Then I went through the rest of the financials looking at many things like: What was the pattern of revenue over the last 5 years, was it increasing for at least 4 of them? I noted the net profit margin, interest rate coverage, dividend pay-out ratio, book value(although I don't value this figure very much), and listed the dividends of those who paid them and observed the patterns there over the last 5 years.
Next I went and got the average daily trading volume and current price of the stock as of Friday's close.
Then I added my derived figures for "Net Current Value" and "Net Hard Value" and compared that sum to the current price and noted whether my value was a discount or premium to the current price.
Having arrived....where and at what, I'm not sure....I'm uncertain as to what might be the next step in the winnowing process.
Some questions:
1).What is the belief of the board regarding "Current Assets".....is this number usually a solid enough figure that I wouldn't need to discount it in this evaluation process?....I know that I can get better insight by reading the 10Ks, but in preliminary screening like this, I wanted to get down to those companies worthy of spending the extra time first.
1a). Sort as a corolary to the above....I'm assuming that inventory is usually considered a "current asset"....is this usually carried at cost? And should I attempt to devise an adjustment to it for inventory turn-around frequency?....or for quick sale value?
2). This is really stretching, but I don't know, so I'll ask: the "Other" assets figure I lump in with PPE and discount them both 50%, is this a "fair" treatment on my part of "Other" assets? The reason I discount PPE 50% is to simply quantify the myriad issues (and their impact)regarding the liquidation of property and equipment: sales commissions, sales time, uniqueness of use, etc. I am assuming, for now, a relatively liquid and somewhat favorable market for real estate.
I know that "Other" can mean virtually anything, I just wondered if anyone out there has gotten a feel for this area and how to quickly account for it.
3).Now that I have arrived at a number that represents, to me, a close to rock bottom value of a company, what do I do with it? I mean, should I try to factor in "enterprise value" (which I haven't really gotten a good formula for). What I guess I'm trying to ask here is: Having arrived at this number, is there a further way to refine it so I can measure more clearly whether the current price is a discount to fair value or a premium to it?
I hope I haven't been as confusing as I have sounded in my mind with this last question!
I thank all of you in advance for your input. |
