DCF for Bank Valuation: Step-by-Step Guide with Real-Life Examples
Updated 3/6/2024 Did you know that the financial industry makes up $8.81 trillion of the stock market cap, which is 13% of the market and is the third-largest by market cap compared to tech and consumer discretionary? Most investors ignore or pass the financial industry by because they don’t understand the industry or value those […]
3 Simple Tips for Managing Interest Rate Risk in an Ever Changing World
Updated: 5/23/2023 For investors, basic interest rate risk management means that your portfolio should still earn a decent return even if interest rates were to trend in an unexpected direction. History can show us explicitly how interwoven interest rates and valuations (stock prices) have been; history also tells us that changing interest rates are the […]
Valuing Young Companies: A Complete Guide Using a DCF (FCFF) Model
Updated 12/12/2023 Valuing a young company is one of the more difficult tasks in valuation. Trying to pin a value on a young company, startup, or idea business is difficult because of little or no revenues and large operating losses. Other challenges are the short financial histories of young companies, plus the dependence on outside […]
Building a DCF Using the Unlevered Free Cash Flow Formula (FCFF)
Updated 12/12/2023 “Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life.” –Warren Buffett Cash is the lifeblood of all companies, and determining the fair value or intrinsic value is a matter of calculating what the future cash flow […]
Expect 4.6% Equity Returns According to the Grinold-Kroner Model
The Grinold-Kroner model can be used to estimate returns for a single stock, a sector, or the market in general and is a learning from CFA Level III on capital market expectations. Knowing the factors contributing to total expected returns in the Grinold-Kroner model can help investors understand what is driving their returns. In this […]
Using 65 Years of Statistics to Make an Intelligent Cash Flow Projection
In valuation, the name of the game is expected future cash flows. It’s not about the past, it’s about the future. So in trying to estimate the value of an asset, an intelligent cash flow projection is critical. And it’s rife with pitfalls. As we know, there’s a myriad of destructive biases and ideas that […]
How to Use Reinvestment Rate to Project Growth for Valuation
Updated 5/22/2023 “Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.” Warren Buffett, 1992 Berkshire Hathaway Shareholder Letter Finding companies that compound their returns on invested capital over long periods while growing simultaneously […]
REIT Cap Rate Formula with Real-Life Examples [STOR, ADC, NNN]
The REIT Cap Rate formula, along with Funds From Operations (FFO), are two critical REIT ratios to understand and implement when analyzing REIT (Real Estate Investment Trust) stocks. REITs require special ratios, of course, because of the unique features and structure of their business models. In contrast to more traditional corporations, REITs derive their revenues […]
Walking Through a Valuation Including Share-Based Compensation
Updated 2/7/2024 The use of stock-based compensation has grown over the last twenty years, not only among CEOs and other C-suite management but also among the lower tiers of employees. As many of the newer companies become public, the increase of stock-based compensation continues to grow. It makes sense when you consider it; enticing employees […]
Making a 3-Variable DCF Sensitivity Analysis in Excel
A DCF sensitivity analysis is a fantastic way to estimate valuation on a company because it gives you a range of intrinsic values instead of just one steady state number. DCFs inherently rely on future assumptions, and we can’t be precise on these (because the future is unknown), so it’s better to estimate them with […]
