Value business formula

[shareNoob]

Hi guys,

I listen to one of ASX podcast, I think the title is Investing for Permanent Gain by Roger Montgomery MD of Clime Capital. In minutes 27:50, he also mention about how to value a business. His formula is

ROE
---------------------- X Equity per share
pre tax required return

The podcast url: http://www.asx.com.au/resources/podcast/index.htm

My question is How to use that formula?
What the value will tell us?


thank you

SN

 

[Prem]

Hello ShareNOOB

I have just finished listening to that podcast.

What he says is that this a way to find the intrinsic value of a company

provided that it doesn't give out a dividend.

Intrinsic value means "The actual value of a company or an asset based on an underlying perception of its true value including all aspects of the business, in terms of both tangible and intangible factors. This value may or may not be the same as the current market value. Value investors use a variety of analytical techniques in order to estimate the intrinsic value of securities in hopes of finding investments where the true value of the investment exceeds its current market value. "

From http://www.investopedia.com/terms/i/intrinsicvalue.asp

If intrinsic value is below share price then it is usually a good indication of

where the share is going