Skip to main content
This Board Has Moved

This board has been migrated to our new platform! Check out the new home page at discussion.fool.com or click below to go directly to the new Board on the new site.

Go to the New Site
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 7
Hi Deadspace,

I have not seen the M* spreadsheet but I don't believe its that complicated. In depth and sophisticated in the actual inputs but like HH said much is coming straight from the 10-K for business specific data with I am sure some top down economic and industry predictions sprinkled on top. So its definitely one can do on their own quite easily create on their own.

For instance I have been working on my first in depth free cash flow model and use both M* and S&P to check my work. They give some assumptions that allow me to verify my own assumption inputs and check my IV against theirs. Also Value Line puts out a 3-5 target range which lets me push my valuations out for an IRR calculation.

A book by Copeland "Valuation: Measuring and Managing the Value of Companies" does a great job of looking at FCF models and discussing ROIC. His approach has fit nicely into the way I want to value a company.

I think a major trick is to work from major input factors down. At some point adjusting for immaterial items becomes focused on the bark of the tree in the forrest.

Inputs to my work (currently a FCFF model) and currently evolving as I add new businesses that have new wrinkles:

Revenue Growth
EBIT margin (should be adjusted for items like Operating Leases and Stock Option expenses)
Tax Rate

Capex Margin
Depreciation Margin
LT Investment Margin
Cash Dividends received Margin (also Equity income if below the tax line)
Deferred Tax Liabilities Margin
NCWC margin & YOY change

as well as I have been working on deducting on a per share basis items like

Underfunded Pensions (nothing fancy)
Stock Option Overhangs (use Black Scholes)
Other Asset/Liabilitiy OBS items
Excess Liquid Assets (add back > 5% revenues)
as well as debt is modified to deal with OBS leverage like Operating Leases.

And finally terminal growth rates which I am keeping between 3.5 - 4 % for standardization purposes with 15 years of adjustments to the the terminal value & WACC which I don't like to see below 9% and more comfortable above 10%.

All in all with reasonable assumptions in the terminal value growth and WACC values I can arrive at reasonable numbers compared to S&P and M*. The trick is to become more confident in my own work instead of using their work as a crutch which I do now.

Furthermore I don't think the concept of IV for today is super useful. To me investing is dynamic and the IV is too static. I also say this as an investor who wants a 20% turnover in his portfolio. Therefore I am interested in what a company's IV will be 1-3-5 years out etc. This means estimating also what a company is going to do with that FCFF like pay down debt? reduce outstanding shares? increase the dividend? ie how will the capital structure potentially change. This can affect the value moving forward and worth looking at. I am not completely dilusional to think I will be right, but I can try to be roughly right instead of completely wrong :))

Matthew
Print the post  

Announcements

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.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
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.