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Stock Valuation

7 tools in the Investing area.

Reverse DCF

What growth does today's share price assume? The page turns the price into the market's enterprise value, sets a two-stage discounted cash flow model equal to it and solves for the growth rate of free cash flow that makes the two agree, with every step written out: the discounted cash flows, the terminal value and its share of the total, the cash flow the price assumes in the last year, and a table of the implied growth against the discount rate and the terminal growth rate. It describes the assumptions inside a price and makes no judgement about the price. A calculator for education and analysis, not investment advice.

1 worked example reproduced, listed on the tool page.

DCF Valuation

Enterprise and equity value of a business by discounted cash flow: the projected unlevered free cash flows are discounted at the weighted average cost of capital, built from the cost of equity (CAPM) and the after-tax cost of debt or entered directly; the value beyond the projection is a terminal value by the Gordon growth model, an exit multiple, or both; net debt bridges enterprise to equity value and the share count gives a value per share against the current price. The two-way sensitivity grid of value per share against the discount rate and the terminal growth rate shows how much of the answer rests on those two assumptions.

Cost of Capital

Weighted average cost of capital with every component worked out on the page. Cost of equity by the capital asset pricing model with size, company-specific and country premia, by the average of that model and a multi-stage discounted cash flow model as the Surface Transportation Board sets the railroad cost of capital, by the Fama-French three-factor form, by the dividend growth model or by the rate implied in a multi-stage cash flow forecast. The equity measure of market risk entered, estimated by least squares from pasted return or price series with its standard error and the adjustment toward one, or built from comparable companies by unlevering and relevering with the Hamada, Harris-Pringle or Miles-Ezzell relation. Cost of debt entered, as a spread over the risk-free rate, or as the yield to maturity of a bond from its price, coupon and maturity. Preferred stock, market-value or target weights, the weighted average after tax and before tax, the real rate by the Fisher relation, a sensitivity table against leverage, a capital structure schedule with its minimum, and the federal discount rates of OMB Circular A-94 for comparison.

1 worked example reproduced, listed on the tool page.

Financial Quality Scores

Three well-known accounting screens computed from two years of a company's financial statements, each shown step by step so you can see what it tests: the Piotroski F-score (nine pass or fail tests of profitability, debt and liquidity, and efficiency), the DuPont decomposition of return on equity into profit margin, asset turnover and leverage, and in Advanced mode the Altman Z-score and the accruals ratio. Each is described as the published screen it is, with the sample it was built on and its limits; the page reports the numbers and gives no opinion on the company. A calculator for education and analysis, not investment advice.

1 worked example reproduced, listed on the tool page.

Dividend Discount Model

Value a share from the dividends it is expected to pay. The page grows last year's dividend at the rates you enter, brings each future dividend back to today's money at your required return and adds them up, with every step written out, for three standard models: constant growth (Gordon), two-stage and the H-model. It shows how much of the value lies in the distant years, the growth and the return that an entered price implies, and how sharply the value moves with the required return and the long-run growth. It states what a model value is and what it assumes and makes no judgement about a price. A calculator for education and analysis, not investment advice.

1 worked example reproduced, listed on the tool page.

Valuation Range

Several valuation methods side by side for one company, each with a low and a high value per share that follow from your own range of assumptions: a price-to-earnings multiple, an enterprise-value multiple of EBITDA, a two-stage discounted cash flow model and a dividend discount model, with multiples of revenue and of book value in Advanced mode. The low case of every method is written out step by step, the ranges are drawn as one bar each (the chart analysts call a football field) with the share price you type as a line, and the page states where the ranges overlap and what each method would need for the typed price. The ranges are your assumptions; the page describes them and makes no judgement about the price. A calculator for education and analysis, not investment advice.

1 worked example reproduced, listed on the tool page.

Sum-of-the-Parts Valuation

Value a company as the sum of its businesses. Enter each segment with a figure such as its EBITDA or revenue and a low and a high multiple, then the net debt, any other adjustments, the number of shares and, if you wish, the share price. The page multiplies out the value range of every segment, adds them to an enterprise value, walks the bridge from enterprise value to the value of the shares line by line, and divides by the shares for a low, mid and high value per share. It shows how much of the mid value each segment carries and the multiple of the whole company that the sum implies. When a price is typed, the gap between the price and the mid value is expressed as the implied conglomerate discount or premium in percent: arithmetic on your own multiples, with no judgement about the price. Advanced mode adds unallocated corporate costs, a holding-company discount, a different basis per segment and a sensitivity table. No market data is used: every value is typed in. A calculator for education and analysis, not investment advice.

1 worked example reproduced, listed on the tool page.

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Bonds and Rates · Portfolio and Risk · Saving and Planning · Options · Mergers and Buyouts · Private Markets · Company Financials · Economy and Rates