Beautiful Investment Analysis

Sherlock Holmes and Dr. Watson went on a camping trip. They pitched their tent under the stars and went to sleep. In the middle of the night, Holmes woke Watson up and started a conversation. Click here to read the rest.

9 thoughts on “Beautiful Investment Analysis

  1. ‘Economic profit relative to expectations’ can be a good parameter.
    Economic-profit includes margins, asset turns and risk (to some extent). It can be used (like cash flow) to ‘value’ businesses
    Expectations stem from current price – and can help you to evaluate price-value mismatch.

    • Thanks. By cash flow, do you mean operating cash flow or free cash flow? Can you give an example for finding out economic profit and the way to evaluate price-value mismatch?


      • Valuation estimates using a) free cash flow (FCF) and b) economic profit (EP) are same
        EP is better, as period performance measure (than FCF, which can be volatile, for instance, due to investment decisions).
        By inverting enterprise-value, you can arrive at embedded EP (required to justify this valuation).
        This can give you an idea of the price-value mismatch.
        Many use revenue (or/and growth) expectations to invert (and verify) valuation. Likewise you can use EP – it offers a better perspective.

  2. I think best way to evaluate quality of management is to through eyes of respectable independent director.
    I have came across a company where a respectable independent director, who is also a well know entrepreneur, bought sizable stake. On being asked why he invested in the company his reply was i believe in this management.

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