Forums General Discussion Intrinsic Value Course Q&A

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  • Stig BrodersenStig Brodersen Administrator
    Post count: 224

    Our most popular investing course is the Intrinsic Value Course on TIPacademy. It has taken us close to one year to create the outline, record the audio, and animate the videos. Based on the numerous emails, posts on the forum, and speaking to all of you at our live events we feel certain that this is the course that will guide you step-by-step to estimate the intrinsic value of any stock of your choice.

    If you want to access the course page for more information, please follow this link: https://www.theinvestorspodcast.com/intrinsic-value-course/

    As part of the course, Preston and I will be responding to any questions you might have to any of the 18 lessons including the intrinsic value calculator Excel spreadsheet, our checklist for systematic risk, and our checklist for competitive advantage.

    Perhaps you would like to get feedback on your intrinsic value of a specific stock pick? Or perhaps you would like our view on the competitive advantage of a specific company? Please post any questions you might have below.

    We look forward to the discussion!

    Sincerely,
    Preston and Stig

    Price is what you pay. Value is what you get. - Warren Buffett

    nc10000@hotmail.comnc10000@hotmail.com Member
    Post count: 10

    Hi Stig,

    I have been reading the intrinsic value report of the company, United Therapeutics Corp (UTHR). In the report, it says that the free cash flow growth rate in the period of 2010-2017 is 10.45 %.

    My question, is where do you get this crucial number from?

    Or how did you calculate this number?

    Thanks,

    Cheers,

    Neel

    hgutier1027@gmail.comhgutier1027@gmail.com Senior Member
    Post count: 26

    Hello Stig,

    What is the discount rate you use in companies or where or how can I find out the discount rate for any company I analyze?

    Thanks,

    Stig BrodersenStig Brodersen Administrator
    Post count: 224

    Neel,

    Thank you so much for your supporting the TIP Community taken the Intrinsic Value Course.

    We calculated the FCF growth. Now, this is a very sensitive number and also why we don’t put too much emphasis (probability ) on history to repeats itself. Also because it’s typically harder to sustain in a growing company.

    -Stig

    Price is what you pay. Value is what you get. - Warren Buffett

    hgutier1027@gmail.comhgutier1027@gmail.com Senior Member
    Post count: 26

    Stig,

    Can the discount rate be the same as the WACC of a company?

    nc10000@hotmail.comnc10000@hotmail.com Member
    Post count: 10

    Hi Stig,
    Can you please tell me how you calculated the free cash flow growth?
    Thanks.

    Cheers,
    Neel

    Stig BrodersenStig Brodersen Administrator
    Post count: 224

    Neel,

    193*1.1045^7 = 387.

    Here are the numbers: http://financials.morningstar.com/ratios/r.html?t=0P000005NQ&culture=en-US&platform=sal

    -Stig

    Price is what you pay. Value is what you get. - Warren Buffett

    nc10000@hotmail.comnc10000@hotmail.com Member
    Post count: 10

    Hi Stig,
    Thank you.

    Neel

    nc10000@hotmail.comnc10000@hotmail.com Member
    Post count: 10

    Hi Stig,
    Can you please tell me the best sources and websites, where you can get the data of the Free Cash Flow for Australian and British stocks?

    Cheers,
    Neel

    David FloodDavid Moderator
    Post count: 207

    Hi Neel, you can get FCF data for UK and Australian stocks from Morningstar;

    http://www.morningstar.com/

    Type in a company ticker and pull up the quote page, click on the ‘Key ratios’ tab then click the ‘Full key ratios tab’, this will bring up a page with 10 year data including FCF.

    Regards,

    David

    1 user liked this post.
    nc10000@hotmail.comnc10000@hotmail.com Member
    Post count: 10

    Hi David,
    Thank you.
    Cheers,
    Neel

    devinmcnab@hotmail.comdevinmcnab@hotmail.com Newbie
    Post count: 5

    Hi Stig,

    In towards the end of episode 1:3, who actually desides on what the actual cape rate or discount rate is? Whether it’s 10%, 5% or 7%, who sets the figures so you can base the valuation calculation off? Cheers

    Regards Devin

    Stig BrodersenStig Brodersen Administrator
    Post count: 224

    Devin,

    Great question.

    1) You can look at this as it’s your valuation of the risk of the investment (more risk = higher discount rate)

    2) You can also look at the discount rate as being less important because if you use the sheet you can download from the course you’ll find the implicit discount rate which is your expected return.

    Thank you for supporting us!

    Price is what you pay. Value is what you get. - Warren Buffett

    Arqum BegArqum B Newbie
    Post count: 6

    Hi Stig,

    I want to understand why we are using the free cash flow instead of the earnings to calculate the intrinsic value?
    Second how does the free cash flow model of intrinsic value will fare with respect to financial companies like banks etc?

    Regards,
    Arqum

    David FloodDavid Moderator
    Post count: 207

    Hi Arqum,

    Great questions.

    Net Income or EPS is an accounting figure which is used by companies for reporting purposes whilst free cash flow is the actual amount of cash available to the owners once all prior claims and costs have been dealt with.

    FCF is basically the amount of cash that a firm generates after its spending on capital expenditure(CAPEX), this being such things as property, plant & equipment (PPE). CAPEX is basically the spening a company needs to do to maintain and grow its assets. The FCF is the cash which is left and available to be spent on paying down debt, buying back stock, paying dividends, reinvesting in the business or being held on the balance sheet.

    With regards to financial companies and the FCF model;

    It is much hader to accurately define debt, CAPEX and Working capital for banks etc and so estimating FCF is more difficult. For this reason it is preferrable to use an equity valuation model for banks rather than an enterprise valuation model.

    For more information on valuing financial firms see this NYU paper here;

    http://people.stern.nyu.edu/adamodar/pdfiles/papers/finfirm09.pdf

    Regards,

    David

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