimate sale and corresponding profit. Yet until such a profit is converted into cash flow upon collection of the corresponding receivable, there is no growth in intrinsic value.
The distinction between intrinsic value growth and earnings growth cannot be underestimated. To understand and focus on increasing intrinsic value requires nothing less than a complete shift in focus from the business status quo. Although Paragon's past management may have focused on earnings growth, going forward Paragon's financial mission will be to maximize free cash flow and return on invested capital.
As a byproduct of this mission, the intelligent allocation of capital is critical. Simply put, our capital must be allocated in a manner that seeks to maximize return on invested capital. To that end, Paragon has made some changes that will serve to ensure that both operational efficiency and disciplined capital allocation are the nucleus of our business. First, we created a holding company structure whereby Paragon is the parent and our material handling business SI Systems is our wholly owned subsidiary. Second, we have clearly defined the responsibilities of our most senior executives. All operating decisions of subsidiary companies will be made by the managements of those subsidiaries. Any and all capital allocation decisions will be made by the Board and me, your Chairman but more importantly the Company's largest shareholder. This clear articulation of responsibilities will ensure that we remain intensely focused in fulfilling our obligation to shareholders – the maximization of per share intrinsic value.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV