Valuations, what a broad topic. lolAny Company I invest in I try...

Valuations, what a broad topic. lol

Any Company I invest in I try to value the company in as many ways as possible, to see what I get.

The trouble is that the inputs can make a HUGE difference to the output.

In the end my aim is to be nearly right and not completely wrong.

lionel is exactly right with his comment about Discount Cash Flow, and what rate do you use.

I made a mock up balance sheet & DCF calculator on Excel a few weeks ago.
Just for anyone that does not understand how DCF works, the basic idea is to forecast all the earnings a company will make in the future and then discount it back to now using a discount rate.
The one I made on excel was in two stages, first the earnings for the next ten years, then the earnings forever into the future, then discount back.
Even once you have set the balance sheet up (in a round about fashion), you have to pick a Discount Rate, I use 9% (some use anything from 6% to 11% for varing reasons), then you need the initial growth rate, then a terminal growth rate.

I got past some of these hurdles by making the balance sheet over 10 yrs (risky), then using either the 10 yr average figure or the lowest figure over the next 10 yrs, then I dont need an initial growth rate and can set it as zero.

As a terminal growth rate (year 11 to forever) I set at four different levels -5%, -3%, -1% & 0, this gives me four answers, so I am forcasting that the company will contract by 5% per year (in the first case, and so on) in year 11 and continue to contract into the future.

I see this as giving me a margin for error, as if the company is still indervalued I know there is a chance that I have a little value up my sleeve, and I am not sure I will still be with them for that long anyway.

Better off being conservative, I reckon.

I just about written a best seller again, lol


If anyone wants a copy of the mock balance sheet & DCF calculator, I can send it to you by email, if you dont mind putting your email address on HC.

you can then see how much the different inputs can change the answers in the end.

You will need some basic understanding of excel, to use it.

Although the balance sheet and calculator are not linked, so you can use them individually, eg- trash the balance sheet and come up with your own free cash flow figure and plug that into the DCF calculator & just use it.

just let me know

cheers