Explanation
Since the intrinsic value calculations based on Discounted Cash Flow
Intrinsic Value (DCF), or Discounted Earnings (DCE)
Intrinsic Value (DE) cannot be applied to companies without consistent revenue and earnings, GuruFocus developed a valuation model based on normalized Discounted Cash Flow and Book Value of the company.
The details of how we calculate the intrinsic value of stocks are described
in detail here.
This method smooths out the free cash flow over the past 6-7 years, multiplies the results by a growth multiple, and adds a portion of total equity.
Value = (Growth Multiple)*FCF(6 year avg) + 0.8*Total Equity(most recent)
In the case of negative total equity, the following formula is used (see the Total Equity section for the reason):
Value = (Growth Multiple)*FCF(6 year avg) + Total Equity(most recent)/0.8
The growth multiple is capped between 8.35 and 17.74.
Total equity weighting is more art than science and it should always be revisited in more detail when researching a company. Weightings from 0% to 100% to more than 100% are possible. 80% was chosen as a happy medium after taking the above ideas into consideration.
Learn more here.
Related Terms
Intrinsic Value (DCF),
Intrinsic Value (DE)* All numbers are in millions except for per share dataNielsen Holdings NV Annual Data
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