Using your calculations for advanced margin of safety, i encountered a funny problem.
Company A holds a large amount of cash and rent their business premise. Because of this, they are at the mercy of the landlord increasing the rent, etc.
Company B is in the same situation and decide to buy their own building. Therefore, their cash position decrease and hence the advanced margin of safety decreases.
In my opinion, Company B is theoretically a better company because of a less risky business position. However, this is not captured in the valuation. What do you think?
I see where you are coming from. Hypothetically, Company B deserves a higher valuation :)
We do not see the full value of Coca-Cola’s brand equity value (worth billions!) captured on Coke’s books. So it is really difficult to quantify the qualitative aspects of a business. Generally, from my experience, the market usually prices remarkable businesses like this at a premium.
That being said, assuming the similar example, Company B should report a higher net profit margin since they have lower operating costs from using its own building. Theoretically, investors should see higher profits in the income statement :)
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