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The Ultimate Guide to Stock Valuation - Sample Chapters

The Ultimate Guide to Stock Valuation - Sample Chapters

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Published by Jae Jun
Sample chapters from the Ultimate Guide to Stock Valuation.
Graham Net Net and Graham Growth Formula.
Sample chapters from the Ultimate Guide to Stock Valuation.
Graham Net Net and Graham Growth Formula.

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Published by: Jae Jun on Jul 25, 2013
Copyright:Attribution Non-commercial


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03.How to Use and What to Expect04.Introduction to Stock Valuation05.Taking a Bird's Eye View08.Benjamin Graham's "Net Net" Stocks12.Graham's Formula Growth Formula for Value Stocks18.Intrinsic Value of a Business20.How to Value Stocks Using DCF26.How to Value a Stock with Reverse DCF28.Katsenelson's Absolute PE Model
Table of Contents
35.Valuing Stocks with EBIT Multiples38.What is Asset Reproduction Value?45.The Full Earnings Power Value (EPV)51.Your Valuation, Your Art, Your Way52.Bonus: Top 7 Books on Valuation and Analysis56. About the Author 57.Get Started with Old School Value
The Ultimate Guide to Stock Valuation
Benjamin Graham's "Net Net" Stocks
In 1932 at the bottom of the Great Crash, BenGraham's fund had lost 70% of its value.It was precisely at this time when he wrote a Forbesarticle stating how cheap the market was. In fact,Graham remarked about how the market was sellingthe United States for free.What made Graham make this claim?
Deep Value Companies
It all came down to the way Graham looked atcompanies.Stocks were being quoted in the market for muchless than its liquidating value, priced as if thecompany was destined to be doomed.This still happens today.But does it make sense to be quoted for less thanthe cash in your hand?Such deep value stocks are referred to as "net nets"and the idea is to calculate the liquidation value.http://www.oldschoolvalue.com
The common definition used is Net Current AssetValue.
NCAV = Current Assets - Total Liabilities
You can see how conservative the above definitionis.But the term current assets is rather broad. Itconsists of cash, accounts receivables, inventory,and other assets easily convertible to cash. Acompany with 100% cash is much better off than acompany with 100% in prepaid assets. And so, to define it clearer, I use a variation of NCAV which is stricter, but makes more sense andoffers extra security when valuing and selecting netnet stocks.That variation is called Net Net Working Capital.
Liquidation Value
Graham defined liquidating valuevery conservatively.
The Ultimate Guide to Stock Valuation
Net Net Working Capital
The formula for NNWC is
Net Net Working Capital =Cash and short-term investments+ (75% x Accounts Receivable)+ (50% x inventory)- Total Liabilities
The formula states thatcash and short term investments are worth100% of its valueaccounts receivables should be taken at 75%of its stated value because some might notbe collectibleinventories should be discounted by 50% inthe event a close out sale occursNNWC places importance on the main parts thatmake up current assets; cash, accounts receivablesand inventory.When it comes to valuing net nets, you want to findhigh quality ones. This is an oxymoron because netnets are trading at deep value ranges for a reason,but out of the dump, you can find a few stocks thatshines brighter than the rest.http://www.oldschoolvalue.com
Let's look at a couple of examples. AEY is a net net withCash and equivalents: $7.54mAccounts receivables: $3.42mTotal inventory: $21.54mTotal Current assets: $33.63mTotal liabilities: $4.62mShares outstanding: 10.03mNCAV = $2.89 per share | NNWC = $1.62 per share
The Ultimate Guide to Stock Valuation

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