@pubenvelope I share your pain!

im not a natural at DCFs or valuation spread sheets. I’m a sucker or narrative and it has previously got me into a bit of strife.

The classic line: valuation is a number from today multiplied by a story from tomorrow- is one way of looking at the problem.

Any valuation process is sadly easily thwarted by one’s own biases and ability to plug in a future expectation that screws the whole thing up.

There are a number of different valuation methods, some are better for certain types of companies, and some better for others.

I would suggest reading around the subject extensively before choosing what you want to use.

Id like to call out @Rick for introducing me to McNivens method which I have found extremely useful for identify “quality” companies. This is my preferred arena nowadays as I am in my mid50s and need an all weather equity portfolio as my income starts to wind down. I still dabble in SaaS companies, though opportunities are rare in the current environment and it is no good for this group, particularly those pre-profitability. A rule of 40 assessment is a quick an easy assessment in these cases

I have read many books on the subject, but some basic rules are extremely useful: checking that top line growth is not being outpaced by bottom line expenses, that EPS and book value increase more or less year to year, and that ROE is at a decent level.

im sure there are lots of other aspects, such as debt serviceability, founder led, skin game by management etc etc that are important, but that is where I start.

Someone recently posted a 5 step “quick screen” when looking at the financials which I thought was fantastic. hope that helps

c

Thanks @NewyRookie and @Chagsy, your responses are truly appreciated (and any future replies will be too). It is comforting to know there are others learning on this platform.

If there are any other newbies looking to learn, the "Meetings" tab on Strawman have a few fantastic resources as well. Further to Chagsy's comment, you'll find a video there about The McNiven Value formula, where @Rick walks viewers through the process (or click here).

Hi @pubenvelope

Maybe what you are actually trying to get a better handle on is accounting? To me it seems like a lot of people think valuation is the Nirvana, but, imo, a good solid understanding of accounting and knowledge of how the three statements interact with each other, how to get through the notes to the accounts is more valuable. Maybe try picking up an accounting for dummies book or a first year accounting text book? The reality is that valuation is only as good as the inputs you have and those inputs are driven by how well you can interpret the financial statements of the business – rather than relying on management's interpretation.