The valuation models, one by one

How a model page reads

Every model page has the same shape: the model's name and its role in the stock's valuation (leads the headline, passed over, a cross-check, or not applicable), its value set against the price, and the model written out as a sum — from its inputs, line by line, to a value per share. Under that come the inputs with where each one comes from, and an explanation in a closed drawer.

Discounted cash flow (DCF)

The value of the cash the business will generate for all its investors, discounted to today at the cost of capital, less net debt, divided by the diluted share count. Four variants, named by forecast length and by how the value after the forecast is set:

• Perpetuity growth, 5 or 10 years: after the forecast, cash flow grows at a steady rate forever.
• EBITDA exit, 5 or 10 years: after the forecast, the business is valued at a multiple of its EBITDA.

Revenue follows the analysts' consensus for three years, then fades towards 3% growth. Margins start from the last reported year (a cyclical company uses its five-year cost structure at a middle-of-the-cycle margin). Capital spending and working capital are set from the company's own recent history. A sensitivity grid shows the value at other discount and growth rates, and the DCF calculator opens on the same stock for any other assumption.

P/E, against peers and against its own history

• Peers: the comparable companies' price-to-earnings ratio applied to this company's earnings per share, the last reported year and the analysts' next year taken together.
• Own history: the median of the company's own daily P/E over the last five years, applied the same way.

Neither applies while earnings are negative.

PEG

The P/E a company's expected earnings growth would justify at a PEG ratio of one — growth plus dividend yield, in percent, as the multiple — applied to its earnings. The growth is the analysts' where they have an estimate, the company's own record where they do not.

EV/EBITDA and EV/Revenue

The comparable companies' enterprise value to EBITDA, or to revenue, applied to this company — trailing and next year both — then net debt taken off to reach the shares. Net debt is total debt less cash and short-term investments. EV/Revenue values a company that has no earnings to speak of; it is the last model a profile falls back on.

Earnings power value

What the company's operating earnings are worth if they never grow: normalised operating earnings after tax, less the spending needed just to keep the business as it is, capitalised at the cost of capital. Set against a DCF, it shows how much of a value rests on growth.

Dividend discount

The dividends per share the company pays, grown for five years at a near-term rate and then at a steady one, and discounted at the cost of equity. It reads the dividend record a year at a time, and it does not apply to software or high-growth companies, which are not valued on their payouts.

The sector models

• Banks — justified price to tangible book: what a bank's tangible book is worth given how much it earns on it against what its equity costs.
• Insurers — justified price to book: the same idea on book value.
• REITs — price to Cash FFO: the trust's own five-year median multiple of cash funds from operations, applied to its current Cash FFO.

Each sector model has a screener behind it — banks, REITs — that sets the company beside its peers on the same measures.

The cost of capital (WACC)

The rate every intrinsic model discounts at. The cost of equity starts from the 10-year Treasury yield, adds an equity risk premium scaled by the stock's beta (adjusted, and capped), and the cost of debt is taken after tax. The two are weighted by the market value of the equity and the debt on the balance sheet. Its page writes each step out.

Sum of the parts

For a company whose businesses are worth valuing apart, a sum-of-the-parts page values each segment in three scenarios and adds them up. Only a few companies have one; their pages say which filing they are built on.