<Reginald ; Enjoyed reading your views on CSCC. Is your system of equity analysis essentially modeled after G Bennett Stewart " The Quest for Value">
This particular model can be considered a derivative of the Stewart method. The major difference is that I used accouting earnings (non-cash expenses have not been added back) in determing value, therefore the value number can be affected by earnings manipulation. This being the case, it is still a much better indicator of worth than the standard earnings measure. I will introduce the institutional strength version of the model sometime in the near future that avoids accrual accoutning manipulations of accounting earnings.
< I seem to think it was most applicable to more mature companies. That you can derive a companies MVA and EVA based on historical data . I would assume for it to have significant meaning you would really want more than a two year history, particulaly to extrapolate from.>
Any valuation method will have a more diificult time in accuartely valuing newer companies due to a lack of track record. A companies "newness" is actual a risk (potential deviation from expected results), and so I simply model it is as such. For instance if a company has been in business for only 3 years, and my model calls for a 5 year average of growth, instead of assuming it will continue its 3 year growth rate, I include the two blank years in a five year cumulative average growth calculation (unless I know the industry and the company welll enough to make more accurate estimates). This brings the average growth below what the actual years of growth would have been, and serves as a sort of oversimplified penalty for the companies "newness". As the company matures, the smaller the "new company risk penalty" gets. This may be relatively simplistic and crude, but it works for me.
<I don't recall if that system allows for future growth projections.>
Future projections can be had simply by guesstimating future cash flows of the corporation. This is the method used in DCF analysis,and EVA is simply DCF - cost of capital, using the prospective cost of capital as the discounting factor.
The sustainable growth that you see in the previous posts are the result of the simplified ROE x 1 times payout formula. If you have not already done so, read the first few posts on this thread for the background on the limitations and capabilties of the simplified model.
The model I have posted for download is an Excel 5/ '95/ '97 spreadsheet, embedded with Active X, Visual Basic and macros. If you have an Excel or compatible program on your machine, you can run it. |
