Monday, August 4, 2008

McGraw Hill-Ryerson: It's Worth Writing About

McGraw Hill-Ryerson primarily publishes and distributes educational products including conventional printed textbooks and digital media products. This company is a subsidiary of the McGraw Hill Companies, incorporated for operation in Canada. You most likely have used one of their products since they focus on education and cover the elementary and secondary schools, colleges and universities and professional programs. They have the full spectrum of education covered and have dominated the educational market for many years!

Sounds kind of boring doesn't it? Well that's a start! Finding good quality, boring companies at a significant discount to its intrinsic value is highly recommended by Warren Buffet, the world's most renowned investor. So far, we have established boring, but does this company classify as good quality?

A good quality company could be characterized by many different things. A good place to start is looking at a company's operating margins over time. Look for stability and size of the operating margins as an indicator of quality. McGraw Hill-Ryerson has been in operation since 1944, but we don't need to look that far back at operating marings! The last 8 to 10 years should adequately cover the a full business cycle and will give us a good look at the business.

After calculating the past 10 years of normalized operating margins for McGraw Hill-Ryerson, I observed that the numbers came back in a fairly tight range. The operating margins averaged 11.7% with a standard deviation of 1.6%. There were no negative operating margins and they ranged between 9.9% and 14.8%. This is a picture of a stable operating business with fairly high margins. All in all, a pretty good indication of a good quality company.

McGraw Hill-Ryerson warrants further analysis as a potential investment as I will do in my post on Wednesday morning.

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