Episode 962: Martin Shkreli： This Number On The Balance Sheet Tells You Everything

**Martin Shkreli** (0:01)
Okay, so, I want to show...
Yeah, REPL was sort of cooked, right? I mean, I wanted to go through the balance sheet of Kyosha. So we get a sense for, what's the capital structure of this company? So of course we start with the cash. They have 470 billion yen. And then they have AR. That's 661 billion accounts receivable. Japan has a lot of these weird financial assets. I bundle them all into cash. That's been what I've been doing for 20 years. And there's accounts receivable. I'm sorry, inventory. And OCA, other current assets for you home gamers. And finally, here's the property plan equipment. Now, this is the most important thing, right? I like to say PP&E is the soul of business. But I say other things of the soul of business, too. So take it with a grain of salt or soul.
So PP&E is quite critical. You really can't have a... In the old days, at least, you can't have a business without property plan equipment. Now, the world has changed. We have software businesses, asset light businesses, things like that. But in a really old viewpoint, your business kind of is your factory, you know? It kind of...
Without your factory and plant, what do you have? Now, these days, we have people, and the people are kind of the assets in some ways, or brands. But I think I want you to think about it this old way to some extent. You know, and this is a buffet, you know, kind of a buffet way of thinking about it, which is important, because it's this very practical, no-nonsense way. And I'll explain why in a second.
And, you know, the nice thing about this, it's not going to, like most things, there's not going to be some like magic trick where a number is going to pop up or you're going to know something. It's not the way it works. But you are going to learn about how to think about this. So the market cap of the company is 29 trillion yen. And you have four, yeah, four trillion dollar balance sheet, roughly, right? 3.6 trillion dollar balance sheet. And you have a trillion dollars of property, plant, and equipment. So in yen and in US dollar, let's see, that's, yeah, call it 6 billion. Six billion dollars of property, plant, and equipment. Okay?
So at a trillion in property, plant, and equipment, the company is going to produce 400 in net income. Does that make sense? Well, if I told you, you could buy a plant for, in this case, it says a trillion, but let's make it a, and it's a trillion yen. But let's say it's a million dollars. You've saved up a million dollars. A lot of people have a million dollars, and you want to get into business for yourself. Maybe you're a lawyer, maybe you're a dentist, maybe you're at OnlyFans. Doesn't matter. You've got a million dollars, and you said, I want to buy something productive. I don't want to buy Bitcoin. I want to buy something that's going to generate me cash for years to come. So you buy this, and all of a sudden, it makes you 40% of your money in one quarter. Just one quarter. It's a way to say, this is magic. I almost got my money back. Two more quarters, I got my money back, and any money from here on out is free money. There's something kind of wrong with that, isn't it?
You know, it's too good to be true. Something unusual about that. That's a 40% return in one quarter. And I want you to think about these as financial assets. Because you can go, instead of buying a stock, right? You saved up all that money, you know, you got a million dollars, you can buy a million dollars of stock in a company, or you can go buy a machine yourself. Right? And say, to heck with the stock market. Close my interactive account. Close my Robinhood account. I want to go buy the machine. And think about GPUs, right? I have friends that started out buying GPUs, and now they own huge GPU businesses. So what's better, the stock or the actual asset? Right? And again, if you look at drug dealers, they are a capital light. They have no capital equipment. They have no factory. They're just in distribution. So the high returns there lead you to understand that there's something wrong with this business. I shouldn't be making this much money. And of course, we know that you can't make that much money in that business because it's illegal. So if you do make money in that business, it's easy come, easy go. And that's kind of what's happening here, is the stock market's sort of telling you, well, it's interesting, because this is independent of the stock, right? This is the balance sheet telling you, doesn't matter where the stock's trading, the balance sheet is telling you, these guys are killing it. And they're in a very enviable position, and other companies may want to also be in that enviable position. And that's the kind of thing that, you know, you have to scrutinize and say, well, and this is obvious, right? This is obvious to anybody who's been following these stories, but I want you to understand that this is why, you know, you have to care about the process. You know, what are, what is this trillion dollar, trillion yen that they have of equipment? Is it Lamb Research's equipment? Is it A, some lithography's equipment? Is it different gases? What is it? And of course, their know-how, right? Their know-how is what's really valuable. It's not just the equipment. It's knowing how to use it. It's having experience with it. And of course, it's having clients who depend on you. All of those things matter, too, and those don't appear on the balance sheet. But I want you to think about it from Warren Buffett's perspective. He'd say, Well, if I can buy this plant, I've got money at Berkshire. I'll buy this plant. I'll sell this flash memory myself. And he's right. He could do that, right? But he doesn't have the know-how. No problem. I'll just hire the people. I'll hire each of these people. I'll hire whoever the senior manager is. I'll double the salary. Come to Berkshire. Come to Omaha. We'll build a good old... We used to have farms here. We'll build a good old NAND flash plant. Well, okay, but can you get all that equipment overnight and get it all, you know, installed correctly, the right people hired? You know, all that stuff. Not easy. And your job as an analyst is to look at this and also think about your competitors saying, why isn't Intel doing this? Intel made DRAM. They invented it. Right? Why doesn't Intel just say, I can just, I know how to... I have half this equipment. People who know how to do this. For $6 billion measly dollars, I can get, you know, huge return. That's at a $3, $2.5 billion return in one quarter. Now again, you know, these things take time. There's IP, there's standards. There's... It really isn't as easy as I'm saying. And that's why Kyusha is in this very enviable position. Because they... You can't just spend a trillion yen, which is $6 billion, put up a plant and be in business tomorrow. It's just not that... It doesn't work that way. But as we study this carefully, we want to understand all about how does this stuff work? What's really happening with that? And they have plants in Yokkaichi and Kitakami. And we're going to learn, you know, what is it they have at those plants? And there's a lot of ways you can study this. I'll show you some secrets if we have time, but we also have Meta and Microsoft coming up.