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Strategies & Market Trends : Value Investing

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To: armi who wrote (40864)	12/31/2010 12:20:32 AM
From: Spekulatius	Read Replies (1) of 78845

>>Spekulatius, what do you think is the best valuation method?<< Basically, earnings and earning growth. Looking at the balance sheet and the cash flow (or free cash flow) statements serves the purpose of checking the headline earnings numbers for shenanigans (accounting tricks) to make the headline earnings numbers better than they otherwise would have been. You basically want to understand if management is able to increase the value of he company or not. Generating FCF (which means generating a surplus of cash) is just one of the means to do that. For a energy company, it could be to generate a surplus of reserves in the ground ( reserve growth) or an utility it would be great to invest in new equipment (Power plants, power distribution facilities) that are going to generate an even larger stream of cash in the future. For a bad way to spent cash (IMO), look at INTC purchase of McAfee, spending 48$/share for a company/stock that makes a little more than a 1$/year in earnings after, for a <3% after tax return.

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