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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Bob Rudd who wrote (15955)	12/26/2002 9:57:21 AM
From: TimbaBear	Read Replies (1) \| Respond to of 78626

Bob Rudd While I do a multiple based on using the cash flow, it is not in the format of "enterprise multiple". I find that using "market cap" as any part of my determination of value will give me a volatile measuring device, as the formula in no small measure depends on how the market is voting at the point in time that I make the calculation. [For the initiate, market cap is market price that day times the number of shares outstanding]. Instead, I like to use the cash flow and compare it to what it would cost me to purchase that same cash flow safely (say a CD). I admit to some laziness in this regard as I find it too much work to keep up with CD rates on a frequent basis, so I use 6% as a proxy. If I'm to assume the risk of the stock market, I want to be compensated for it. What I look for is twice the safe rate as a minimum return. So...if I find that a company has Free Cash Flow (by my conservative derivation of that number) of, let's say, $1.20/share, then $1.20 divided by 12% (twice the CD rate I use) is $10.00/share which is the highest price at which I be willing to buy the shares of that company, given that cash flow. Of course, this is not my only determination of value in my buying decisions, but it is the critical test that, if not passed, I stop my research into that company. Timba