Comments on: Do The Math In Your Head http://www.fwallstreet.com/article/55-do-the-math-in-your-head Value Investing Blog Thu, 09 Sep 2010 19:16:04 -0500 http://wordpress.org/?v=2.9.2 hourly 1 By: leslie palm http://www.fwallstreet.com/article/55-do-the-math-in-your-head#comment-3300 leslie palm Thu, 27 May 2010 09:21:45 +0000 http://www.fwallstreet.com/article/55-do-the-math-in-your-head#comment-3300 Hey I live in Minnesota while your here you could visit me! I know it sounds blunt, but I just picked up your book and read the entire thing while laying by the pool today. I wish I could just reach through the book to give you a super duper kiss right now for opening my eyes to the reality of mutual funds, how I got suckered in three years ago and its not too late to start over. what youve written makes sense!! thanks so much. And if you can come over for a visit. would love to talk more. leslie in plymouth Minnesota. Hey I live in Minnesota while your here you could visit me! I know it sounds blunt, but I just picked up your book and read the entire thing while laying by the pool today. I wish I could just reach through the book to give you a super duper kiss right now for opening my eyes to the reality of mutual funds, how I got suckered in three years ago and its not too late to start over. what youve written makes sense!! thanks so much. And if you can come over for a visit. would love to talk more. leslie in plymouth Minnesota.

]]> By: Matt http://www.fwallstreet.com/article/55-do-the-math-in-your-head#comment-3144 Matt Fri, 08 Jan 2010 09:43:44 +0000 http://www.fwallstreet.com/article/55-do-the-math-in-your-head#comment-3144 I'd also like to know where to find the multiplier spreadsheet. Any help is appreciated. I’d also like to know where to find the multiplier spreadsheet.

Any help is appreciated.

]]> By: JW http://www.fwallstreet.com/article/55-do-the-math-in-your-head#comment-3131 JW Sat, 02 Jan 2010 19:07:56 +0000 http://www.fwallstreet.com/article/55-do-the-math-in-your-head#comment-3131 Does anyone have the link to the multiplier spreadsheet that Joe had originally put under the subscribe link? I can't find it. It is not showing up for me. Thanks. Does anyone have the link to the multiplier spreadsheet that Joe had originally put under the subscribe link? I can’t find it. It is not showing up for me.

Thanks.

]]> By: remy http://www.fwallstreet.com/article/55-do-the-math-in-your-head#comment-2624 remy Thu, 29 Jan 2009 09:43:39 +0000 http://www.fwallstreet.com/article/55-do-the-math-in-your-head#comment-2624 Here's an interesting article about how Buffett might quickly calculate the value of future cash flow (it's exactly the same principle as Joe described in this post): <a href="http://www.gurufocus.com/news.php?id=33243" title="http://www.gurufocus.com/news.php?id=33243" target="blank" rel="nofollow">http://www.gurufocus.com/...</a> At first glance, it seems a little simplistic to use a single earnings multiplier like that, but think of it this way: future earnings are pretty darn uncertain even for the best of companies, so the biggest factor in your estimate is not going to be your multiplier but rather how confident you are in the company's continued profitability. So I think it makes sense not to sweat about the exact multiplier, since there's a snowball's chance in hell you'll be exactly right, and instead use it as a rough guide. (note: I don't think I agree entirely with the article I linked-- I'd assume Buffett uses owner earnings, for instance-- but I think it has the right idea.) Here’s an interesting article about how Buffett might quickly calculate the value of future cash flow (it’s exactly the same principle as Joe described in this post):

http://www.gurufocus.com/...

At first glance, it seems a little simplistic to use a single earnings multiplier like that, but think of it this way: future earnings are pretty darn uncertain even for the best of companies, so the biggest factor in your estimate is not going to be your multiplier but rather how confident you are in the company’s continued profitability. So I think it makes sense not to sweat about the exact multiplier, since there’s a snowball’s chance in hell you’ll be exactly right, and instead use it as a rough guide.

(note: I don’t think I agree entirely with the article I linked– I’d assume Buffett uses owner earnings, for instance– but I think it has the right idea.)

]]> By: Joe Ponzio http://www.fwallstreet.com/article/55-do-the-math-in-your-head#comment-1750 Joe Ponzio Wed, 14 May 2008 05:34:37 +0000 http://www.fwallstreet.com/article/55-do-the-math-in-your-head#comment-1750 Michael: Take a look at the posts filed under <a href="http://www.fwallstreet.com/blog/valuing-a-business.htm" title="Valuing a Business">Valuing a Business</a>. There are a million and one ways to make money in stocks; there are only a handful of rational ways to value a business. Hope that helps! Michael: Take a look at the posts filed under Valuing a Business. There are a million and one ways to make money in stocks; there are only a handful of rational ways to value a business. Hope that helps!

]]> By: Michael http://www.fwallstreet.com/article/55-do-the-math-in-your-head#comment-1720 Michael Sun, 20 Apr 2008 06:24:00 +0000 http://www.fwallstreet.com/article/55-do-the-math-in-your-head#comment-1720 Hello Joe, In an attempt to check for example Apple's value I took last quarters EBIDTA 5.56 billion and multiplied by 23.5 the value of the shares when based on this method came out to $149.99, which would mean that apple trading at $161.04 Friday's close is currently to high based on the expectations of the 23.5 formula growth parameters. Did I do that correctly? anyone of the board can answer that and I would appreciate it. Hello Joe,

In an attempt to check for example Apple’s value I took last quarters EBIDTA 5.56 billion and multiplied by 23.5 the value of the shares

when based on this method came out to $149.99, which would mean that apple trading at $161.04 Friday’s close is currently to high based on the expectations of the 23.5 formula growth parameters. Did I do that correctly? anyone of the board can answer that and I would appreciate it.

]]> By: Moneychanger http://www.fwallstreet.com/article/55-do-the-math-in-your-head#comment-1497 Moneychanger Sat, 16 Feb 2008 23:12:11 +0000 http://www.fwallstreet.com/article/55-do-the-math-in-your-head#comment-1497 Joe, Thanks a lot! Joe,

Thanks a lot!

]]> By: Joe Ponzio http://www.fwallstreet.com/article/55-do-the-math-in-your-head#comment-1428 Joe Ponzio Wed, 13 Feb 2008 17:06:13 +0000 http://www.fwallstreet.com/article/55-do-the-math-in-your-head#comment-1428 You can download the spreadsheet and look at it. In Excel, it is the NPV formula. To actually do the full formula in your head is quite difficult, but you can <a href="http://en.wikipedia.org/wiki/Discounted_cash_flow" title="check out the math here" rel="nofollow">check out the math here</a>. You can download the spreadsheet and look at it. In Excel, it is the NPV formula. To actually do the full formula in your head is quite difficult, but you can check out the math here.

]]> By: Moneychanger http://www.fwallstreet.com/article/55-do-the-math-in-your-head#comment-1423 Moneychanger Wed, 13 Feb 2008 16:08:24 +0000 http://www.fwallstreet.com/article/55-do-the-math-in-your-head#comment-1423 Joe, Would you please provide the formula used to calculate the discount rate multiplier? It would be very useful when I'm not having my computer with me. Thanks a lot! Joe,

Would you please provide the formula used to calculate the discount rate multiplier? It would be very useful when I’m not having my computer with me.

Thanks a lot!

]]> By: Tommy V http://www.fwallstreet.com/article/55-do-the-math-in-your-head#comment-906 Tommy V Thu, 29 Nov 2007 06:55:13 +0000 http://www.fwallstreet.com/article/55-do-the-math-in-your-head#comment-906 In the example below.....I do not understand how you got 23.5 and...where in a company's stock information do I find owner earnings? Additionally, why and wheere did you get this 9% discount, and why and where do I find the share holder equity number and what do I add it to? I just didn't get it....help! If your assumptions remain the same, you can quickly determine the value of a business using some simple math. For example: You expect owner earnings to grow at 14% for years 1-3. In years 4, 5, and 6, you expect that your company will grow at 12.6% (10% slower). In years 7-10, you expect growth to slow another 10% to 11.3%. After that, you expect growth to hold at 5% for years 11-20. Finally, you want to use a 9% discount rate. Though the above calculation reads difficult, the math is simple. You simply need to find a multiplier that sums up that calculation. That is, what number could you multiply owner earnings with to get the value? Answer: 23.5. In the example below…..I do not understand how you got 23.5 and…where in a company’s stock information do I find owner earnings? Additionally, why and wheere did you get this 9% discount, and why and where do I find the share holder equity number and what do I add it to?

I just didn’t get it….help!

If your assumptions remain the same, you can quickly determine the value of a business using some simple math. For example: You expect owner earnings to grow at 14% for years 1-3. In years 4, 5, and 6, you expect that your company will grow at 12.6% (10% slower). In years 7-10, you expect growth to slow another 10% to 11.3%. After that, you expect growth to hold at 5% for years 11-20. Finally, you want to use a 9% discount rate.

Though the above calculation reads difficult, the math is simple. You simply need to find a multiplier that sums up that calculation. That is, what number could you multiply owner earnings with to get the value? Answer: 23.5.

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