Absolute PE Model – Valuable Tool for Understanding Growth and Valuation
The price we pay for investing in any particular company matters and the continuation of determining the fair value for any company is an ongoing process. Another tool we can add to our toolbox is the absolute PE model created by Vitaliy Katsenelson. In the fantastic book, Active Value Investing, Vitaliy lays out his idea […]
Buffett’s 3 Categories of the Return on Invested Capital Formula
Updated 5/1/2024 “Leaving the question of price aside, the best business to own is one that can employ large amounts of incremental capital over an extended period at very high rates of return.” Warren Buffett, 1992 Berkshire Hathaway Shareholder Letter Return on Invested Capital is a metric I have been thinking about lately. The list […]
Don’t Let Simple Valuation Ratios Muddy the Big Picture
One pitfall that I think is very easy for us investors to fall into is getting blinders on and looking at some simple valuation ratios and making that the most important part of any investment. Honestly, I know that this is something that I struggle with a lot. I am a very analytical person and […]
Don’t Know How to Value a Company? Use These 4 Valuation Ratios
One of the hardest things to do for a new investor is to understand the math in investing and what some of the different valuation ratios mean. It can be overwhelming but don’t worry, I’m here to help break it down in a very simple way and will even point you to a tool to […]
Relative Valuation – Pros and Cons of the MOST Common Form of Valuation
Question for you: Do you know the most common form of valuation of stocks? Not discounted cash flows, dividend discount models, but relative valuation. Never would have guessed? I know I was shocked when I discovered this fact. Most analysts’ reports of the sell-side variety use this type of valuation. Discounted cash flows remain difficult, […]
Is Price to Tangible Book Value Dead? A Full Guide to This Controversial Metric
Warren Buffett and Ben Graham are the leading proponents of value investing. No fundamental analysis metric has a greater correlation to the company’s value than the price-to-book ratio. And, to a great extent, the price-to-tangible book ratio. As value investors, we are more concerned with the value of a company and, more importantly, the book […]
What’s the PEG Ratio in Finance – Does it Work on Large Companies?
Price-to-earnings, or P/E ratio as it is also known, is probably the most recognizable metric used to value stocks. Are they the most useful? Well, for one, they don’t consider any company growth, and no one metric is useful all by itself. We can use them with other metrics. The PEG ratio combines all benefits […]
Everything to Know about ROIC, with Average ROIC by Industry Data
“A truly great business must have an enduring ‘moat’ that protects excellent returns on invested capital.” –Warren Buffett, 2007 Shareholder Letter Another quote from Buffett in his most recent shareholder letter concerning return on invested capital: “Well-managed industrial companies do not, as a rule, distribute to the shareholders the whole of their earned profits. In […]
How to Find Negative Retained Earnings in a 10-K – Does it Indicate Distress?
Stockholders’ equity, also called book value, is the company’s assets minus its liabilities. We talk about tangible book value when we value investors discuss shareholders’ equity. But what happens if a company has negative retained earnings, which drives the shareholder’s equity negative? Does this happen? Quick answer: you bet! Last week we discussed the statement […]
How to Find the Statement of Retained Earnings in a Company’s 10-K
When reading through any financial statements on annual reports, I always zoomed by the earnings statement because I didn’t know what it was. Or what retained earnings were on the balance sheet. Until recently, when I started reading through the Berkshire Hathaway Letters to Shareholders, I discovered the importance of retained earnings and their meaning. […]
