Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Anonymous,MyNameIsUrl,6Tricia,staffordian, for Donating to support the site

How to manipulate a company valuation

Analysing companies' finances and value from their financial statements using ratios and formulae
monabri
Lemon Half
Posts: 5500
Joined: January 7th, 2017, 9:56 am
Has thanked: 773 times
Been thanked: 1958 times

How to manipulate a company valuation

#449982

Postby monabri » October 13th, 2021, 10:48 pm

https://www.firstlinks.com.au/article/h ... n-you-want

(Of course, if one did the calculation for oneself, a completely different answer would be arrived at and the questions would flow).


As a side note..I also thought the comment in the "comments " by a D Ramsey was Interesting (and worrying) regarding the Takeover of a company called Bellamys in 2019 ( didn't the Chinese have contamination problems with their milk formulations?) . I agree his/her comment saying the Australian government should have stopped the deal and I wonder how many companies will be bought up on the cheap as a result of Covid 19.

simoan
Lemon Quarter
Posts: 1075
Joined: November 5th, 2016, 9:37 am
Has thanked: 195 times
Been thanked: 674 times

Re: How to manipulate a company valuation

#450018

Postby simoan » October 14th, 2021, 8:47 am

Thanks, that's an interesting article containing many pearls of wisdom which those of us who have been investing long enough will be well aware of. It's another good reason to avoid IPO's: the main one being that the seller knows far more than those buying the IPO, and be especially wary where the seller is Private Equity! BTW I always loved that quote about EBITDA from Charlie Munger :)

As for discounted cashflow valuation models... Well, the less said the better. I only recently discovered on another thread that the NAV of a property REIT I hold is actually based on a DCF model. It's not obvious and you have to dig quite deep to discover this. I had always assumed a REIT was valued by an independent property consultant using mark-to-market i.e. a valuation based on recent transactions of properties similar to those held by the REIT. The same applies to similar asset based companies such as Infrastructure funds. I decided to carry on holding the REIT even though I normally avoid anything where valuation is based on DCF, especially where the NAV is the main things supporting the share price!!

All the best, Si

scrumpyjack
Lemon Quarter
Posts: 2584
Joined: November 4th, 2016, 10:15 am
Has thanked: 234 times
Been thanked: 1167 times

Re: How to manipulate a company valuation

#450021

Postby scrumpyjack » October 14th, 2021, 9:00 am

Yes this reminders me of the first job I was sent on after qualifying as a chartered accountant back in 1974. It was an investigatory audit in Nassau and one asset of the company was a piece of land in Florida. We were presented with 2 professional valuations of it. One was for $4,000 the other was for $10 million!! (3 months in the Bahamas in the winter was a nice one!)

As for 'earnings', many FTSE100 co's have long produced earnings statements which qualify for Charlie Munger's description of EBITDA. The moment you see 'Core' or 'Adjusted' be very careful! It just means 'leave out everything inconvenient and negative' even though it happens every year. If it's a positive, leave it in.

simoan
Lemon Quarter
Posts: 1075
Joined: November 5th, 2016, 9:37 am
Has thanked: 195 times
Been thanked: 674 times

Re: How to manipulate a company valuation

#450026

Postby simoan » October 14th, 2021, 9:24 am

scrumpyjack wrote:As for 'earnings', many FTSE100 co's have long produced earnings statements which qualify for Charlie Munger's description of EBITDA. The moment you see 'Core' or 'Adjusted' be very careful! It just means 'leave out everything inconvenient and negative' even though it happens every year. If it's a positive, leave it in.

I agree. This problem is widespread though and goes well beyond the FTSE100. I have never understood why so many people concentrate on the PER for this reason when selecting investments. If the EPS figure used is heavily adjusted (and so matches Charlie Munger's description of EBITDA) how on earth can you trust the PER?

Its far more important to compare the Adjusted and Statutory EPS numbers to ensure you are happy the adjustments are really one-off in nature (often they are not) and additionally how well EPS translates into cash. I always avoid companies where EPS does not convert to cashflow and where large adjustments to EPS are made every year leading to continual significant differences between the Statutory and Adjusted numbers.

All the best, Si


Return to “Company Analysis”

Who is online

Users browsing this forum: No registered users and 1 guest