Valuation Tools from Financial Times

Wednesday, January 10th, 2007 | Valuation Tools with 3 Comments

I just discovered some great valuation calculators at the Financial Times website.  In the Lex section of the site, there are four tools that you might find useful.  These calculators include the following:

  • Discounted Cash Flow Model – This calculator lets you input 5 years of free cash flows based on EBIT, plus depreciation, less Capex, and taxes. You also need to input the weighted average cost of capital and the perpetual growth rate. Finally, to adjust the enterprise value by adding in net cash, minority interests, pensions and other liabilities, taxes, and associate investments. Anyone know what “Associate Investments” are?
  • Dividend Discount – This is the classic Gordon’s growth model.  All you need to enter is the annual dividend amount, the dividend growth rate, and the cost of equity (i.e., the discount rate).
  • Weighted Average Cost of Capital – This calculator takes the ratio of debt to equity to get a weighted average cost of capital.  I don’t really typically calculate my discount rates this way, but I know many of you likely do.
  • Buy to Let – If real estate prices keep declining, I might start using this calculator to determine whether purchasing an investment property might generate enough rent to provide a value investment opportunity. Just replace the word “Let” with “Rent” and substitute £ with $.

I really like the way the Discounted Cash Flow Model calculator lays out the way you take the net present value (NPV) of the enterprise value from the DCF model and adjust it to get to the value of each share. The only thing that stumped me was the “Associate Investments” line. Anyone know what “Associate Investments” are? Is this a British term for something I might easily recognize?

While you are exploring the valuation tools, I also recommend that you explore the other content at FT.com. If you like what you see, I recommend getting a subscription to The Financial Times (affiliate link).

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Comments

  • “Associate Investments” appears to be equity holdings in subsidiaries. Similar to how Coca-Cola has (or had, I don’t follow KO as closely as I used to) investments in its bottlers.

    These investments are different from marketable securities since FT’s calculator is solving for Enterprise Value and these investments cannot be divested as casually as other securities.

    Mad Marv January 11th, 2007 at 2:57 am
  • Thanks for answering my question about associate investments, Mad Marv.

    George January 11th, 2007 at 6:28 am
  • hi.

    How i can make valuation of a service company like Bank cos.
    Plz inform me if u have the capability to do that with necessary tools , methodology and examples.

    noble

    Noble March 5th, 2007 at 11:58 pm

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