Great write-up clearly explaining the process to get to the value of a company. I am just curious why not directly start at FCF value to reduce the number of assumptions and calculations?
From FCF, you can use the growth rate based on the analyst's expectations, the company's guidance, and your research? I feel that should help reduce inputs/assumptions and probably reduce errors.
Discount rate - I like you used 12%. I use 10% in my analysis to match the opportunity cost of investing in the Index.
I used to do that but in my experience FCF is very volatile and susceptible to manipulation. Revenue is hardest metric to manipulate and for operating margin, it is easier to check if the current levels of profit sustainable looking back into 5-10 years and also comparing with the competitors to see if there is an explanation of better operating margin from the rest of the pack.
When it comes to analysts' expectations, I usually take them with a grain of salt. I don't give them much weight, as their assumptions often tend to follow market trends rather than predict them.
Great write-up clearly explaining the process to get to the value of a company. I am just curious why not directly start at FCF value to reduce the number of assumptions and calculations?
From FCF, you can use the growth rate based on the analyst's expectations, the company's guidance, and your research? I feel that should help reduce inputs/assumptions and probably reduce errors.
Discount rate - I like you used 12%. I use 10% in my analysis to match the opportunity cost of investing in the Index.
Thanks for the feedback!
I used to do that but in my experience FCF is very volatile and susceptible to manipulation. Revenue is hardest metric to manipulate and for operating margin, it is easier to check if the current levels of profit sustainable looking back into 5-10 years and also comparing with the competitors to see if there is an explanation of better operating margin from the rest of the pack.
When it comes to analysts' expectations, I usually take them with a grain of salt. I don't give them much weight, as their assumptions often tend to follow market trends rather than predict them.
For 12%, it is better to be on the safer side :)
Logically and literally, the intrinsic value is determined by the rally between net income growth and invested capital growth.
My Unconventional Methods:
1.
Discounted EPS ( 35.1271372205 Years)
= 6.32×(1-(0.9528339279÷1.028)^35.1271372205)÷(1-(0.9528339279÷1.028))
= $ 80.4321426694
Eps Ttm 6.32
Gni Ttm Factor 0.9528339279
CPI factor 1.028
ROIC (NI/IC) Ttm 35.1271372205
Years = 35.1271372205
Or
2.
Equilibrium Factor after balancing Gni and ROIC
=
100×(√(0.9528339279×1.3512713722)-1)
= 13.4696968021
Discounted EPS ( 13.4696968021 Years)
=
6.32×(1-(1÷1.028)^13.4696968021)÷(1-(1÷1.028))
= $ 72.0753361767
3.
35.1271372205×6.32
= $ 222.0035072336
4.
13.4696968021×6.32
= $ 85.1284837893