This new version of the Fat Pitch Finder Spreadsheet has been updated to address a problem with my net cash calculations that I discovered as a result of a comment I received on my analysis of the intrinsic value of Microsoft. I wasn’t including restricted cash when determining net cash on hand, so I was undervaluing some companies. In addition, I also added the following new features:

• Increased documentation using cell comments 
• New Free Cash Flow trend chart
• Added trailing twelve-month free cash flows to the trend analysis
• Cash and equivalents and debts are now broken out before net cash is calculated

To use this spreadsheet, you need to have Microsoft Excel, and I recommend that it is at least the Excel 2003 version. In addition, you need to install an “Add-In” to make the Fat Pitch Finder spreadsheet work.  The add-in you need is RCH_Stock_Market_Functions.xla at the smf_addin group files.  Be sure to install the add-in in the directory  C:\Program Files\SMF Add-In  in order for the spreadsheet to work. Finally, download the spreadsheet below and uncompress it before opening it.

If you find any problems with the Fat Pitch Finder spreadsheet or have any ideas on how to improve it, please share your thoughts below.

Download: Fat Pitch Finder 0.2

• 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).

• Added sector and industry names/numbers from Yahoo
• Fixed a number of elements from Zacks due to web page changes
• Added a number of elements from Zacks due to web page changes
• Added annual O/H/L/C prices from Business Week (values appear inaccurate in some cases)
• Added a number of Valuation Ratio elements from Morningstar
• Added a number of Key Ratio elements from Morningstar
• Added the currency type and magnitude for Google Financial Statements data
• Added a number of calculated fields (e.g. estimates of Piotroski, Altman, MFI, Rule #1)
• =RCHGetElementNumber(“Web Page”, elementnumber) will return the URL of the web page the data element is retrieved from
• Removed volume adjustment option from =RCHGetYahooHistory(). Apparently, all volume is ALWAYS provided adjusted for stock splits.

The most interesting changes included the Yahoo sector and industry info, Morningstar ratios, the new calculated fields (especially Altman’s Z-score). Everything should still be working fine with the Fat Pitch Finder spreadsheet with this new update. I really love this Excel Add-In so I’m pretty excited about this update.

In fact, I’m working on a much more detailed spreadsheet. It will provide a detailed analysis of individual companies that I find to be interesting after running them through the quick and dirty Fat Pitch Finder sheet. The new spreadsheet will incorporate several techniques for estimating intrinsic value, checks for red flags, financial health, and growth. Now I just need to find some time to work on this project.

You need to have Excel and install an Add-In to make it work.  The add-in you need is RCH_Stock_Market_Functions.xla at the smf_addin group files.  Be sure to install the add-in in the directory  C:\Program Files\SMF Add-In  in order for the spreadsheet to work.

I included my analysis of eBay Inc (EBAY) on this spreadsheet since some of you were interested in my intrinsic value calculation. Please provide feedback on the sheet.  I’m especially interested in your thoughts on the DCF models. 

One thing to note, this model relies on using earnings per share, which can be dangerous if the company you are analyzing is using aggressive accounting. I prefer to examine a company’s free cash flows for the past three to five years when estimating value, because free cash flows help avoid accounting shenanigans and one time events. One way to address this issue is to manually replace the earnings per share in the SmartMoney calculator with free cash flow per share. It’s a shame that SmartMoney’s calculator did not build in the option to select free cash flow instead of earnings per share. However, with some careful thought and analysis, this tool can provide helpful valuation estimates.

You can review the details of the cash flow forecast by clicking on the “Cash Flows” button, and examine all the different calculations involved. The valuation technique used in this tool is the discounted cash flow to the firm (DCFF) method. You can get additional information regarding ValuePro’s online tool at their FAQ page. Note that this tool does not work well for financial companies and real estate investment trusts.

I’m not a big fan of the DCFF valuation method since it focuses on a company’s perspective and not the shareholder’s perspective regarding the value of the company. I prefer the discounted cash flow to equity method of valuation (DCFE). But regardless, this tool can still be pretty handy to quickly evaluate the reasonableness of a stock’s price.

Let’s try a few examples. I have been interested in Microsoft (MSFT) lately. ValuePro estimates that the intrinsic value of Microsoft’s stock is $31.05. Microsoft closed today at $27.44. In contrast, eBay (EBAY) closed today at $94.41 per share, but ValuePro estimates that the intrinsic value of the stock is $82.52. That estimate is only if you believe that eBay can grow at 35% per year for the next ten years. If you reduce the growth rate to 20%, the intrinsic value of eBay’s stock drops to $29.51.