For real? I'm super excited. Juliana heidi strategy has normalized winning trades for me also. and it's a huge milestone for me looking back to how it all started😀
Hi, your videos are amazing, thank you! just one question, you mentioned that you follow someone`s guidelines and his book but I can not hear the name and the subtitles are not helping so can you please share the name of the person that you mentioned in the video? I heard the name of Phil Town but not the second name that you mentioned at 08:30.
high invensting with Tom. you are brilliant, for around 8 months ago i did a big valution of 100s of companies and your videos has managed to help me a lot. the company i ended up buying is been doing really well i am up 80% in it
Good exercise to do, though I'm not sure I understand 100 companies well enough to value them confidently! Thanks for the kind words, but I take no responsibility - you did the work ;)
I did valuation of google around a month back and came up with 90-100 dollar value. Pretty much i followed the similar approach. Difference being 8% discount rate (~government bond rate here in India), more conservative forecasts and for terminal value calc i again used 8% discounting (~12x multiple) on 10th yrs FCF At last, pls keep up the good work. I enjoy watching your videos
Thanks for this video and the spreadsheet! One of the better ones I have watched. For FCF, how do we know what a "typical" year is? There are many line items under OCF and I can see how the company manipulates these numbers for any specific year. I could see the possibility of hefty one-time spends for CapEx as well.
hey bro thank you for the content but for finding the inartistic value u had multiple videos with different approach or one that doesn't use free cash flow and each one gives different value if u where to choose one and stick to it would u choose the one mentioned in this video thank you again
Hey Tom, I’m having a really hard time using your calculator.. I keep getting ridiculous outputs.. is there any information you can offer to help with this?
Thanks for watching! Be sure to subscribe for more, and feel free to download the spreadsheet template via the link in the video description :) **Important note** I’ve had a few good comments about whether or not it’s correct to be subtracting SBC from FCF, since it’s already expensed on the income statement, then added back on the cash flow statement to get to operating cash flow. Surely adjusting for it again is double counting? It seems there are varying opinions on this between different analysts and valuation professors etc. Here’s a good article laying about both sides of the argument: www.wallstreetprep.com/knowledge/stock-based-compensation-treatment-dcf-almost-always-wrong/ Subtracting free cash flow as I’ve done in the video is more conservative and essentially treats SBC as if if were a cash cost, and will give a lower intrinsic value result. But, you could easily argue it’s TOO conservative. For companies will little to no SBC, you should get the same result either way 🙂
this is a great starting framework, thanks a lot Tom. will appreciate if you could from time to time make videos like this with gradually more complicated sheets that will take in to consideration more parameters, like building on it, purely for learning, not for stock tips or anything like that.
How did you get the Excel template to automatically change the stock? Like when you switched from google to apple and it automatically adjusted the share price?
Great explanation! One question though, why is there only an adjustment for net cash/(debt) and no adjustment for other classes on the balance sheet such as PPE or trade receivables/payables?
The other adjustments you are talking about are included in the free Cash Flow formula. I don't know how Yahoo calculates Free Cash Flow. But the widely used formula is : EBIT(1- Tax%)+ Depreciation + Non Cash Items - Capex- Change in Working Capital. The PPE is covered in Capex and Receivables/ Payables are Covered under Working Capital.
How often we should change expected cash validation for example as in thr case of BABA it changes to be fairly to overvalued within 3 months or so with no clear reason which i fine difficult to understand
Hi Tom, The FCF you are using is only for Equity holders, since FCF is derived from net income where interest payment has already been paidout. Can you please explain why are you adding back cash and deducting total debt in the end and then afterwards divide by number of outstanding shares(equity holders) ?
If you use discounted cashflow year 1 $43 and use rule of 72. 1st 4 year $86 @ 15%+ next 6 years 43 @10% 86+43= 129 and use 10x129 = 1290 would that calculation work?
Hi Tom, great video, easy to follow. Sorry I'm a bit of a novice but my question is that your spreadsheet handles billions. The scenario I'm looking involves hundreds of thousands on the cash flow and compensation, and millions for the net cash and shares outstanding. How do I adjust the table to represent these amounts accurately in a share price. Any guidance would be great. Thanks
Great video!!! Is it possible for you to share this spreadsheet? I’d like to examine it more closely. I didn’t quite get where the stock based compensation is plugged into calculations.
SBC is a cost that isn't captured by FCF. Buybacks, dividends etc. are decisions about how the cash is then allocated. It has a real impact over time of course, but I don't really want to get into the business of how many shares the company might or might not be able to retire in a spreadsheet - too many moving parts. Approximately right > precisely wrong ;)
thank you tom for this great analysis. one thing i'd say is probably not accurate to consider the growth of stock based compensation at the same rate as FCF. usually stock based compensation is related to revenue, so if a company plans to increase revenue by 10% annually, they might pay out 5% of that in stock based compensation. what i'm saying is FCF grows at a different rate than SBC. you're not wrong in your analysis for google or apple, but for smaller companies, this model will greatly skew the numbers towards negative growth, which is not feasible. also, your discounted column F is constant from F8... something off there?
Thank you Tom for the descriptive video on stock valuation using the DCF model. Great idea to include the margins of safety ranges at the bottom of the calculation.
Randomly assigning any %, let's say 50%, as MOS is not rational and kind of brainless idea. MOS shall be derived from the inferiority of the high debts or inferiority of the low economic ratio.
Thank you for the video Tom. I have a question regarding free cash flow. If you calculate your expected return based on your estimate of future free cash flow, this assumes that all free cash flow is returned to shareholders in the form of dividends. How do you handle the situation when free cash flow is used for acquisition, debt reduction, buybacks etc. ? Each of these options produce different returns, for you the investor. A video on this topic would be great, because it's quite a long question. Regards.
Yeah, it's a good question and probably too complicated (for me at least!) for a spreadsheet. I've grown to appreciate how much capital allocation makes a difference though. I don't tend to do much maths on it personally, other than make sure I'm clear I understand management's plans in this area before going into an investment
@InvestingwithTom I haven't seen much literature on it either, which is quite surprising. This is the only theoretical factor that would account for the divergence between owner's earnings produced and actual return achieved. I may propose this as a research topic when I do my postgraduate studies.
My personal philosophy is that if I believe that any free cash flow that immediately isn't returned to the shareholders, should be used by the company to produce more cash in the future. If I don't believe the company will do that, I won't invest.
This may not be the best way to view it and it would depend on management competence but cashflow that isn’t returned to shareholders stays in the business and provided the ability to generate more future cashflow. This could be captured in the terminal value since increased cashflow will increase the terminal value. If you expect cash to be reinvested in the business, you can account for it in the growth rate too without getting too optimistic. You’re generally going to only give the business a high growth rate if the company is reinvesting capital and not distributing all of its free cashflow. Debt reduction can increase cashflow over time and strengthen the balance sheet which might demand a higher terminal value. Acquisitions can increase cashflow or be the driving force for your expected growth rate. Share buybacks would be the reverse of the share dilution that Tom has on his sheet. If buybacks are expected to outpace stock compensation, a negative number there would help with the calculation but this is hard to predict for most businesses, especially when you’re looking out 10 years.
Hey Tom, thanks for the great videos. As far as i know Alphabet reports the share based compensation in their cost of revenue section. Since the FCF calculation is based on the net earnings that cost is already included. If you subtract share based compensation on FCF, your subtracting it twice, which in Alphabets case would strongly impact the present value in a negativ way Greatings from switzerland.
Hey there, SBC is quite clearly added back to net income on the cash flow statement to arrive at cash from operations (which then flows through to FCF), so I still believe subtracting it as I've done in the video is the correct treatment. Thanks for watching/commenting :)
@@InvestingwithTom You're simply not understanding what he is saying. I think OP meant that SBC is already taken into account as an expense on the P&L statement thus giving a lower net income. So by deducting SBC off from Net income you are effectively subtracting its effect twice. Although tbh, just substracting SBC is a lazy way to take into account the effect of SBC, but SBC is indeed added back for a reason on the cash flow statement.
Same process - how much cash will they produce in future, discounted back to today. The challenge is having any level of confidence at all in your FCF estimates!
Рік тому+3
I'm almost getting nostalgic when I see that thumbnail! Is part 1 still your most successful video of all time?
Determining an intrinsic value is not the objective. The objective is to invest in securities that will produce favorable rates of returns. After the determination of an intrinsic value, how do you determine the rate of return on the price appreciation of the stock. (Without that, what is the point?) And, if you determine the intrinsic values of 2 stocks, how do you decide which one to buy? Suppose one is expected to produce a return of 5% and the other 20%. How will you know?
Tom Thanks for sharing the valuation template. It was good to go through the model. I noticed that the model doesn’t include the impact for dividends. Cheers Graham.
Thanks for sharing your file. What growth rate is it for the 5 years and ten years? Revenue, earnings per share, cash flow growth rate?... Same question for the 5 next growth rate on Yahoo finance? What growth rate are we talking about? Thanks
If you use discounted cashflow year 1 $43 and use rule of 72. 1st 4 year $86 @ 15%+ next 6 years 43 @10% 86+43= 129 and use 10x = 1290 would that calculation work.
Monish Pabrai is a very average investor and his historical returns are around 7%-11% YoY. Its funny that you mention him but have no idea how bad of an investor he is.
Hit 200k today. Thank you for all the knowledge and nuggets you had thrown my way over the last months. Started with 17k in last month 2024.
Wow that's huge, how do you make that much monthly?
I'm 48yrs and have been looking for ways to be successful, please how?
Honestly speaking, I will continue to trade and stick to Juliana Heidi daily analysis and guides as long as it works well for me..
For real? I'm super excited. Juliana heidi strategy has normalized winning trades for me also. and it's a huge milestone for me looking back to how it all started😀
More awesome T.A. with mrs juliana heidi! Keep driving those Bullas! 68K BTC? Oh Yeah. Cheers, Mate🤩'
"Trying to be approximately right rather than precisely wrong"
Loved it!
Thanks! Not sure who I stole that from, but I like it too :)
@@InvestingwithTomThat's a Munger quote
@@InvestingwithTomKeynes
Correct, John Maynard Keynes first said it @jeremynewell9903 @@siggiAg86
Thanks bro, especially for attaching spreadsheet.
My pleasure :)
What are some of the plugins you use for the excel spreadsheet
Not sure if plugin is the correct term or not, but just the 'stocks' feature built into excel
Thanks! Tom your channel is very helpful.
Glad to hear. Thanks very much for the super thanks!
What is the growth rate referring to? At 5:20 Is that sales growth, cash flow growth or something else?
Can you do a video on the intrinsic value of dividend stocks?
Hi, your videos are amazing, thank you! just one question, you mentioned that you follow someone`s guidelines and his book but I can not hear the name and the subtitles are not helping so can you please share the name of the person that you mentioned in the video? I heard the name of Phil Town but not the second name that you mentioned at 08:30.
I'm getting an "Unknown Function '_FV' " error when using the template. Idea why that may be?
high invensting with Tom. you are brilliant, for around 8 months ago i did a big valution of 100s of companies and your videos has managed to help me a lot. the company i ended up buying is been doing really well i am up 80% in it
Good exercise to do, though I'm not sure I understand 100 companies well enough to value them confidently! Thanks for the kind words, but I take no responsibility - you did the work ;)
I did valuation of google around a month back and came up with 90-100 dollar value. Pretty much i followed the similar approach. Difference being 8% discount rate (~government bond rate here in India), more conservative forecasts and for terminal value calc i again used 8% discounting (~12x multiple) on 10th yrs FCF
At last, pls keep up the good work. I enjoy watching your videos
Very cool, thanks for sharing! I appreciate the kind words :)
if you do that for stock comp, then one should do the same for buybacks/dividends?
Hi, where can I find stock based compensation except yahoofinance? Thanks
Hi Tom.
Should we be forecasting the stock based comp out for the 10 years as an estimate or just for year 1 as you have in your calculation.
Thanks
Thanks for this video and the spreadsheet! One of the better ones I have watched.
For FCF, how do we know what a "typical" year is? There are many line items under OCF and I can see how the company manipulates these numbers for any specific year. I could see the possibility of hefty one-time spends for CapEx as well.
hey bro thank you for the content but for finding the inartistic value u had multiple videos with different approach or one that doesn't use free cash flow and each one gives different value if u where to choose one and stick to it would u choose the one mentioned in this video thank you again
Hey Tom,
I’m having a really hard time using your calculator.. I keep getting ridiculous outputs.. is there any information you can offer to help with this?
Thanks for watching! Be sure to subscribe for more, and feel free to download the spreadsheet template via the link in the video description :)
**Important note**
I’ve had a few good comments about whether or not it’s correct to be subtracting SBC from FCF, since it’s already expensed on the income statement, then added back on the cash flow statement to get to operating cash flow. Surely adjusting for it again is double counting?
It seems there are varying opinions on this between different analysts and valuation professors etc. Here’s a good article laying about both sides of the argument: www.wallstreetprep.com/knowledge/stock-based-compensation-treatment-dcf-almost-always-wrong/
Subtracting free cash flow as I’ve done in the video is more conservative and essentially treats SBC as if if were a cash cost, and will give a lower intrinsic value result. But, you could easily argue it’s TOO conservative. For companies will little to no SBC, you should get the same result either way 🙂
this is a great starting framework, thanks a lot Tom.
will appreciate if you could from time to time make videos like this with gradually more complicated sheets that will take in to consideration more parameters, like building on it, purely for learning, not for stock tips or anything like that.
How did you get the Excel template to automatically change the stock? Like when you switched from google to apple and it automatically adjusted the share price?
Really like how you explain things instead of jumping straight into them. Subbed
thanks for the spreadsheet! great vid
Thanks!
Hey Tom if my company doesn't have stock-based compensation on Yahoo Finance what should i do?
GREAT VIDEO. Thanks for the awesome info!
Very good video Tom. Something we should have in our armoury before we lay down our cash. Thanks again mate.
No problem 👍
Great explanation! One question though, why is there only an adjustment for net cash/(debt) and no adjustment for other classes on the balance sheet such as PPE or trade receivables/payables?
The other adjustments you are talking about are included in the free Cash Flow formula. I don't know how Yahoo calculates Free Cash Flow. But the widely used formula is : EBIT(1- Tax%)+ Depreciation + Non Cash Items - Capex- Change in Working Capital. The PPE is covered in Capex and Receivables/ Payables are Covered under Working Capital.
Great content lets do more of these.
Thank you :)
How often we should change expected cash validation for example as in thr case of BABA it changes to be fairly to overvalued within 3 months or so with no clear reason which i fine difficult to understand
Hi Tom, The FCF you are using is only for Equity holders, since FCF is derived from net income where interest payment has already been paidout. Can you please explain why are you adding back cash and deducting total debt in the end and then afterwards divide by number of outstanding shares(equity holders) ?
If you use discounted cashflow year 1 $43 and use rule of 72. 1st 4 year $86 @ 15%+ next 6 years 43 @10%
86+43= 129 and use 10x129 = 1290 would that calculation work?
Hi Tom, great video, easy to follow. Sorry I'm a bit of a novice but my question is that your spreadsheet handles billions. The scenario I'm looking involves hundreds of thousands on the cash flow and compensation, and millions for the net cash and shares outstanding. How do I adjust the table to represent these amounts accurately in a share price. Any guidance would be great. Thanks
Great video!!! Is it possible for you to share this spreadsheet? I’d like to examine it more closely. I didn’t quite get where the stock based compensation is plugged into calculations.
Link in the description :)
Tom excellent video as always...
A great video, thank you.
Thanks Tom really appreciated mate!
Excellent ! Thank you!
Can i have excel sheet please..
We consider stock based compensation but not stock buybacks?
SBC is a cost that isn't captured by FCF. Buybacks, dividends etc. are decisions about how the cash is then allocated. It has a real impact over time of course, but I don't really want to get into the business of how many shares the company might or might not be able to retire in a spreadsheet - too many moving parts. Approximately right > precisely wrong ;)
Excellent video Tom thanks
Thanks!
thank you tom for this great analysis.
one thing i'd say is probably not accurate to consider the growth of stock based compensation at the same rate as FCF. usually stock based compensation is related to revenue, so if a company plans to increase revenue by 10% annually, they might pay out 5% of that in stock based compensation. what i'm saying is FCF grows at a different rate than SBC.
you're not wrong in your analysis for google or apple, but for smaller companies, this model will greatly skew the numbers towards negative growth, which is not feasible.
also, your discounted column F is constant from F8... something off there?
Hey just found your channel and subscribed. Great content!
Awesome, thank you!
Thank you Tom for the descriptive video on stock valuation using the DCF model. Great idea to include the margins of safety ranges at the bottom of the calculation.
The best margin of safety is the Growth itself.
Randomly assigning any %, let's say 50%, as MOS is not rational and kind of brainless idea.
MOS shall be derived from the inferiority of the high debts or inferiority of the low economic ratio.
MOS, Margin of Safety, made simple:
Entry Price
= Intrinsic Value * (100% - MOS)
Approach 1:
MOS = D/E * 100%
If:
D/E = 1.00
MOS = 100% (equivalent to don't buy)
D/E = 0.50
MOS = 50%
D/E = 0.25
MOS = 25%
D/E = 0.00
MOS = 0%
or
Approach 2:
MOS = [1 - 1÷(1+D/E)] * 100%
If:
D/E = 1.00
MOS
= (1-1÷(1+1.00))×100
= 50%
D/E = 0.50
MOS
= (1-1÷(1+0.50))×100
= 33.33%
D/E = 0.25
MOS
= (1-1÷(1+0.25))×100
= 20%
D/E = 0
MOS
= (1-1÷(1+0.00))×100
= 0%
But Intrinsic Value = ?
Approach 3:
MOS
= ( 2÷ROIC/WACC - 1 ) * 100%
If:
ROIC/WACC = 1 (no economy spread)
MOS = 100% (=don't buy)
ROIC/WACC = 1.25
MOS = 60%
ROIC/WACC = 1.50
MOS = 0.3333%
ROIC/WACC = 2
MOS = 0%
But Intrinsic Value = ?
Approach 3 is highly recommended.
Approach 3 can still be refined I believe, but currently my brain is jammed.
Thank you for the video Tom.
I have a question regarding free cash flow. If you calculate your expected return based on your estimate of future free cash flow, this assumes that all free cash flow is returned to shareholders in the form of dividends. How do you handle the situation when free cash flow is used for acquisition, debt reduction, buybacks etc. ? Each of these options produce different returns, for you the investor. A video on this topic would be great, because it's quite a long question. Regards.
Yeah, it's a good question and probably too complicated (for me at least!) for a spreadsheet. I've grown to appreciate how much capital allocation makes a difference though. I don't tend to do much maths on it personally, other than make sure I'm clear I understand management's plans in this area before going into an investment
@InvestingwithTom I haven't seen much literature on it either, which is quite surprising. This is the only theoretical factor that would account for the divergence between owner's earnings produced and actual return achieved. I may propose this as a research topic when I do my postgraduate studies.
My personal philosophy is that if I believe that any free cash flow that immediately isn't returned to the shareholders, should be used by the company to produce more cash in the future. If I don't believe the company will do that, I won't invest.
This may not be the best way to view it and it would depend on management competence but cashflow that isn’t returned to shareholders stays in the business and provided the ability to generate more future cashflow. This could be captured in the terminal value since increased cashflow will increase the terminal value. If you expect cash to be reinvested in the business, you can account for it in the growth rate too without getting too optimistic. You’re generally going to only give the business a high growth rate if the company is reinvesting capital and not distributing all of its free cashflow.
Debt reduction can increase cashflow over time and strengthen the balance sheet which might demand a higher terminal value. Acquisitions can increase cashflow or be the driving force for your expected growth rate. Share buybacks would be the reverse of the share dilution that Tom has on his sheet. If buybacks are expected to outpace stock compensation, a negative number there would help with the calculation but this is hard to predict for most businesses, especially when you’re looking out 10 years.
Thanks Tom for spreadsheet much appreciated 👍
My pleasure!
Can you make a video about ROIC,ROE,ROA,ROCE and how they impact the returns.
What if the year 0 free cash flow is negative?
Take the average/ Median of last 3 year FCF.
Why don't you use WACC as a discount rate? I think buffet does it
He does not - answered this in a recent Q&A :)
Please make a more in depth video about valuation with dcf
Hey Tom, thanks for the great videos.
As far as i know Alphabet reports the share based compensation in their cost of revenue section. Since the FCF calculation is based on the net earnings that cost is already included. If you subtract share based compensation on FCF, your subtracting it twice, which in Alphabets case would strongly impact the present value in a negativ way
Greatings from switzerland.
Hey there, SBC is quite clearly added back to net income on the cash flow statement to arrive at cash from operations (which then flows through to FCF), so I still believe subtracting it as I've done in the video is the correct treatment. Thanks for watching/commenting :)
@@InvestingwithTom You're simply not understanding what he is saying. I think OP meant that SBC is already taken into account as an expense on the P&L statement thus giving a lower net income. So by deducting SBC off from Net income you are effectively subtracting its effect twice. Although tbh, just substracting SBC is a lazy way to take into account the effect of SBC, but SBC is indeed added back for a reason on the cash flow statement.
@@zanexie981 I see. Will try get my head around this over the weekend. Thanks for raising it!
Tom how can you value BRN? No revenue. But unknown prospects. Hint it is more than zero.
Same process - how much cash will they produce in future, discounted back to today. The challenge is having any level of confidence at all in your FCF estimates!
I'm almost getting nostalgic when I see that thumbnail! Is part 1 still your most successful video of all time?
Sure is ;)
Why is the cash discount in year 10 10% shouldn’t it be 50%
There’s so many ways to actually calculate a businesses intrinsic value it all depends on what the business is and how your looking at the company
Determining an intrinsic value is not the objective. The objective is to invest in securities that will produce favorable rates of returns.
After the determination of an intrinsic value, how do you determine the rate of return on the price appreciation of the stock. (Without that, what is the point?)
And, if you determine the intrinsic values of 2 stocks, how do you decide which one to buy? Suppose one is expected to produce a return of 5% and the other 20%. How will you know?
Tom Thanks for sharing the valuation template. It was good to go through the model. I noticed that the model doesn’t include the impact for dividends.
Cheers
Graham.
Thanks for sharing your file. What growth rate is it for the 5 years and ten years? Revenue, earnings per share, cash flow growth rate?... Same question for the 5 next growth rate on Yahoo finance? What growth rate are we talking about? Thanks
You did Not Put the current buybacks into account
I've given up on 10 year growth rates. Just use 5 and life is simpler for me. One double is 5 years at 15%. Less mental gymnastics.
Video starts at 3:16
It starts at 00:00
I have a real hard time adhering to Monish's commandment "thou shalt not use excel spreadsheets."
Forecasting growth rate is like forecasting the lottery number.
Shame on you Tom. You clearly haven't been following Monish's commandments, "Thou shall not use excel" 🤣
Haha my bad ;)
LOL so you bought the golden goose Alibaba or the digital Warren buffets at Tencent. The you are lost 😂😂😂😂😂his circle of competence is the empty set.
If you use discounted cashflow year 1 $43 and use rule of 72. 1st 4 year $86 @ 15%+ next 6 years 43 @10%
86+43= 129 and use 10x = 1290 would that calculation work.
Monish Pabrai is a very average investor and his historical returns are around 7%-11% YoY. Its funny that you mention him but have no idea how bad of an investor he is.
No, I'm familiar with his results