I.

Calculating Growth Rates

Calculate Compounded Annual Growth Rate for EPS, OCPS, Sales, and Book Value per Share
Earnings Per Share (EPS) = Found on the Income Statement, EPS is the amount of the company's earnings allocated to each share of common stock.
Operating Cash Flow Per Share (OCPS) = Found on the Cash Flow Statement, OCPS is the amount of cash from operations allocated to each share of common stock.
Sales = Found on the Income Statement, Sales is simply the company's total annual sales.
Book Value Per Share = Found on the Balance Sheet Book, Value Per Share is the value of Common Shareholder's Equity / Total Outstanding Shares .
Item Age Initial Value Current Value Rate
EPS 4 0.21 $ 0.74 $ 37%
OCPS 4 964.40 $ 266.00 $ -28%
Sales 4 1,225.00 $ 2,808.00 $ 23%
BVPS 4 4.85 $ 8.69 $ 16%
II.
Calculating Return on Equity (ROE) and Return on Invested Capital (ROIC)
Return on Invested Capital (ROIC) = ROIC is NOPAT / Debt + Equity and the return achieved on all invested capital.
Return on Equity (ROE) = ROE is Net Income / Shareholder's Equity and the return achieved on sharholder's ownership.
NOPAT 996 $ Net Operating Profit After Taxes is on the Income Statement.
Long Term Debt 119 $ Long Term Debt is found on the Balance Sheet.
Equity 11,292 $ Shareholder's Equity is found on the Balance Sheet.
ROIC 9%
Net Income $995 Net Income is found on the Income Statement.
Equity $11,292 Shareholder's Equity is found on the Balance Sheet.
ROE 9%
III.
Long Term Debt $119 Long Term Debt is found on the Balance Sheet.
Net Income $995 Net Income is found on the Income Statement.
Debt to Earnings (Yrs) 0.12
IV.
Sticker and MOS Price
Calculating the Sticker and Margin of Safety (MOS) Price
EPSTTM $1.03 EPSTTM is found on the Income Statement and is the EPS for the last 12 months.
Earnings Growth Rate 16% Determine at what rate you think earnings for this company will grow year after year.
Future P/E Multiplier 10 Enter an estimate of the future (P/E) using one of the appropriate methods.
MARR 15% Determine your Minimum Acceptable Rate of Return.
MOS % 25% Determine your Margin of Safety. Novice investors use 50%.
EPSTTM Future EPS Future Retail Value Sticker Price MOS Price
$1.03 $4.54 $45.44 $11.23 $8.42
V.
Calculating the PayBack Time Price
PBT Years PBT Price
Default 8 $17.01
User Defined 5 $8.22
PayBack Time Analysis
Return on Invested Capital (ROIC)
Return on Equity (ROE)
Debt Analysis
Debt to Earnings Ratio
Pay Back Time
Moat Analysis
Management Analysis
ROE and ROIC
PBT Analysis
Business Valuation
Companies that have been able to sustain compoundedannual growth rates of over 10%
per year in EPS, OCPS, Sales, and BVPS are considered to have a durable moat. The
competitive Moat keeps competition at bay and allows these companies to grow at
above average rates. Looking at the Growth Rates you have calculated, does this
company have a Moat? Are all
these growth rates similar? Reliable companies are ones where EPS, OPS, Sales, and
BVPS, all grow at a similar rate.
Companies that have high a high ROIC are one's that efficiently use the capital that they
have raised in order to grow the business. Look at the ROIC of a company over time. Is it
stable or increasing? If ROIC is greater than 10% over time it demonstrates the
effectiveness of the management team and their ability to run and grow the firm.
ROE is the return that shareholders are recieving on their invested capital. (Shareholder's
Equity). Shareholders expect ROE to be stable or increasing. Companies that have a ROE of
greater than 10% over time, demonstrate the effectiveness of management in increasing
the value of shareholders equity. Be aware of companies that have a high ROE but low
growth rates. This can mean that management is artificially supporting ROE, which is
commonly used as a measure of management quality .
The Debt to Earnings Ratio demonstrates the amount of years it would take the company to
pay off its current Long Term Debt if it used the current level of earnings. Companies that
have a Debt to Earnings Ratio of less than 3 years are considered stable because they do not
have a large amount of interest expense or debt to service. Companies with Zero debt are
considered less risky because they have the ability to raise debt capital should it be
necessary to avoid unforseen market or business issues. Analysts should look at both the
Debt to Earnings Ratio and the level of Debt over time to see if it has increased or decreased
.
The parameters that are used for calculating the Sticker and
MOS price comes from your analysis of MOAT and
Management and are a function of your expectations of
future growth. Determine the EPSTTM by loking at the most
current EPS or to be more conservative, use an average for
the past few years. The earnings growth rate should be in
line with the Compounded Annual Growth Rates that were
calculated for EPS, OCPS, Sales, and BVPS. Since BVPS is the
hardest to manipulate, start with the ten-year growth rate in
Book Value. For comparison, look at the analyst's forecast.
Make sure your future P/E multiplier is in line with what this
particular business has sold for in the past.
Using Earnings pe Share (EPS) growing at the Earnings Growth Rate (EGR), the PayBack Time
Price (PBT Price) is the amount one can pay for a particular business to potentially recoup
their initial investment within 8 years using the earnings of the company.
At left you can see both the PBT price for 8 years and the PBT Price for a user defined number
of years. Change the number of years in the box labeled user defined to see the PayBack
Time Price for holding periods from 1 to 10 years.