1. If they already have interest-bearing debt outstanding, then you take their current interest rate and divide it by their total interest-bearing debt amount. You must check the financial statement notes to make sure the interest rate will not dramatically change at some date in the future. This is a pretty easy and standard method.

2. You can check their S&P, Moody's,… etc bond ratings, then check the corporate bond yield to match the rating with the expect interest rate in the market. See this page under the academic resources —> cost of debt section: http://www.bondsonline.com/Todays_Market/Composite_Bond_Yields_table.php

3. You can use a comparable approach. Use the technique from the first approach, but figure out the number for each of their competitors. Then average the numbers together.

These solutions will certainly solve your problem, but I imagine you could also call the company and get some type of answer.

I hope this helps,

1. The Risk Free Rate of interest is found here: http://www.treas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml. We use the 20 year rate for all companies, because we expect to invest in those companies for the next 20 years.

2. The Market Risk Rate, which I assume is the Market Risk Premium or Equity Risk Premium (definition) is 5% for all companies that we follow. This is the premium over the risk free rate that investors need in order to purchase equity investments. Academic research supports the 5% premium.

Write back any questions. Thank you

We reach the target stock price using a weighted average of the three very sophisticated valuation approaches listed below:

1. Cash Flow
2. Comparative Multiples
3. Warren Buffett Approach

You can see and experiment with our analysis on any of the company analysis pages.

Dave

Prices depend on other people's actions, so it could be years before stock prices go to the target. They always move towards the targets at some point.

I hope this helps, Dave

EPS is the most manipulated number in investing, so we do not use it. Besides that, Yahoo information is notoriously inaccurate and outdated, so those might explain the odd numbers on their part. Firms can make EPS it do and say whatever they want because accounting standards are so flexible. The best way to guard against this type of manipulation is to do a cash flow valuation approach, which we show in the "Cash Flow (DCF)" and "Buffett Calc." analysis. In fact, the cash flow approach is the same way Warren Buffett does his analysis.

If you want to use the EPS comparative method, then a normal EPS is 12. If you take $4.44 times 12, then you get a price of 53.28 dollars per share. If you take $2.44 times 12, you get a price of 29.28, which is much closer to our number.

Stocks are nearly certain (9 out of 10) to hit the suggested stock price, because stock prices swing up and down all the time. The timing of of these swings is big issue, because it could take days or years. Let's take TEVA Pharma for example. The current price is roughly $60 dollars per share. Our suggested price using three very sophisticated valuation approaches is $23 dollars. The potential of this company is negative 60%, so over time, the stock price will likely fall back to the suggested price. If the company does much better than expected, the suggest price will increase over time, but I would rather sell an overvalued company like TEVA and buy an undervalued company like Astrazeneca. This is how you invest: "buy low, sell high." ;-)

If you would like to experiment with our analysis, just find the "Experiment" link on top of the page for each analysis. We want our visitors to trust the analysis, so we allow them to experiment with our work and understand the level of quality we put in to each analysis.

Write back if you have any other questions.

WikiWealth

Teva eps for 2010 is $4.44 aprox. p/e58.86 according to yahoo x eps will bring it to $244.44

Another valuation according to Zack is pe 18x $2.44 is $83.35. But $23 is very confusing and I would really like to be enlightened. You must have a different formula.

And another thing how many times out of ten do you achiev the suggested target price. I really would like to know.

Thank you t muscat

The most typical way to measure working capital is current assets minus current liabilities. However, WikiWealth uses a modification of that formula to produce a more accurate measurement. We subtract cash under the assumption that you need some cash for emergencies, but firms certainly don't use every last dollar for everyday business needs. Some cash may be restricted from use, and various other reasons may increase the need for cash. We add back short-term debt, because it works like a businesses' credit card.

Think of how you use cash in your bank account and your credit cards. If you make short-term purchases using a credit card, then you pay it off eventually with your cash balance. You can also use cash to make purchases, but you may not necessarily run your balance to zero every month or week. Companies work the same way, but they rely on debt (read: business credit cards) to a greater extent.

We hope this helps,

WikiWealth.com

The calculation used in the grid is totally different. Is it more accurate or something?
Thanks
Doug

The FCFF valuation is located on the "cash flow" tab of JPM's research report: http://www.wikiwealth.com/research:jpm. This is a much safer and consistent way to value financial services companies. You can even experiment with the analysis.

We hope this helped.

A 3 to 4% terminal year revenue growth rate is a good default, because it equals the average long term inflation rate of money. An aggressive estimate is between 4 and 5%. Estimates below 3% mean you believe the company's revenue will decrease over the long term.

Also, change any of the blue text to see the most effective impact on the analysis. Once you get the hang of it, the experimental mode becomes very effective.

WikiWealth

Thanks, Steve

Steve

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Contellation Energy Partners LLC (CEP)
Star Bulk Carriers Corp (SBLK)

Thank you,

Dave. Founder & CEO

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Wikiwealth.com would like to thank all or our members for their contributions to our goal of free, high quality stock research. We were able to complete another upgrade of our value investing analysis.

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Thanks

Neil Flynn

Wikiwealth is increasing the accuracy of our research by introducing an industry WACC for all stock research. This will help smooth out the distribution of WACC discount rates and increases the accuracy of the analysis. We are still beta testing this approach, but we will fully implement this analysis within the next two weeks. If you have any questions or comments, please respond to this thread.

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Additionally, we made slight improvements to the way you interact with our resource page. Now you can use all our resources as calculators, which allows you to make changes and see the results of those changes without affecting the resource template for anyone else. Experiment and have fun. Leave your suggestions so we can create better templates.

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If you want help finding a stock to buy, look at our top buys located under the portfolio tab. You can find some great companies like Coca-Cola.

Wikiwealth.com

Otherwise, you just study the changes in the different line items that change the cash flow to figure out what is happening with the stock. Let's say a particular cost is decreasing over time. You should understand the fundamental reasons why that cost is decreasing (better IT), or maybe, increasing (higher fuel prices).

Once you understand the changes in the line items that affect cash flow, then you can understand the company and predict, with some ability, the future cash flow.

We hope this helps,

Wiki Wealth.com