Valuation
VMC: Mistake #9: Not Properly Fading the Return on Invested Capital
The final mistake, #9, takes us into when analysts don’t properly fade the return on invested capital. Most analysts forecast that high-return companies will maintain high-level profits and low-return companies will retain their low-level ones.
Read MoreVMC: On the Rise of CFA Candidates in Asia
The CFA program has long been viewed as an essential qualification for anyone hoping to enter the lucrative world of investment banking. First conceived in 1942, the CFA program is now one of the US’s most successful exports. And in Asia, the credential is becoming ever more highly prized.
Read MoreVMC: Mistake #8: Choosing an Unreasonable Cost of Equity
A very common error that I’ve seen made by analysts is discounting the future cash flows of a business at an unreasonable cost of equity (COE)—which is why it’s valuation mistake #8. Analysts are notorious for trying to manipulate their COE to get the outcome in valuation that they want.
Read MoreVMC: 9 Steps to Prepping for the CFA Exams
Many financially savvy people across the world are psyching themselves up to register for the most significant exams of their career. The post-nominal designation of CFA requires candidates to overcome many a hard mile, but the challenge is worth the toil.
Read MoreVMC: Mistake #7: Valuing a Stock Using the Calculated Beta
Let’s move onto one of the most interesting subjects in valuation: beta. Discussing this crucial element of investing will helps us shed more light on the connected #7 top valuation mistake of valuing a stock using the calculated beta.
Read MoreVMC: Fundamental vs. Technical Analysis for Investing
Investors use a number of techniques to evaluate stocks before making a trade or long-term investment decision. The two core techniques used can broadly be divided into fundamental analysis and technical analysis.
Read MoreVMC: Mistake #6 – Underestimating Working Capital Investment
When forecasting deviations from that trend, have a strong reason and tell the accompanying narrative accurately. There’s nothing wrong with forecasting a change or a difference from the past—just be able to back up your analysis. What a great opportunity to tell the story that you’re seeing!
Read MoreVMC: The Motivation, Impact, and Pain of Share Buybacks
A share buyback is when a publicly-listed company uses cash to purchase its shares ‘back’ from the market. Also called share repurchase, the concept gives existing shareholders an option of selling their personal stakes back to the company. The only other way a company can distribute cash in such a manner is through dividends.
Read MoreVMC: Mistake #5 – Forecasting Drastic Changes in the Cash Conversion Cycle
It’s important to remember that huge year-to-year changes only happen in truly exceptional valuation cases. Significant changes in product mix or the introduction of new products can occasionally cause such huge annual changes. But, generally, annual forecasts should not deviate substantially from the historical numbers.
Read MoreVMC: 3 Effective Methods for Valuing a Business
Having a comprehensive value of your business is useful for helping you raise capital, whether through a business loan or investors, since it demonstrates you have a thorough understanding of the value of your business based on an all-embracing approach.
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