@Jake

Thanks for your comments.

I agree with you that BOBS’ float is not equivalent to the other companies you mentioned as their float was definitely a lot better than BOBS, but I wouldn’t totally discount its float entirely either.

As an example BOBS receives advance payments from its trade partner agreements. This year the income BOBS received from those partners was only from business operations as it had already received the advance “bonus” I think in 2010 if I remember right from the description of it, so BOBS should receive another “bonus” this year if the agreements remain in place. At least that was my understanding of the situation.

Along with the other things I calculated above I think that about 54% of its operations are supported by float. I do not think it is in the same league compared to insurance companies who have free float after earning an underwriting profit, or other companies like Blue Chip Stamps who almost certainly had costless float, but I do think that it has been a good thing for BOBS and shareholders as is partly illustrated from the levered ROA calculation after excluding the float.

Let me know what you think about this or if I have missed anything.

Maybe we could approach the float question from a more operational perspective. The common theme in the articles that you linked to earlier, seems to be that there is a pre-payment taken from customers (not suppliers, employees, or the tax collector) for a longer period of time which allows the company to use those funds for investment without paying any interest. For example the premiums of insurance clients, payments from the bluestamp collectors and prepayments for future jet usage at NetJets. In the case of BOBS, I don’t see any equivalent movement of funds from the customer to the company. People just pay their burger and receive it immediately.

Yes, and I should have included the words generally and costless in my description of the float of companies sorry about that and will edit it to reflect that.

My understanding of float was that any liability should be considered as float if it is not equity and if it is not interest bearing. I also thought that you only looked at the long enduring and costless part to see how sustainable float was and if it was to be counted on for the long term.

Just because float is not completely costless does not mean that it is still not a better option than either equity or debt as even if the float does have a cost it is still more likely going to be a better, cheaper, and more shareholder friendly option of financing than either of the other two options.

I am still learning about this aspect and will probably go over the slides and the postings on his blog about float again so if I messed anything up let me know. But what I outlined above is my general understanding of how to evaluate the float of a company.

Thanks again Fabian.

Search Float in the search bar and it should bring up everything I have tagged involving float, which has been quite a lot lately.

Due to higher activity lately on the blog, and your recommendation, I will be adding a contact me page so people will know all the various ways they can get a hold of me.

There is a place on the blog for readers to share investment ideas and talk about other topics investing related. The page is The Reader’s Investment Ideas And Analysis Page.

Thanks for you comments and kind words Shamapant.

I really like your posts. 1 question and 1 suggestion. Could you do a quick post that guides me to where you’re learning about float? I know fundoo professor had a fantastic presentation, but is there anywhere else to learn about floats? Also, i think you should add a “contact me” page to your blog. That would allow people to send you things like investment ideas or thoughts that aren’t necessarily directly related to your posts, and it sometimes stimulates a lot of great discussion.

Awesome blog!
Shamapant