What does one unit earn?
Price, volume, direct costs, customer retention, and the contribution left to cover shared costs.
OUR APPROACH
How Harbor Goes to Work
We analyse companies as productive assets. What does the business earn from each customer, store, or product? How much cash can it generate over time? And what return could an owner earn at today's price?
Our work combines unit economics, close scrutiny of the financial statements, and a careful assessment of how management allocates capital.
Request a Sample Bulletin01 / UNIT ECONOMICS
Start with one unit. Build up to the business.
We begin with the economic building block: a customer, a store, a subscription, or a unit of production. We examine what it earns, what it costs to serve, and how much capital it needs. Then we ask whether those economics improve or deteriorate as the business grows.
What does growth consume?
Customer acquisition, inventory, receivables, equipment, and the time needed to recover the investment.
What reaches the owner?
Cash after overheads, taxes, and the spending needed to keep the business competitive. Unit-level profits must reconcile with company-wide results.
A new store can increase revenue while destroying value. We care about the cash it produces relative to the full capital required to open and operate it.
02 / COMPETITIVE ADVANTAGE
Why should attractive returns last?
High margins attract competition. We look for evidence that a business can defend its economics through switching costs, network effects, cost advantages, trusted brands, or difficult-to-replicate assets.
The test is practical: why do customers stay, how easily could a rival compete, and how much room remains to reinvest at attractive returns? We examine what could weaken the advantage as carefully as what supports it.
A strong past is evidence to investigate, not a forecast to extend automatically.
03 / ACCOUNTING QUALITY
The financial statements must withstand scrutiny.
Accounting and financial statement analysis sit at the centre of our process. We read the income statement, balance sheet, cash flow statement, and footnotes together, across multiple years. Our mindset is forensic: reconcile, challenge, and follow the money.
Revenue & cash collection
Test revenue recognition, receivables, contract assets, and cash receipts. Investigate when reported sales outpace collection.
Profit & cash conversion
Reconcile earnings with operating cash flow. Separate lasting improvement from working-capital timing, supplier financing, and other temporary benefits.
Costs & adjustments
Scrutinise capitalised expenses, useful-life estimates, stock-based pay, and recurring costs presented as exceptional. Rebuild a sustainable earnings picture.
Assets & acquisitions
Examine goodwill, acquisition accounting, impairments, inventory, and asset values. Ask whether the balance sheet reflects economic reality.
Debt & hidden demands on cash
Review debt maturities, leases, covenants, pensions, guarantees, and commitments. Test resilience when trading weakens or funding becomes harder to obtain.
Footnotes & incentives
Track policy changes, estimates, related-party transactions, and segment disclosures. Consider where management has room, or an incentive, to flatter the results.
The objective: establish what the business is likely to earn in cash, what it must reinvest, and how much confidence the evidence deserves.
This is investment research, not an audit, assurance engagement, or fraud examination.
04 / MANAGEMENT & CAPITAL ALLOCATION
What happens to the next dollar?
A good business can be a poor investment when its cash is badly deployed. We judge management by decisions and outcomes over time, not the polish of its presentations.
We examine incentives, ownership, candour, and the willingness to admit mistakes. The central test is whether decisions build lasting value per share.
Reinvest in the business
What return does new capital earn? Is growth funded by healthy economics, or by ever-larger commitments of cash?
Acquire other businesses
What was paid, how was it funded, and what was earned afterwards? We compare the original promises with the subsequent cash returns.
Repurchase shares or pay dividends
Are buybacks made below a reasonable estimate of value, after allowing for dilution? Is returning cash better than retaining it?
Manage debt and liquidity
Does the balance sheet preserve options through a downturn? We weigh borrowing costs and refinancing risk against the uses of capital.
05 / VALUATION & EXPECTED RETURNS
What is the business worth, and what should we pay?
A share is a small piece of a business. Its value rests on the cash that business can produce for its owners over time. Our job is to make a sensible estimate of that cash and decide whether the asking price leaves enough room for a worthwhile return.
Most companies never reach this stage. They fail our earlier tests, fall outside what we understand, or have futures too uncertain for us to value with confidence. We cannot accurately value every business. When we cannot make a reasonable estimate, we pass.
EARNING POWER
What can the owner earn?
Start with the cash left after paying the bills and keeping the business competitive. Ask how much it can earn in ordinary years, what growth will cost, and how much cash that growth should bring back.
VALUE PER SHARE
What is our share worth?
A dollar received ten years from now is worth less than a dollar today. We allow for that when estimating the value of future cash, subtract debt, add surplus assets, and divide by the shares that will have a claim on it. The result is a range, not an exact answer.
INVESTMENT RETURN
Does the price make sense?
Even an excellent business can be a poor investment at the wrong price. We weigh what we pay against the cash we expect to receive and the business value we expect to own. The return should make sense without relying on someone else paying a richer price for each dollar of earnings.
Leave room for being wrong.
Our estimates will be wrong in places. We ask what happens if sales disappoint, costs rise, or growth slows. Then we look for a price low enough to leave a margin of safety between what we pay and a conservative estimate of value.
A low price cannot make an unknowable business predictable. If the investment needs everything to go right, or the value depends on guesses we cannot defend, we pass. Expected returns are estimates, never promises.
ONGOING REVIEW
A view should change when the evidence does.
Harbor Signal applies this approach through weekly investment research, buy and sell views, and updates on covered businesses. We revisit operating progress, accounting quality, capital allocation, and valuation as new evidence arrives.
We distinguish a price move from a change in business value, and identify the developments that would strengthen or break the investment case.
The investors who inform our thinking
Our approach draws on four complementary traditions:
- Warren Buffett: business ownership, intrinsic value, and disciplined capital allocation.
- Terry Smith: cash generation, durable returns on capital, and price discipline.
- Pat Dorsey: competitive advantages and the runway to reinvest at attractive returns.
- Rob Vinall: an owner's perspective, management quality, and long-term business development.
These are intellectual influences. Harbor's research and conclusions are its own; no affiliation or endorsement is implied.
SEE THE WORK
See this thinking applied.
Request a sample Harbor Signal bulletin. Examine the business analysis, valuation, and risks, and judge whether the research belongs in your investment process.