Comments on: Calculating The Value Of A Business – Part II http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii/ Value Investing Blog Mon, 16 May 2011 10:55:06 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: Sergiovlc17 http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii/#comment-3530 Sergiovlc17 Sun, 19 Sep 2010 22:47:03 +0000 http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii#comment-3530 I have done it again but now i get $50,49. I used 10,5% growth rate during the 1st 10 years for the 1st calculation ($54,5) and 9,1% for the 2nd($50,49). I have done it again but now i get $50,49. I used 10,5% growth rate during the 1st 10 years for the 1st calculation ($54,5) and 9,1% for the 2nd($50,49).

]]> By: Sergiovlc17 http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii/#comment-3529 Sergiovlc17 Sun, 19 Sep 2010 11:35:30 +0000 http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii#comment-3529 Hello everyone !! I am analyzing my first company. I am doing Coca-Cola. I am getting an intrinsic value of 54,5 dollars per share. Has anyone done this recently? I would like to know if I've done ok or if i am completely wrong. I'd appreciate your feedback so much !! Thanks in advance ! Hello everyone !! I am analyzing my first company. I am doing Coca-Cola. I am getting an intrinsic value of 54,5 dollars per share. Has anyone done this recently? I would like to know if I’ve done ok or if i am completely wrong. I’d appreciate your feedback so much !! Thanks in advance !

]]> By: timisme16 http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii/#comment-3528 timisme16 Tue, 14 Sep 2010 04:34:09 +0000 http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii#comment-3528 I'll also add that depending on the types of non-cash expenses, you may not want to add all of them to net income. For instance, if the company has a lot of stock option compensation, you may want to exclude this from owner earnings, as it represents a future dilution of earnings. I’ll also add that depending on the types of non-cash expenses, you may not want to add all of them to net income. For instance, if the company has a lot of stock option compensation, you may want to exclude this from owner earnings, as it represents a future dilution of earnings.

]]> By: timisme16 http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii/#comment-3527 timisme16 Tue, 14 Sep 2010 01:00:53 +0000 http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii#comment-3527 See my comment on calculating owner earnings: http://www.fwallstreet.com/article/25-calculating-the-value-of-a-business-part-i#comment-3521 Let me know if you have any questions. See my comment on calculating owner earnings:

http://www.fwallstreet.com/article/25-calculating-the-value-of-a-business-part-i#comment-3521

Let me know if you have any questions.

]]> By: spongebob http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii/#comment-3526 spongebob Mon, 13 Sep 2010 06:33:39 +0000 http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii#comment-3526 Hello people. Can anybody help me with regards to calculating Owners earnings? At the moment i've been doing rough owners earnings using only the following; Operating profit+ depreciation+amortisation-essential capex-income tax Should i be adding non cash items & changes in working capital though? What of the following should i include? Total Non-Cash Items 8.2 (Unusual Items 2.2) (Other Non-Cash Items 6.0) Accounts Receivable 10.3 Inventories 16.6 Accounts Payable -19.6 Other Operating Cash Flow -6.4 = Changes in Working Capital 0.9 Many thanks for any help. This site is very popular on the UK investing boards. Hello people.

Can anybody help me with regards to calculating Owners earnings?

At the moment i’ve been doing rough owners earnings using only the following;

Operating profit+ depreciation+amortisation-essential capex-income tax

Should i be adding non cash items & changes in working capital though? What of the following should i include?

Total Non-Cash Items 8.2
(Unusual Items 2.2)
(Other Non-Cash Items 6.0)

Accounts Receivable 10.3
Inventories 16.6
Accounts Payable -19.6
Other Operating Cash Flow -6.4 = Changes in Working Capital 0.9

Many thanks for any help. This site is very popular on the UK investing boards.

]]> By: premraj http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii/#comment-3450 premraj Sat, 17 Jul 2010 17:12:38 +0000 http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii#comment-3450 Joe, thanks for the information and website. Great job! I have a concern about your valuation formula. If I understand correctly you are suggesting valuing the stock at a multiple (say 10x) of Owner Earnings per Share. You don't seem to factor in the amount of debt the company has into this share price valuation. Here's a hypothetical example. A company generates $10 in owner earnings per share. Let's say this company has a debt load of $20 per share (total debt / outstanding common shares). You are suggesting valuing each share at $100 (10 x 10). Let's say that one month later, a private equity firm buys out the enterprise at $110 per share by using your valuation formula but a 11 times multiple (11 x 10). Of the $110 per share sale price, $20 is distributed to the creditors, and the remaining $90 is given to the the common shareholder that purchased the share at $100 using your valuation formula. Am I missing something??? It seems to me like debt needs to be accounted for in assessing the share price? Joe, thanks for the information and website. Great job!

I have a concern about your valuation formula. If I understand correctly you are suggesting valuing the stock at a multiple (say 10x) of Owner Earnings per Share. You don’t seem to factor in the amount of debt the company has into this share price valuation. Here’s a hypothetical example.

A company generates $10 in owner earnings per share. Let’s say this company has a debt load of $20 per share (total debt / outstanding common shares).

You are suggesting valuing each share at $100 (10 x 10).

Let’s say that one month later, a private equity firm buys out the enterprise at $110 per share by using your valuation formula but a 11 times multiple (11 x 10). Of the $110 per share sale price, $20 is distributed to the creditors, and the remaining $90 is given to the the common shareholder that purchased the share at $100 using your valuation formula.

Am I missing something??? It seems to me like debt needs to be accounted for in assessing the share price?

]]> By: Markp http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii/#comment-3431 Markp Wed, 14 Jul 2010 02:55:52 +0000 http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii#comment-3431 Hi Joe I get confused when large amounts of cash turn up in non cash charges as borrowings. When I take a closer I find the company has paid off debt and the long term borrowings have reduced by a similar amount. When I calculate owner earnings should I add this amont on or just leave it out? Thank you in advance. Hi Joe
I get confused when large amounts of cash turn up in non cash charges as borrowings. When I take a closer I find the company has paid off debt and the long term borrowings have reduced by a similar amount.

When I calculate owner earnings should I add this amont on or just leave it out?

Thank you in advance.

]]> By: Eric T http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii/#comment-3130 Eric T Sat, 02 Jan 2010 15:21:35 +0000 http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii#comment-3130 Joe, I noticed you kept out additional working capital needs in your buffet quote. I have read that buffet subtracts the additional working capital needs (if any) from one year to the next in his owner earnings calculation. I suppose this is to help account for principal payments on long term debt that are coming due. Why don't you include this in your calculation? Thank you -Eric T. Joe,

I noticed you kept out additional working capital needs in your buffet quote. I have read that buffet subtracts the additional working capital needs (if any) from one year to the next in his owner earnings calculation. I suppose this is to help account for principal payments on long term debt that are coming due. Why don’t you include this in your calculation?

Thank you

-Eric T.

]]> By: Stephen Kutney http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii/#comment-3086 Stephen Kutney Wed, 18 Nov 2009 16:23:18 +0000 http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii#comment-3086 Should Inventories be subtracted in the calculation of Owner Earnings? I have this paper from Joe called Owner Earnings vs. Free Cash Flow. I see the inventories subtraction on page 13 but I don't see it mentioned in the text of the paper or the book as something that should be subtracted. Steve Should Inventories be subtracted in the calculation of Owner Earnings?

I have this paper from Joe called Owner Earnings vs. Free Cash Flow. I see the inventories subtraction on page 13 but I don’t see it mentioned in the text of the paper or the book as something that should be subtracted.

Steve

]]> By: Dustin Noe http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii/#comment-3067 Dustin Noe Sat, 10 Oct 2009 09:39:05 +0000 http://www.fwallstreet.com/article/26-calculating-the-value-of-a-business-part-ii#comment-3067 What about owner earnings per share? It would factor in share buy backs and dilution. Would it be smart to use this in place of owner earnings or am I thinking wrong? What about owner earnings per share? It would factor in share buy backs and dilution. Would it be smart to use this in place of owner earnings or am I thinking wrong?

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