Sum of the Parts Valuation – When a Company Has Many Business Segments
Valuation is part art, part math, and valuing a company encompasses many moving parts. Suppose we want to value a company and notice several different businesses tied up in the company. How do you value such a company? One of the best ways to value those companies is the sum of the parts valuation. By […]
Cash Flow Statement: The Final Stage of a 3-Part Financial Model
Forecasting the cash flow statement is the final stage in developing a 3-statement financial model in what was a linked and iterative process. The figures on the cash flow statement will in large part be driven by the changes in amounts on the balance sheet as well as certain non-cash income statement items. As we […]
Summary of the John Burr Williams Formula – The Basis of Intrinsic Value
What is the equation for value? Warren Buffett defined it in his 1992 annual shareholder letter. He referenced the formulas in the classic, The Theory of Investment Value by John Burr Williams. This post will present and explain this exact formula published by John Burr Williams and help modernize it in today’s terms. Nobody has […]
Income Statement Forecasting: The First Step of a 3-Part Financial Model
Forecasting the income statement is the first step of a 3-statement financial model and it is the most critical part of any forward-looking financial analysis. The projections made in the income statement will drive various items on the balance sheet and cash flow statements. Forecasting the income statement is key to creating forward looking P/E […]
The Return on Capital Formula
“Businesses that earn a high return on capital are better than businesses that earn a low return on capital.” Joel Greenblatt In his seminal book “The Little Book that Beats the Market,” Joel Greenblatt laid out his now-famous “Magic Formula,” included in the formula is his version of return on capital. It is the formula […]
Balance Sheet Forecasting: An Essential Part of a 3-Part Financial Model
Forecasting the balance sheet is an essential part of any 3-statement financial model as the balance sheet, income statement, and cash flow statement are all integrated and need to flow. While the balance sheet is not as flashy as the income statement to investors, balance sheet projections form a critical role in developing the cash […]
Cash Return On Invested Capital: “Insider” Formula for Earnings
Updated 5/1/2024 Cash is king, and finding companies that are superior reinvestors of that cash is one of the trifectas of investing success. One of the easiest ways to find these companies is a formula called Cash Return on Invested Capital. The CROIC formula is a bit of an inside-baseball formula. Wall Street doesn’t talk […]
How to Use Enterprise Multiple to Put a Valuation on a Company
Updated 4/4/2024 There are many ways to value a company, including discounted cash flows, dividend discount models, value ratios, price multiples, and more. In today’s post, we will discuss the enterprise multiple, which includes a company’s enterprise value and a different measure of its revenue. Using the enterprise multiple is a reasonably easy way to […]
How to Find and Invest in Tax Free Municipal Bonds
“I’m proud to be paying taxes in the United States. The only thing is – I could be just as proud for half the money.” Arthur Godfrey No one likes to pay taxes; imagine an investment that allows you to legally avoid paying taxes on your returns. Is there such a thing? Yes, there are, […]
Corporate Bond Trading for Beginners: How to Buy Bonds Online
Ben Graham, the father of value investing and the creator of security analysis, was a huge proponent of investing in bonds. His seminal book, The Intelligent Investor, recommends allocating anywhere from 25% to 75% of your portfolio to bonds. Investing in bonds can be a great way to increase your margin of safety and protect […]
