Previous 10 years financial statement.
Income Statement.
Research in the market and see the quality of their products.
Important quantitative analysis.
Intrinsic Value:
Yearly Profit: 10 lakh rupee (Cash Flow from Operating Activities)
If we get 14% RETURN, then I'm happy
(DISCOUNTED CASHFLOW METHOD OF VALUATION)
SIMPLE FORMULA = YEARLY EARNING/REQUIRED RATE OF RETURN
= 10 lakh / 0.14 = 71,42,857
GOLDEN RULE OF VALUATION:-
"THE VALUE OF ANY ASSET IS THE PRESENT VALUE OF
ALL THE EXPECTED FUTURE CASH FLOWS"
PRICE TO EARNINGS (PE RATIO) = PRICE / EARNINGS
= 71.42 lakh / 10 lakh = 7.14
7.14 means "maine Rs. 7.14 advance me pay kiya Rs. 1 kamane ke liye"
ya "mera invest kiya hua paisa almost 7 saal me return milega".
{ if the company say 71.42 lakh is less for my deal, he want to sall my
company more then 71.42 lakh. At that time I can decrease my
RETURN form 14% to 12% and
RE-VALUATION = 10 lakh / 0.12 = 83,33,333 (PE of 8.33)
"LESSER THE VALUATION, MORE THE RETURN" }
Qki jb PE Ratio km hoga to mai us company ko saste me khrid rha hu.
"WHETHER WE'RE BUYING ALL OF A BUSINESS OR A LITTLE
PIECE OF A BUSINESS...
I ALWAYS THINK WE'RE BUYING THE WHOLE BUSINESS
BECAUSE THAT'S MY APPROACH TO IT.
I LOOK AT IT AND I SAY. WHAT WILL COME OUT AND
WHEN?"
______________________________________________________
WARREN BUFFETT'S INVESTING STRATEGY
* VALUE INVESTING
USED CIGAR BUTT APPROACH: Buy at the cheap price and
SELL at the high price. BUT it doesn't make a long term wealth.
* LONG TERM VALUE INVESTING (Buffett's new strategy) :
Divide in four part -
Part 1: UNDERSTANDING THE BUSINESS.
Part 2: IS MANAGEMENT OF THAT COMPANY THINK ABOUT
THERE SHAREHOLDERS.
Part 3: FINACIALS
> PAST TRACK RECORD kaisa hai.
> FINANCIAL CONDITION kaisi hai.
> kya uske pass koi COMPETATIVE ADVANTAGE hai, jisse vo
company apne competitors se aage rhti hai.
Part 4: VALUATION ( INTRINSIC VALUE CALCULATION )
BUFFETT SAY: "THE INTRINSIC VALUE OF ANY STOCK,
BOND OR BUSINESS TODAY, IS DETERMINED BY THE
CASH INFLOWS & OUTFLOWS -
DISCOUNTED AT AN APPROPRIATE RATE, THAT CAN BE
EXPECTED TO OCCUR DURING THE REMAINING LIFE OF
THE ASSET"
- BY JOHN BURR WILLIAMS
BOOK: THE THEORY OF INVESTMENT VALUE. (1938)
OWNERS EARNINGS = OPERATING CASHFLOW - TOTAL
MAINTENENANCE CAPITAL EXPENDITURE
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