Nice article Jacob. Do you think it’s reasonable to add the total asset value as part of the value of a company? This method is actually proposed by Joe Ponzio, the author of the book FWallStreet. He prosed to value business based on the asset and future cash flow of the business. i.e company value= future cash flow+ companies net assets. I’m just curious what’s your opinion of it.
Thank you, Mingyang. I don’t believe that makes sense personally. Asset value is how much the company owns, cash flow is how much you as the shareholder actually earn on an operational basis. You’ll never touch asset value as an investor unless the company goes bankrupt. But cash flow is what causes growth from reinvestment, dividends, buybacks—this is what matters to us. Though it depends on the business. Brookfield or Berkshire are exceptions where you’d want to pay a little more attention to asset value.
This is a good one. I just use the historical multiples within the context of historical growth and quality vs current growth and quality, then conservatively estimate future possible multiple using the consensus estimates.
Nice article Jacob. Do you think it’s reasonable to add the total asset value as part of the value of a company? This method is actually proposed by Joe Ponzio, the author of the book FWallStreet. He prosed to value business based on the asset and future cash flow of the business. i.e company value= future cash flow+ companies net assets. I’m just curious what’s your opinion of it.
Thank you, Mingyang. I don’t believe that makes sense personally. Asset value is how much the company owns, cash flow is how much you as the shareholder actually earn on an operational basis. You’ll never touch asset value as an investor unless the company goes bankrupt. But cash flow is what causes growth from reinvestment, dividends, buybacks—this is what matters to us. Though it depends on the business. Brookfield or Berkshire are exceptions where you’d want to pay a little more attention to asset value.
Intrinsic Valuation is a 5 minutes work !
Depends on how long you spend figuring out rational inputs!
This is a good one. I just use the historical multiples within the context of historical growth and quality vs current growth and quality, then conservatively estimate future possible multiple using the consensus estimates.
Thanks!
That’s a great strategy too. It’s all about perspective and reasonable assumption after all. Historical multiples are very useful for perspective.
Thanks! Very true. I also use reverse DCF to check the expectations.