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QuestionsCategory: Valuation QuadrantIntrinsic Value via EPS
Jieren Zheng asked 4 years ago

Hi Victor and Rusmin,
During the workshop, you showed us the calculation of intrinsic value using 5 year average EPS or latest EPS, followed by the addition of net cash/debt per share to derive intrinsic value.
Just curious, would it not be rather too optimistic to use net cash per share to add into intrinsic value?
I mean like cash could be quickly depleted or utilitsed and would be unlikely be awarded to shareholders as well. Would it not make it better to discount or even strip the cash out?
Warmest regards
Jieren

1 Answers
Victor Chng answered 4 years ago

Hi Jieren,
 
Personally, I think it is too conservative to remove the cash from the valuation as it is really real money. You are right that cash can be quickly depleted or utilised either as dividend or other means. My take is that if you bought into a cash generating company in most case the company is able to generate the cash back fast and keep on piling it. Unless there is a case where the management is not aligned with shareholder and they do not pay out any dividend to shareholder like Hong Fok Corporation then I will not take into account their cash into the valuation because the money is never the shareholders.

Jieren Zheng replied 4 years ago

Ah, noted! Thank you so much for clarifying!

Victor Chng replied 4 years ago

No problem :)

Boon Chin Ng replied 4 years ago

Hi Victor,

Possible to share the method here? Thanks :)

Victor Chng replied 4 years ago

Hi Boon Chin,

What method are you referring to?

Boon Chin Ng replied 4 years ago

Hi Victor,

As per Jieren question:

“During the workshop, you showed us the calculation of intrinsic value using 5 year average EPS or latest EPS, followed by the addition of net cash/debt per share to derive intrinsic value.”

:)

Thank you.

Victor Chng replied 4 years ago

Hi Boon Chin,

You can find it under module 6: Valuation Quadrant

https://investmentquadrant.com/the-valuation-quadrant/price-earnings-ratio/