Understanding the Intrinsic Value of a Stock
Hawaii investment companies say they take stocks out of the picture in a minute and a level of how we should go about deciding the stock investment strategy and which stocks to invest in. When we invest in companies we take money out of our pockets. We hope the business will be profitable. We will refund more than the amount we have kept. We want our hard-earned money to work for us and grow the basic metro, but here it is important to point out something very important. When we invest in a company, people realize that it is the money we care about. Its equipment or inventory will make a big noise as to how much debt there is. But we must not allow this noise. As investors we are concerned about how much money we can give back to the business. At the end of the day, all other measures such as derailment, equipment inventory and credit are important to us only in the context that helps us determine the amount of money in the company.
We can deposit money into our bank account and use it to buy food or cars or to pay for college. The company will own a number of assets, such as machine furniture. But if the company cannot convert them into real money it is not really useful to us as investors, the value we get from the only ship in our public company is the value of all the money we can get out of it and give it back to the investors for the rest of the time can. This is called the default value. One of the main concepts here is one that we all really need to keep in mind while studying this course course. So now we bring the shares back into the equation and understand what we are paying for and what we get when we buy. When we buy a stock, the share price purchased in shares, the share price quoted in the stock market, instead we have a proportional ownership representing the company underlying each share and this ownership represents a proportional claim for the remaining life of the F business This includes possible cash, which is the company’s existing cash, as well as the money it has already generated and sitting in bank accounts, as well as all of the company’s future cash. What we are talking about here is the free money left over after paying off all of Opera’s expenses to run the business and repaying the loan to investors.
Amount of money that can be returned to a company Shareholders and still maintaining the price of the business is what we pay for and the value we get. So if the value of all this money we receive is greater than the share price we pay, think about it for a minute. In other words, a very good investment pays less than the default value and we make a profit from the difference. Let us illustrate with an example. For simplicity, suppose there is a company that has a bank account of a thousand dollars. As a business, it has no future cash and the $ 1,000 in the bank account is more than anything with 100 shares in it. The owner is willing to sell each part of the company for five dollars. We buy the stock The answer should be yes, of course we should buy the stock. We get a thousand dollars in cash and it has a hundred shares with a natural value of a thousand dollars, so each share has a value of ten dollars. They offer to sell for five and so we pay five dollars and we can get ten dollars for that. The dollar seems like a very good investment and on the other hand we should buy shares if the owner is trying to sell for 20 dollars per share we still have to buy the shares and say we need it because we should not do so 20 dollars for a ten dollar bill Pay, but something less than $ 10 per share, which is the inherent value, would make sense to us. This is the general idea of what we do when we analyze stocks. The value is comparable to the stock price, but the gain by the gap is only half the story of the YouTube price and value. Just because a trinity value is not constant does not mean that a company has one particular innate value, it is constant throughout its life.
Rinse value changes over time are fundamentally strong businesses that are more likely to benefit from future value increases and are bound to see that the value of poor low quality businesses is declining and therefore we do not look for prices lower than the inherent value. The transition value of high quality businesses is primarily the risk of investing in a low quality business, even if we buy it for less than the internal value. Value declines over time, but investing in high quality businesses at a lower price than the inherent value gives us profits on two fronts, we profit from the gap between the inherent value and the price, and as the future value increases we get an extra kick. This is the essence of the basic analysis of the approach preached by Warren Buffett and the recurring theme of our PA courses series so now that we have established that the rational investment strategy is to invest in high quality businesses at a price lower than the inherent value of the stock. But we make money in the stock market by selling at a lower price and a higher price. If we were to make money logically we would be asked what the inherent value has to do with future stock prices.
How to Calculate Intrinsic Value of a Stock
How to Calculate Innate Value I’m Guru Nagar Well and get started so this concept of innate value was introduced by Benjamin Graham. Hence it is called the formula of Benjamin Graham, a professor at Columbia University. He is a very powerful investor, one of the most popular investors in history and he is also known as the father of valuable investment. He has written a book titled Intelligent Investor in this book which introduces the concept and this book is very popular in the world of re-investment value investing. Valuable Investment Value Investment is the acquisition of the common value of common stock independent of this market value, so if you calculate the value of the shares based on the principle that the selling price of the stock is an investment that you inadvertently value, then the value in the market is higher and you underestimate the shadow Have done and you think it is worth investing in.
Will invest in the underlying stocks and hold them until the price falls below the default and exceeds the default and can decide whether they should recalculate the fresh default based on time and circumstances. Or, according to Graham, an intelligent investor is one who sells to the optimists and buys from the pessimists. So when the market is at a very high level and people are overly optimistic intelligent investor is someone who sells to those optimistic people and the market. The wise investor buys from those pessimists as it goes down and down the road now and when people are pessimistic, so the investor should look for opportunities to buy lower and sell at higher prices due to lower price anomalies. The trading price in the stock market and the value is with the price you calculate according to this formula Find the difference that makes sense and when the difference is large you invest and make money which is a value investing strategy. Then the price value anomalies that arise as a result of this different economic recession market fall into one temporary negative public at once. The current situation due to propagation and human error is one of these special conditions and therefore what is the formula for calculating the innate value of V? Equals earnings per share of 28.5.The plus two will be divided into four G4s in white, so this may seem a bit complicated to you at first glance, but I will simplify it and explain it to you with two examples that you can easily understand.
By the end of this video you will be able to calculate on your own that V is the default value to expect in the next five or ten years. So we try to calculate the value that can be received this year over the next few years. Very common for one part. As you already know it will be twelve months behind. So from there we spend the last 12 months from the date of calculating the intrinsic value to earn per share. Considered to be the average PE of any company that does not have abnormal growth, he is the primary PG for the growth of this formula. Taken as. Therefore, he should expect the average growth of the company over the next five years. He has again based this formula on the four factors up to ten years that we should take as G, which is the average yield of a tertiary institutional bond. We will not touch that number when he makes this formula. It exists in the formula and why is the current yield on trinity corporate bonds? So the three values that need to be filled in this formula earns a share growth rate and Y is the remainder of the current yield Y which is just three values that you have to fill in and you get the default value, so we take the example of beta and calculate its default value Let’s do it.
I have kept a screenshot of monetary control and what we need to take into account first is that the innate value is the earnings per share after 12 months. So if you see the red arrow on the front page of this particular script you will find beta for the last 12 months EPS Simple is twenty nine lakhs ICT We assume it is 30 Next we need growth rate. Then you can calculate the average growth rate on your own. What exactly is the growth rate because different people have different opinions? The subject matter for simplicity, for example, is that we assume that the average growth of the company’s revenue over the past five years will continue into future growth. If the company has good future prospects and future growth rates you may have a different opinion. It may be higher than in the past, you can also use that growth rate in the formula for simplicity, and we take a fairly comfortable growth rate that is the average of the last five years of revenue. So if you type screen commer and search you will find the script has an average five year sales growth and if you do not see that there is an option to add it to the site by signing up for free you can probably do it from this site. Compared to the sales of the last five years, you can calculate on your own that the sales growth of those sales is incorrect and you can calculate the average growth rate of those sales. So if we look at the beta, it’s about 7 percent and 5 percent. So G7 in our formula becomes two or five lakhs. So the third item we should take in the formula to earn and grow in shape is the bond yield. So when you search on Google you will get this particular value of yield on a three year corporate bond in India so you can get it from Investment.com and you can get it at zero to eight in six days.
You have to fill in that formula, so let’s fill it out in the formula. Therefore, since V is equal to 30, the earnings per share is eight points and plus 2 is seven hundred thousand GG. our The point is taken to be four and divided by Y, which is the bond yield, which is two zeros of 600,000. So basically you multiply three numbers and divide by the first number and you earn thirty seconds for the first part. 500 and the current stock market price is around Rs. 135. So you get an idea of whether or not you are investing at the right price. Will this company show massively whether or not you should expect a downturn? Growth and innate value will increase or not, which means that you should not invest if the company has good prospects because the innate value is lower than the market price. The growth of a stock is going to increase as its growth rate will increase in the future and then the innate value will also change and it will match or increase with the prevailing price in the market. Invest in shares equal to or less than the default value. Now let’s take another example of a very popular company poly cap. Therefore, after 12 months of monetary control, the earnings per share will be around Rs. 45 again as we took earlier. We can get a simple growth rate from the screenwriter, which is about 15 percent on average. So since the bond yield is equal to 15, six points would be zero to eight. So I’m not showing it on the screen again. Now add these three numbers back to the formula and divide the same multiplication point by six points and zero by eight.
Third and last trade price you will get it as ninety six, so you have found a company that trades lower than this innate value and you can find something you can invest in and expect a good investment so this innate value is very bad in the power of some companies Doing so is not the only criterion. Sometimes or temporarily there is a problem in the company and the share price falls and falls below the default value. So this is not the only criteria for choosing stocks to invest in but with the other factors you usually look at it can be a very important and very useful formula to make the right decision, so I believe this is very simple to understand and very useful for you. Since the calculation of innate value is not a definite science, we do this on the basis of certain assumptions. The number we calculate is not a definite number and may vary from person to person. It can not be done with 100% accuracy, but it gives you a broad idea and the value to the person based on his assumptions. The person may be different. It is primarily considered a growth rate but it will be a benchmark for you to make the right decisions and consider a safety margin. Because you are working on assumptions you can assume a 10 to 20 percent security margin and this whole concept of value investment.