Message Font: Serif | Sans-Serif
 
No. of Recommendations: 14
Hi,

I have been tinkering with a various ways of finding out the intrinsic value of a company. As 
someone cleverly said, if valuation methods were so easy, wall street analysts would be out 
of jobs. The fact of the matter is that valuation is subjective, imprecise and very often filled 
with our biases thrown in. 

A typical DCF must make many assumptions: WACC, Revenue, Gross Profit margins, Working 
Capital etc etc. I have long resigned to reading analyst reports for more accurate data and 
developments, I find the depth and insights are usually quite thorough. However, I needed an 
off-the-cuff DCF calculator for my PDA/Phone to quickly assess whether a stock is currently 
overpriced, fairpriced or selling at a discount.  

I present a simple DCF calculator modelled after Quicken.com. The beauty of this DCF is that 
it requires only 3 Static Data from financial web site : Earnings, Shares Outstanding and Long 
Term Debt; and 2 Assumptions : Earnings Growth during the next 10 years, and Expected 
Results during this period (aka Discount). 

This is relatively easy to use and understand, and the results, while not precise is consistent 
and approximate the fair value found in MorningStar ( at least for large Domestic Caps). 
Afterall, as WEB said, it is better to be roughly correct than  precisely wrong. 

The down side obviously is that it lacks many other variables and scenarios. Variables such 
as those found in ValuePro ( http://www.valuepro.net/ ), scenarios such as multi- growth 
stage of companies. 

My best results were achieved using Financial Data from Morningstar, and growth 
assumptions a couple of notches (10-20%) below the Wall Street estimates, also from 
Morningstar, or from Yahoo Finance. For discount rates, I use 11% for Blue Chip Companies, 
15% for standard companies, and 15-19% for small caps and may be newly public-listed. For 
terminal assumptions, I use 5% perpetual growth.

I also wanted to compare this against other benchmarks of IV calculations. I have included 
Morningstar Fair Value estimates  (where available) or S&P Reports Fair price estimates. In 
addition, my spreadsheet also includes Benjamin Graham's IV calculator, adjusted for 
inflation using 5.2 as the AAA 30 Year Bond yield. (Found here http://www.neatideas.com/
aaabonds.htm )

For comparison, below is a table of stocks, closing price as of Friday 26th August, 
SpreadSheet DCF IV, Benjamin Graham IV, Morningstar Fairvalue, and S&P Reports Fair value:
Ticker	Price	DCF-IV	BG-IV	M*-IV	S&P-IV 	
BWLD	28.80	34.07	41.04	NA	NA	BWLD
CEC	34.50	41.27	55.96	NA	34.00	CEC
INMD	13.16	11.24	13.34	NA	NA	INMD
PRAA	39.83	55.63	66.46	NA	42.00	PRAA
CRYP	18.78	41.86	41.45	NA	NA	CRYP
DEO	57.62	65.90	70.15	72.00	64.40	DEO
KO	43.57	47.11	45.10	54.00	38.60	KO
DIS	25.33	26.14	29.70	26.00	25.10	DIS
PG	54.96	78.43	77.48	58.00	53.90	PG
CSG	39.52	20.91	31.67	47.00	34.10	CSG
JNJ	61.94	75.93	74.26	76.00	59.60	JNJ
EL	39.91	40.34	40.07	45.00	42.10	EL
MCD	33.48	35.77	39.56	35.00	31.90	MCD
BUD	44.15	44.66	51.63	57.00	30.60	BUD
CL	52.17	61.83	63.85	60.00	45.30	CL
Observations: * S&P Fairvalue is probably the most conservative of all, and consistently has the lowest fair value. The Simple DCF Calculator does not calculate ADRs very well, I tried this with DEO, CSG and got very diverse results. What is interesting is that S&P has a Fair Value price, they also have a Target Price for a stock and both may be very different. * While not wholly spot on, I find that the Spreadsheet works reasonably okay with DOW components but not small caps where earnings, growth may be lumpy. * I find that it helps to use BennyG IV & DCF-IV as a possible range for a company's Intrinsic Value. I use this together with different growth estimates for possible upper lower ranges. You can download the spreadsheet here, http://www.retro.ms11.net/simpleDCFv4.xls it includes the assumptions & results of the various stocks mentioned above. Obviously, caveat emptor, I use this on my PDA/Phone, your mileage will vary. raytoei who welcomes comments, and feedback to this Simple DCF calculator ps. For simplicity, I use Earnings/ShareOutstanding to calculate EPS, this is used in the BennyG IV calculation. This may not be accurate, for manual inputs, you could also enter EPS in cell J13, which is just a simple pointer to J12.
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.