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Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Taikun who wrote (40875)	3/27/2005 8:28:17 PM
From: Ed Ajootian	Respond to of 206281

Taikun, Lots of good stuff here, I will have to get back to you later on this after I've had a chance to look at it. First thoughts on this is that EV/DACF is a good metric and I have been using it a lot. Not sure that any one is necessarily "better" than another. For market-based metrics, you can compare the answer you get over several such metrics and they will either confirm each other or bring up discrepancies that require further review. EV/DACF is a market-based metric since the numerator makes use of market value of the stock. ROCE is not market-based, neither the numerator nor the denominator uses a number that is derived from the market value of the stock. ROCE (as with any of these metrics) can be misleading if looked at in a vacuum. One reason KCS has been putting up such great numbers for ROCE in recent years is because in their string of bad years (around '98 -- '00 or so) they took some big reserve writedowns and wrote off their deferred tax assets, which reduced their stockholders' equity. It may take a few days for me to get to look at this stuff but I will let you know more thoughts then. Thanks for the post, I love talking about this stuff!

To: Taikun who wrote (40875)	3/30/2005 9:45:35 PM
From: Ed Ajootian	Read Replies (1) \| Respond to of 206281

Taikun, finally got a chance to look at that big paper you linked about valuation metrics. These guys are making much ado about nothing IMO. There are too many other variables affecting stock prices to allow someone to be able to put their finger on one "silver bullet" metric that could somehow be predictive of undervaluation. That being said, I thought I would mention one of my recent favorites, that I like to use especially around this time of year. I don't have any fancy name for it, basically you take the company's SEC PV 10 value of their reserves per mcfe and divide them by their F&D costs per mcfe. The resulting fraction tells you how much value they created over the past year per $ of cap ex. If the number is less than 1, then they didn't create value they destroyed it (a la TMR). Regarding ROCE, I think I will keep ROCE in mind going forward, I like the intuitive aspects of the stat. That is, how did you (the company) do with the capital you were given by the markets? Notice that its not enough that you increased your production 25%, the key question is did you do so in a manner that was economic, relative to your peers?