Hi mindmeld, might have been prettier if you used columns instead of rows ;) If you want to fix that for future reference, try cut and paste_special with the transpose function ticked. Although you may have to move rows around.
Anyway, there's a difference between how you and I account for dilution.
In my model, we first take the present value of profits that the company has accumulated over time and second sum this, and third divide the sum by the shares outstanding at valuation point.
In your model, you first take the present value, second divide by shares outstanding at that time, third sum.
This would be correct if the profits were being paid out as dividends per share. But if they are being retained, then your approach is broken. I made the same mistake myself the first time through.
Simple example, let's say the company has 100 shareholders and earns $100 in year 1 and has 200 shareholders and earns $200 (present value) in year 2
Assuming the dilution is via printing more shares and not a split or other distribution, a shareholder of one share in year 1 can look forward to his share of total earnings accumulated in years 1 and 2 along with all of the other shareholders who sit at the table with him, regardless of whether they came in earlier or later. So that gives him 1/200'th of (100+200) = $300/200 or 1.50 in present value for his share.
Your method would have this shareholder calculate his worth as 1/100 x $100 + 1/200 x $200 = $2.00
I think therefore that your method overstates the value and this is why one reason we get different answers even for the same starting position. Oh, and yes, my model goes to 2020 not 2030. This is the second reason.
John |
