Company value: Fundamental analysis

[arae]

I'd like to develop the skills to assess the dollar value of a company through research of its fundamentals. I've seen some good summaries of various companiy's value within threads on this site. Particular those from Young Trader. However, I'd like to go about doing this myself and reach a figure of which I'm confident in its accuracy.

Would anyone have advice to give for calculating a company's value? I understand the process would alter in part, depending on the intricacies of each company. However, just some direction or some step-by-step examples would be greatly appreciated.

I'm sure there must be many people in the same boat as me. So I think a thread on this subject could be very fruitful.

Cheers

 

[ans25]

Anyone else who can help here?

Im just a graph person and looking at volumes and trends, I would also like to find out more.

Thanks

 

[brettc4]

I too am interested in valuing a stock based on fundamental information.
I am actually wondering if one of the more experienced Fundamental traders could pick an Annual Report for a company (One where the Annual Report is easy to obtain) and then go through it, high lighting the information they look at, providing an analysis of it, and showing the calculations they use on the P&L, Balance Sheet and Cash flows.

Cheers

 

[dhukka]

There are a variety of methods for assessing the intrinsic value of a business. The industry standard is the Discounted Cash Flow (DCF) method. Having worked as a sell side analyst I have experience using it and find it has a number of flaws which are best outlined in the following article:

Questions of Value

From the same author comes the following basic article about calculating intrinsic value:

Do it Yourself Valuation

I also recommend Brian McNiven's book MARKET WISE for the maths behind the calculation of intrinsic value. This method is not perfect either but I find it much more practical and theoretically sound than the DCF model.

There was almost a debate on this topic in this thread however it never really got anywhere since the defender of the DCF method couldn't mount any arguments except that he was right because the industry uses DCF's.

 

[prawn_86]

I personally am a fundie, but as with technical analysis, there a numerous different ways in which the analysis can be carried out.

Simple PE ratio comparisons to peers and industry averages can be a good start.

For mineral explorers, working on an in ground value (IGV) basis is often used by myself and others, such as young_trader.

I am just beginning to use DCFs and while some people do not like them, i believe they have their place, but as with any analysis there are flaws.

I think the majority of FA comes down to what stage of the lifecycle the company is in. It also depends on the investment timeframe. IE - a < 1yr hold will have vastly different analysis than a 5 year hold. Also, FA, like TA, is something which needs to constantly re-evaluated, it is not a static analysis as some people think.

Personally i combine a number of the above approaches, plus a few others for good measure