general nature – Freedominst http://freedominst.org/ Sat, 19 Mar 2022 03:57:52 +0000 en-US hourly 1 https://wordpress.org/?v=5.9.3 http://freedominst.org/wp-content/uploads/2021/03/cropped-favicon-32x32.png general nature – Freedominst http://freedominst.org/ 32 32 Calculation of the fair value of Control Print Limited (NSE: CONTROLPR) http://freedominst.org/calculation-of-the-fair-value-of-control-print-limited-nse-controlpr/ Sat, 19 Mar 2022 02:16:16 +0000 http://freedominst.org/calculation-of-the-fair-value-of-control-print-limited-nse-controlpr/

How far is Control Print Limited (NSE:CONTROLPR) from its intrinsic value? Using the most recent financial data, we will examine whether the stock price is fair by taking the company’s expected future cash flows and discounting them to the present value. We will use the Discounted Cash Flow (DCF) model for this purpose. Believe it or not, it’s not too hard to follow, as you’ll see in our example!

Remember though that there are many ways to estimate the value of a business and a DCF is just one method. Anyone interested in learning a little more about intrinsic value should read the Simply Wall St.

See our latest review for Control Print

What is the estimated valuation?

We use the 2-stage growth model, which simply means that we consider two stages of business growth. In the initial period, the company may have a higher growth rate, and the second stage is generally assumed to have a stable growth rate. In the first step, we need to estimate the company’s cash flow over the next ten years. Since no analyst estimates of free cash flow are available to us, we have extrapolated the previous free cash flow (FCF) from the company’s latest reported value. We assume that companies with decreasing free cash flow will slow their rate of contraction and companies with increasing free cash flow will see their growth rate slow during this period. We do this to reflect the fact that growth tends to slow more in early years than in later years.

A DCF is based on the idea that a dollar in the future is worth less than a dollar today, so we discount the value of these future cash flows to their estimated value in today’s dollars:

10-Year Free Cash Flow (FCF) Forecast

2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Leveraged FCF (₹, million) ₹373.5 million ₹411.6 million ₹449.3 million ₹487.2 million ₹525.9 million ₹565.6 million ₹607.0 million ₹650.3 million ₹696.0 million ₹744.2m
Growth rate estimate Source Is at 11.7% Is at 10.21% Is at 9.17% Is at 8.43% Is at 7.92% Is at 7.57% Is at 7.31% Is at 7.14% Is at 7.02% Is at 6.93%
Present value (₹, million) discounted at 14% ₹328 ₹317 ₹304 ₹290 ₹274 ₹259 ₹244 ₹230 ₹216 ₹203

(“East” = FCF growth rate estimated by Simply Wall St)
10-year discounted cash flow (PVCF) = ₹2.7 billion

After calculating the present value of future cash flows over the initial 10-year period, we need to calculate the terminal value, which takes into account all future cash flows beyond the first stage. The Gordon Growth formula is used to calculate the terminal value at a future annual growth rate equal to the 5-year average 10-year government bond yield of 6.7%. We discount terminal cash flows to present value at a cost of equity of 14%.

Terminal value (TV)= FCF2031 × (1 + g) ÷ (r – g) = ₹744m × (1 + 6.7%) ÷ (14%–6.7%) = ₹11b

Present value of terminal value (PVTV)= TV / (1 + r)ten= ₹11b÷ ( 1 + 14%)ten= ₹3.0 billion

The total value is the sum of the cash flows for the next ten years plus the present terminal value, which gives the total equity value, which in this case is ₹5.7 billion. To get the intrinsic value per share, we divide it by the total number of shares outstanding. Compared to the current share price of ₹394, the company appears around fair value at the time of writing. Remember though that this is only a rough estimate, and like any complex formula – trash in, trash out.

NSEI: CONTROLPR Discounted Cash Flow March 19, 2022

Important assumptions

Now, the most important inputs to a discounted cash flow are the discount rate and, of course, the actual cash flows. If you disagree with these results, try the math yourself and play around with the assumptions. The DCF also does not take into account the possible cyclicality of an industry, nor the future capital needs of a company, so it does not give a complete picture of a company’s potential performance. Since we consider Control Print as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which takes debt into account. In this calculation, we used 14%, which is based on a leveraged beta of 1.116. Beta is a measure of a stock’s volatility relative to the market as a whole. We derive our beta from the average industry beta of broadly comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable company.

Next steps:

Valuation is only one side of the coin in terms of crafting your investment thesis, and it shouldn’t be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. Preferably, you would apply different cases and assumptions and see their impact on the valuation of the business. If a company grows at a different pace, or if its cost of equity or risk-free rate changes sharply, output may be very different. For Control Print, we’ve compiled three important things you should consider:

  1. Risks: Take for example the ubiquitous specter of investment risk. We have identified 1 warning sign with Control Print, and understanding it should be part of your investment process.
  2. Management:Did insiders increase their shares to take advantage of market sentiment regarding CONTROLPR’s future prospects? View our management and board analysis with insights into CEO compensation and governance factors.
  3. Other high-quality alternatives: Do you like a good all-rounder? Explore our interactive list of high-quality actions to get an idea of ​​what you might be missing!

PS. Simply Wall St updates its DCF calculation for every Indian stock daily, so if you want to find the intrinsic value of any other stock, just search here.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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We think Great Wall Motor (HKG:2333) can manage debt with ease http://freedominst.org/we-think-great-wall-motor-hkg2333-can-manage-debt-with-ease/ Sun, 06 Mar 2022 00:26:04 +0000 http://freedominst.org/we-think-great-wall-motor-hkg2333-can-manage-debt-with-ease/

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from synonymous with risk.” When we think of a company’s risk, we always like to look at its use of debt, because over-indebtedness can lead to ruin. Like many other companies Great Wall Motor Company Limited (HKG:2333) uses debt. But does this debt worry shareholders?

What risk does debt carry?

Generally speaking, debt only becomes a real problem when a company cannot easily repay it, either by raising capital or with its own cash flow. Ultimately, if the company cannot meet its legal debt repayment obligations, shareholders could walk away with nothing. However, a more common (but still costly) situation is when a company has to dilute shareholders at a cheap share price just to keep debt under control. Of course, many companies use debt to finance their growth, without any negative consequences. When we think about a company’s use of debt, we first look at cash and debt together.

See our latest analysis for Great Wall Motor

How much debt does Great Wall Motor have?

You can click on the graph below for historical figures, but it shows that in September 2021, Great Wall Motor had a debt of 21.3 billion Canadian yen, an increase from 16.4 billion Canadian yen , over one year. However, his balance sheet shows that he holds 31.1 billion yen in cash, so he actually has 9.73 billion yen in cash.

SEHK: 2333 Historical Debt to Equity March 6, 2022

A Look at Great Wall Motor’s Responsibilities

According to the last published balance sheet, Great Wall Motor had liabilities of 87.3 billion Canadian yen due within 12 months and liabilities of 20.4 billion national yen due beyond 12 months. On the other hand, it had a cash position of 31.1 billion Canadian yen and 53.2 billion national yen of receivables due within one year. Thus, its liabilities outweigh the sum of its cash and (short-term) receivables of 23.5 billion Canadian yen.

Of course, Great Wall Motor has a titanic market capitalization of 238.7 billion Canadian yen, so those liabilities are probably manageable. That said, it is clear that we must continue to monitor its record, lest it deteriorate. Despite its notable liabilities, Great Wall Motor has a net cash position, so it’s fair to say that it doesn’t have a lot of debt!

On top of that, Great Wall Motor has grown its EBIT by 31% over the last twelve months, and this growth will make it easier to manage its debt. The balance sheet is clearly the area to focus on when analyzing debt. But it is future earnings, more than anything, that will determine Great Wall Motor’s ability to maintain a healthy balance sheet in the future. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.

Finally, a company can only repay its debts with cold hard cash, not with book profits. Although Great Wall Motor has net cash on its balance sheet, it’s still worth looking at its ability to convert earnings before interest and taxes (EBIT) to free cash flow, to help us understand how fast it’s building (or erodes) this cash balance. Over the past three years, Great Wall Motor has actually produced more free cash flow than EBIT. This kind of strong cash generation warms our hearts like a puppy in a bumblebee suit.

Abstract

We could understand if investors are worried about Great Wall Motor’s liabilities, but we can take comfort in the fact that it has a net cash position of 9.73 billion Canadian yen. The icing on the cake was to convert 108% of this EBIT into free cash flow, bringing in 12 billion Canadian yen. So is Great Wall Motor’s debt a risk? This does not seem to us to be the case. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist outside of the balance sheet. For example, we have identified 3 warning signs for Great Wall Motor of which you should be aware.

Of course, if you’re the type of investor who prefers to buy stocks without the burden of debt, then feel free to check out our exclusive list of cash-efficient growth stocks today.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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Garo Aktiebolag (publ) (STO:GARO) shares could be 20% above their estimated intrinsic value http://freedominst.org/garo-aktiebolag-publ-stogaro-shares-could-be-20-above-their-estimated-intrinsic-value/ Sat, 05 Mar 2022 08:28:40 +0000 http://freedominst.org/garo-aktiebolag-publ-stogaro-shares-could-be-20-above-their-estimated-intrinsic-value/

How far is Garo Aktiebolag (publ) (STO:GARO) from its intrinsic value? Using the most recent financial data, we will examine whether the stock price is fair by taking expected future cash flows and discounting them to their present value. This will be done using the discounted cash flow (DCF) model. There really isn’t much to do, although it may seem quite complex.

Remember though that there are many ways to estimate the value of a business and a DCF is just one method. If you want to know more about discounted cash flow, the rationale for this calculation can be read in detail in the Simply Wall St analysis template.

Discover our latest analysis for Garo Aktiebolag

The method

We use what is called a 2-stage model, which simply means that we have two different periods of company cash flow growth rates. Generally, the first stage is a higher growth phase and the second stage is a lower growth phase. In the first step, we need to estimate the company’s cash flow over the next ten years. Wherever possible, we use analysts’ estimates, but where these are not available, we extrapolate the previous free cash flow (FCF) from the latest estimate or reported value. We assume that companies with decreasing free cash flow will slow their rate of contraction and companies with increasing free cash flow will see their growth rate slow during this period. We do this to reflect the fact that growth tends to slow more in early years than in later years.

A DCF is based on the idea that a dollar in the future is worth less than a dollar today, so we need to discount the sum of these future cash flows to arrive at an estimate of present value:

Estimated free cash flow (FCF) over 10 years

2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Leveraged FCF (SEK, millions) kr135.0 million 90.5 million kr kr185.0 million 215.0 million kr 239.5 million kr 258.9 million kr 273.8 million kr 285.1 million kr 293.6 million kr 300.0 million kr
Growth rate estimate Source Analyst x1 Analyst x2 Analyst x1 Is at 16.2% Is at 11.43% Is at 8.1% Is at 5.76% Is at 4.12% Is 2.98% Is at 2.18%
Present value (SEK, million) discounted at 5.3% 128 kr 81.6 kr 159kr 175 kr 185 kr 190 kr 191 kr 189 kr 185 kr 179 kr

(“East” = FCF growth rate estimated by Simply Wall St)
10-year discounted cash flow (PVCF) = kr1.7b

We now need to calculate the terminal value, which represents all future cash flows after this ten-year period. For a number of reasons, a very conservative growth rate is used which cannot exceed that of a country’s GDP growth. In this case, we used the 5-year average of the 10-year government bond yield (0.3%) to estimate future growth. Similar to the 10-year “growth” period, we discount future cash flows to present value, using a cost of equity of 5.3%.

Terminal value (TV)= FCF2031 × (1 + g) ÷ (r – g) = kr300m × (1 + 0.3%) ÷ (5.3%– 0.3%) = kr6.0b

Present value of terminal value (PVTV)= TV / (1 + r)ten= kr6.0b÷ ( 1 + 5.3%)ten= kr3.6b

The total value, or equity value, is then the sum of the present value of future cash flows, which in this case is 5.3 billion kr. The final step is to divide the equity value by the number of shares outstanding. Compared to the current share price of 127 kr, the company appears slightly overvalued at the time of writing. Remember though that this is only a rough estimate, and like any complex formula – trash in, trash out.

OM:GARO Cash Flow Update March 5, 2022

Important assumptions

The above calculation is highly dependent on two assumptions. One is the discount rate and the other is the cash flows. You don’t have to agree with these entries, I recommend that you redo the calculations yourself and play around with them. The DCF also does not take into account the possible cyclicality of an industry or the future capital needs of a company, so it does not give a complete picture of a company’s potential performance. Since we consider Garo Aktiebolag as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which takes debt into account. In this calculation, we used 5.3%, which is based on a leveraged beta of 1.173. Beta is a measure of a stock’s volatility relative to the market as a whole. We derive our beta from the average industry beta of broadly comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable company.

Next steps:

While important, the DCF calculation will ideally not be the only piece of analysis you look at for a business. The DCF model is not a perfect stock valuation tool. Instead, the best use of a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. For example, changes in the company’s cost of equity or the risk-free rate can have a significant impact on the valuation. What is the reason why the stock price exceeds the intrinsic value? For Garo Aktiebolag, we’ve put together three more things you should consider in more detail:

  1. Risks: Every business has them, and we’ve spotted 1 warning sign for Garo Aktiebolag you should know.
  2. Management:Did insiders increase their shares to take advantage of market sentiment about GARO’s future prospects? View our management and board analysis with insights into CEO compensation and governance factors.
  3. Other high-quality alternatives: Do you like a good all-rounder? Explore our interactive list of high-quality actions to get an idea of ​​what you might be missing!

PS. The Simply Wall St app performs an updated cash flow valuation for every stock on OM every day. If you want to find the calculation for other stocks, search here.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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It may not be a good idea to buy Propel Funeral Partners Limited (ASX:PFP) for its upcoming dividend http://freedominst.org/it-may-not-be-a-good-idea-to-buy-propel-funeral-partners-limited-asxpfp-for-its-upcoming-dividend/ Sun, 27 Feb 2022 21:30:05 +0000 http://freedominst.org/it-may-not-be-a-good-idea-to-buy-propel-funeral-partners-limited-asxpfp-for-its-upcoming-dividend/

Propel Funeral Partners Limited (ASX:PFP) is set to trade ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the latest date by which shareholders must be present on the books of the company to be eligible for payment of a dividend. The ex-dividend date is important because any stock transaction must have settled before the record date to be eligible for a dividend. So you can buy shares of Propel Funeral Partners before March 4 in order to receive the dividend, which the company will pay on April 7.

The company’s next dividend payment will be AU$0.06 per share. Last year, in total, the company distributed AU$0.12 to shareholders. Total dividend payouts from last year show that Propel Funeral Partners has a yield of 2.7% on the current share price of AU$4.39. Dividends are an important source of income for many shareholders, but the health of the company is essential to sustaining those dividends. Therefore, readers should always check whether Propel Funeral Partners was able to increase its dividend or if the dividend could be reduced.

Check out our latest analysis for Propel Funeral Partners

Dividends are usually paid out of company earnings, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. Propel Funeral Partners paid a dividend last year despite not being profitable. It may be a one-time event, but it is not a long-term sustainable situation. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If Propel Funeral Partners did not generate enough cash to pay the dividend, it must have paid either from cash in the bank or by borrowing money, which is not sustainable in the long term. It paid out 100% of its free cash flow as dividends last year, which is outside the comfort zone for most companies. Businesses generally need cash more than revenue – expenses don’t pay for themselves – so it’s not great to see them paying so much out of their cash flow.

Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.

historical-dividend

Have earnings and dividends increased?

Companies with consistently rising earnings per share tend to create the best dividend-paying stocks because they generally find it easier to increase dividends per share. If business goes into a recession and the dividend is cut, the company could see its value drop precipitously. Propel Funeral Partners was not profitable last year, but at least the general trend suggests that its earnings have improved over the past five years. Even so, an unprofitable company that does not recover quickly is generally not a good candidate for dividend investors.

Propel Funeral Partners has also issued more than 5% of its market capitalization in new shares over the past year, which we believe may hurt its long-term dividend outlook. Trying to increase the dividend while issuing large amounts of new stock reminds us of the ancient Greek story of Sisyphus – perpetually pushing a rock upwards.

Another key way to gauge a company’s dividend outlook is to measure its historical rate of dividend growth. Propel Funeral Partners has achieved an average annual increase of 16% per year in its dividend, based on the last four years of dividend payments. It’s exciting to see that earnings and dividends per share have grown rapidly over the past few years.

Remember, you can always get an overview of Propel Funeral Partners’ financial health by viewing our financial health visualization here.

Last takeaway

Should investors buy Propel Funeral Partners for the upcoming dividend? We are a little uncomfortable with the fact that it is paying a dividend while being loss-making, especially since the dividend has not been well covered by free cash flow. It’s not the most attractive proposition from a dividend perspective, and we’d probably pass this one up for now.

That being said, if you still consider Propel Funeral Partners as an investment, you will find it useful to know what risks this stock faces. Example: we have identified 2 warning signs for Propel Funeral Partners you should be aware.

If you are looking for good dividend payers, we recommend by consulting our selection of the best dividend-paying stocks.

Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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Estimated intrinsic value of Polski Koncern Naftowy ORLEN Spólka Akcyjna (WSE:PKN) http://freedominst.org/estimated-intrinsic-value-of-polski-koncern-naftowy-orlen-spolka-akcyjna-wsepkn/ Sun, 27 Feb 2022 07:51:26 +0000 http://freedominst.org/estimated-intrinsic-value-of-polski-koncern-naftowy-orlen-spolka-akcyjna-wsepkn/

In this article, we will estimate the intrinsic value of Polski Koncern Naftowy ORLEN Spólka Akcyjna (WSE:PKN) by taking the company’s expected future cash flows and discounting them to the present value. We will use the Discounted Cash Flow (DCF) model for this purpose. Before you think you can’t figure it out, just read on! It’s actually a lot less complex than you might imagine.

We draw your attention to the fact that there are many ways to value a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. For those who are passionate about stock analysis, the Simply Wall St analysis template here may interest you.

Check out our latest analysis for Polski Koncern Naftowy ORLEN Spólka Akcyjna

The model

We use what is called a 2-stage model, which simply means that we have two different periods of company cash flow growth rates. Generally, the first stage is a higher growth phase and the second stage is a lower growth phase. To begin with, we need to obtain cash flow estimates for the next ten years. Wherever possible, we use analysts’ estimates, but where these are not available, we extrapolate the previous free cash flow (FCF) from the latest estimate or reported value. We assume that companies with decreasing free cash flow will slow their rate of contraction and companies with increasing free cash flow will see their growth rate slow during this period. We do this to reflect the fact that growth tends to slow more in early years than in later years.

A DCF is based on the idea that a dollar in the future is worth less than a dollar today, so we need to discount the sum of these future cash flows to arrive at an estimate of present value:

Estimated free cash flow (FCF) over 10 years

2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Leveraged FCF (PLN, Millions) 532.2 million zł -46.5 million zł 696.0 million zł 2.79 zł 3.45 zł 3.95 zł 4.38 zł 4.75 zł 5.07 zł 5.34 zł
Growth rate estimate Source Analyst x6 Analyst x6 Analyst x5 Analyst x5 Analyst x5 Is at 14.52% Is at 10.9% Is at 8.37% Is at 6.6% Is at 5.36%
Present value (PLN, millions) discounted at 11% 479 zł -37.6 zł 507 zł 1,800 zł zł2.0k zł2.1k zł2.1k zł2.0k zł2.0k 1,900 zł

(“East” = FCF growth rate estimated by Simply Wall St)
10-year discounted cash flow (PVCF) = zł15b

We now need to calculate the terminal value, which represents all future cash flows after this ten-year period. The Gordon Growth formula is used to calculate the terminal value at a future annual growth rate equal to the 5-year average 10-year government bond yield of 2.5%. We discount terminal cash flows to present value at a cost of equity of 11%.

Terminal value (TV)= FCF2031 × (1 + g) ÷ (r – g) = zł5.3b × (1 + 2.5%) ÷ (11%–2.5%) = zł63b

Present value of terminal value (PVTV)= TV / (1 + r)ten= zł63b÷ ( 1 + 11%)ten= zł22b

The total value is the sum of the cash flows for the next ten years plus the present terminal value, which gives the total equity value, which in this case is 37 billion zł. In the last step, we divide the equity value by the number of shares outstanding. Compared to the current share price of 69.9 zł, the company appears approximately at fair value at a 19% discount to the current share price. Remember though that this is only a rough estimate, and like any complex formula – trash in, trash out.

WSE: PKN Discounted Cash Flow February 27, 2022

The hypotheses

The above calculation is highly dependent on two assumptions. One is the discount rate and the other is the cash flows. Part of investing is coming up with your own assessment of a company’s future performance, so try the math yourself and check your own assumptions. The DCF also does not take into account the possible cyclicality of an industry or the future capital needs of a company, so it does not give a complete picture of a company’s potential performance. Since we consider Polski Koncern Naftowy ORLEN Spólka Akcyjna as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which takes into account the debt. In this calculation, we used 11%, which is based on a leveraged beta of 1.706. Beta is a measure of a stock’s volatility relative to the market as a whole. We derive our beta from the average industry beta of broadly comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable company.

Next steps:

While important, calculating DCF shouldn’t be the only metric to consider when researching a business. DCF models are not the be-all and end-all of investment valuation. Preferably, you would apply different cases and assumptions and see their impact on the valuation of the business. For example, changes in the company’s cost of equity or the risk-free rate can have a significant impact on the valuation. For Polski Koncern Naftowy ORLEN Spólka Akcyjna, there are three important things you should dig into:

  1. Risks: To this end, you should inquire about the 2 warning signs we spotted with Polski Koncern Naftowy ORLEN Spólka Akcyjna (including 1 which is concerning).
  2. Future earnings: How does PKN’s growth rate compare to its peers and the wider market? Dive deeper into the analyst consensus figure for the coming years by interacting with our free analyst growth forecast chart.
  3. Other strong companies: Low debt, high returns on equity and good past performance are essential to a strong business. Why not explore our interactive list of stocks with strong trading fundamentals to see if there are any other companies you may not have considered!

PS. The Simply Wall St app performs an updated cash flow valuation for every stock on the WSE every day. If you want to find the calculation for other stocks, search here.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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Here’s why K-Fast Holding (STO:KFAST B) can manage its debt responsibly http://freedominst.org/heres-why-k-fast-holding-stokfast-b-can-manage-its-debt-responsibly/ Sat, 19 Feb 2022 08:47:16 +0000 http://freedominst.org/heres-why-k-fast-holding-stokfast-b-can-manage-its-debt-responsibly/

Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett said “volatility is far from synonymous with risk.” So it may be obvious that you need to take debt into account when thinking about the risk of a given stock, because too much debt can sink a business. We can see that K-Fast Holding AB (published) (STO:KFAST B) uses debt in its business. But should shareholders worry about its use of debt?

When is debt dangerous?

Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. If things go really bad, lenders can take over the business. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. Of course, debt can be an important tool in businesses, especially capital-intensive businesses. When we look at debt levels, we first consider cash and debt levels, together.

Check out our latest analysis for K-Fast Holding

What is K-Fast Holding’s debt?

As you can see below, at the end of December 2021, K-Fast Holding had a debt of 5.94 billion kr, compared to 3.86 billion kr a year ago. Click on the image for more details. Net debt is about the same, since she doesn’t have a lot of cash.

OM: KFAST B Debt to Equity History February 19, 2022

How healthy is K-Fast Holding’s balance sheet?

According to the latest published balance sheet, K-Fast Holding had liabilities of 1.44 billion kr due within 12 months and liabilities of 5.81 billion kr due beyond 12 months. In return, he had 94.0 million kr in cash and 312.9 million kr in receivables due within 12 months. It therefore has liabilities totaling kr 6.84 billion more than its cash and short-term receivables, combined.

While that may sound like a lot, it’s not that bad since K-Fast Holding has a market capitalization of 14.2 billion kr, and so it could probably strengthen its balance sheet by raising capital if needed. But it is clear that it is essential to examine closely whether it can manage its debt without dilution.

In order to assess a company’s debt relative to its earnings, we calculate its net debt divided by its earnings before interest, taxes, depreciation and amortization (EBITDA) and its earnings before interest and taxes (EBIT) divided by its expenses. interest (its interest coverage). Thus, we consider debt to earnings with and without amortization and depreciation expense.

K-Fast Holding shareholders face the double whammy of a high net debt to EBITDA ratio (25.9) and quite low interest coverage, as EBIT is only 2.4x interest charges. The debt burden here is considerable. The good news is that K-Fast Holding has grown its EBIT by 69% smoothly over the past twelve months. Like a mother’s loving embrace of a newborn, this kind of growth builds resilience, putting the company in a stronger position to manage its debt. The balance sheet is clearly the area to focus on when analyzing debt. But ultimately, the company’s future profitability will decide whether K-Fast Holding can strengthen its balance sheet over time. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.

But our last consideration is also important, because a company cannot pay debt with paper profits; he needs cash. We must therefore clearly examine whether this EBIT generates a corresponding free cash flow. Over the past three years, K-Fast Holding has recorded free cash flow of 61% of its EBIT, which is about normal, given that free cash flow excludes interest and taxes. This cold hard cash allows him to reduce his debt whenever he wants.

Our point of view

K-Fast Holding’s net debt to EBITDA was a real negative in this analysis, although the other factors we considered were considerably better. In particular, we are blown away by its EBIT growth rate. Looking at all this data, we feel a bit cautious about K-Fast Holding’s debt levels. While debt has its upside in higher potential returns, we think shareholders should certainly consider how debt levels could make the stock more risky. There is no doubt that we learn the most about debt from the balance sheet. However, not all investment risks reside on the balance sheet, far from it. Example: we have identified 5 warning signs for K-Fast Holding you should be aware, and 2 of them are a bit of a concern.

If, after all that, you’re more interested in a fast-growing company with a strong balance sheet, check out our list of cash-flowing growth stocks without further ado.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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Is CGG (EPA:CGG) using too much debt? http://freedominst.org/is-cgg-epacgg-using-too-much-debt/ Thu, 17 Feb 2022 04:24:09 +0000 http://freedominst.org/is-cgg-epacgg-using-too-much-debt/

Warren Buffett said: “Volatility is far from synonymous with risk. It’s natural to consider a company’s balance sheet when looking at its riskiness, as debt is often involved when a company fails. We notice that CGG (EPA:CGG) has debt on its balance sheet. But should shareholders worry about its use of debt?

Why is debt risky?

Debt helps a business until the business struggles to pay it back, either with new capital or with free cash flow. In the worst case, a company can go bankrupt if it cannot pay its creditors. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. Of course, the advantage of debt is that it often represents cheap capital, especially when it replaces dilution in a business with the ability to reinvest at high rates of return. When we think about a company’s use of debt, we first look at cash and debt together.

See our latest analysis for CGG

What is CGG’s debt?

As you can see below, CGG had $1.23 billion in debt as of September 2021, up from $1.37 billion the previous year. On the other hand, he has $241.4 million in cash, resulting in a net debt of around $984.9 million.

ENXTPA:CGG Debt to Equity History February 17, 2022

A look at CGG’s liabilities

Looking at the latest balance sheet data, we can see that CGG had liabilities of $724.9 million due within 12 months and liabilities of $1.40 billion due beyond. In return, he had $241.4 million in cash and $350.9 million in receivables due within 12 months. Thus, its liabilities total $1.53 billion more than the combination of its cash and short-term receivables.

This deficit casts a shadow over the $661.2 million enterprise, like a colossus towering above mere mortals. We would therefore be watching his balance sheet closely, no doubt. After all, CGG would likely need a significant recapitalization if it were to pay its creditors today. There is no doubt that we learn the most about debt from the balance sheet. But it is ultimately the future profitability of the activity that will decide whether CGG will be able to strengthen its balance sheet over time. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.

Last year, CGG posted a loss before interest and taxes and actually cut its revenue by 26%, to $808 million. It makes us nervous, to say the least.

Caveat Emptor

While CGG’s declining revenue is about as comforting as a wet blanket, arguably its loss of earnings before interest and taxes (EBIT) is even less appealing. Indeed, it lost $2.2 million in EBIT. When we look at this alongside significant liabilities, we are not particularly confident in the business. It would have to quickly improve its functioning so that we are interested in it. Not least because he burned $6.6 million in negative free cash flow over the past year. So suffice it to say that we consider the stock to be risky. When analyzing debt levels, the balance sheet is the obvious starting point. But at the end of the day, every business can contain risks that exist outside of the balance sheet. We have identified 1 warning sign with CGG, and understanding them should be part of your investment process.

In the end, it’s often best to focus on companies that aren’t in debt. You can access our special list of these companies (all with a track record of earnings growth). It’s free.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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Estimated Intrinsic Value of Bio-View Ltd (TLV: BIOV) http://freedominst.org/estimated-intrinsic-value-of-bio-view-ltd-tlv-biov/ Tue, 15 Feb 2022 04:28:17 +0000 http://freedominst.org/estimated-intrinsic-value-of-bio-view-ltd-tlv-biov/

Today we are going to walk through one way to estimate the intrinsic value of Bio-View Ltd (TLV: BIOV) by taking expected future cash flows and discounting them to their present value. On this occasion, we will use the Discounted Cash Flow (DCF) model. Before you think you can’t figure it out, just read on! It’s actually a lot less complex than you might imagine.

We draw your attention to the fact that there are many ways to value a company and, like the DCF, each technique has advantages and disadvantages in certain scenarios. If you want to know more about discounted cash flow, the rationale for this calculation can be read in detail in the Simply Wall St analysis template.

Check out our latest analysis for Bio-View

The calculation

We use the 2-stage growth model, which simply means that we consider two stages of business growth. In the initial period, the company may have a higher growth rate, and the second stage is generally assumed to have a stable growth rate. To start, we need to estimate the cash flows for the next ten years. Since no analyst estimates of free cash flow are available to us, we have extrapolated the previous free cash flow (FCF) from the company’s latest reported value. We assume that companies with decreasing free cash flow will slow their rate of contraction and companies with increasing free cash flow will see their growth rate slow during this period. We do this to reflect the fact that growth tends to slow more in early years than in later years.

A DCF is based on the idea that a dollar in the future is worth less than a dollar today, and so the sum of these future cash flows is then discounted to today’s value:

Estimated free cash flow (FCF) over 10 years

2022 2023 2024 2025 2026 2027 2028 2029 2030 2031
Leveraged FCF (₪, Millions) ₪3.11m ₪3.00m ₪2.93m ₪2.90m ₪2.89m ₪2.90m ₪2.92m ₪2.94m ₪2.97m ₪3.01m
Growth rate estimate Source Is @ -5.93% Is @ -3.71% Is @ -2.15% Is @ -1.06% Is @ -0.3% Is at 0.23% Is at 0.61% Is at 0.87% Is at 1.05% Is at 1.18%
Present value (₪, million) discounted at 6.2% ₪2.9 ₪2.7 ₪2.4 ₪2.3 ₪2.1 ₪2.0 ₪1.9 ₪1.8 ₪1.7 ₪1.7

(“East” = FCF growth rate estimated by Simply Wall St)
10-year discounted cash flow (PVCF) = ₪21m

The second stage is also known as the terminal value, it is the cash flow of the business after the first stage. The Gordon Growth formula is used to calculate the terminal value at a future annual growth rate equal to the 5-year average 10-year government bond yield of 1.5%. We discount terminal cash flows to present value at a cost of equity of 6.2%.

Terminal value (TV)= FCF2031 × (1 + g) ÷ (r – g) = ₪3.0m × (1 + 1.5%) ÷ (6.2%– 1.5%) = ₪65m

Present value of terminal value (PVTV)= TV / (1 + r)ten= ₪65m÷ ( 1 + 6.2%)ten= ₪36m

The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is 57 million euros. To get the intrinsic value per share, we divide it by the total number of shares outstanding. Compared to the current share price of ₪3.4, the company appears to be about fair value at a 17% discount to the current share price. Remember though that this is only a rough estimate, and like any complex formula – trash in, trash out.

TASE: BIOV Discounted Cash Flow February 15, 2022

The hypotheses

The above calculation is highly dependent on two assumptions. One is the discount rate and the other is the cash flows. You don’t have to agree with these entries, I recommend that you redo the calculations yourself and play around with them. The DCF also does not take into account the possible cyclicality of an industry or the future capital needs of a company, so it does not give a complete picture of a company’s potential performance. Since we view Bio-View as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which factors in debt. In this calculation, we used 6.2%, which is based on a leveraged beta of 0.949. Beta is a measure of a stock’s volatility relative to the market as a whole. We derive our beta from the average industry beta of broadly comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable company.

Let’s move on :

Valuation is only one side of the coin in terms of crafting your investment thesis, and it shouldn’t be the only metric you look at when researching a company. The DCF model is not a perfect stock valuation tool. Instead, the best use of a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. If a company grows at a different pace, or if its cost of equity or risk-free rate changes sharply, output may be very different. For Bio-View, we have put together three relevant factors that you should consider in more detail:

  1. Risks: Take for example the ubiquitous specter of investment risk. We have identified 2 warning signs with Bio-View, and understanding them should be part of your investment process.
  2. Other strong companies: Low debt, high returns on equity and good past performance are essential to a strong business. Why not explore our interactive list of stocks with strong trading fundamentals to see if there are any other companies you may not have considered!
  3. Other top analyst picks: Interested to see what the analysts think? Take a look at our interactive list of analysts’ top stock picks to find out what they think could have attractive future prospects!

PS. The Simply Wall St app performs a discounted cash flow valuation for every stock on the TASE every day. If you want to find the calculation for other stocks, search here.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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Metro (ETR:B4B) takes some risk with its use of debt http://freedominst.org/metro-etrb4b-takes-some-risk-with-its-use-of-debt/ Fri, 11 Feb 2022 04:25:50 +0000 http://freedominst.org/metro-etrb4b-takes-some-risk-with-its-use-of-debt/

Howard Marks said it well when he said that, rather than worrying about stock price volatility, “the possibility of permanent loss is the risk I worry about…and that every practical investor that I know is worried”. When we think of a company’s risk, we always like to look at its use of debt, because over-indebtedness can lead to ruin. Above all, Metro AG (ETR:B4B) is in debt. But does this debt worry shareholders?

When is debt a problem?

Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. If things go really bad, lenders can take over the business. However, a more common (but still painful) scenario is that it has to raise new equity at a low price, thereby permanently diluting shareholders. Of course, debt can be an important tool in businesses, especially capital-intensive businesses. The first thing to do when considering how much debt a business has is to look at its cash and debt together.

Check out our latest analysis for Metro

What is Metro’s net debt?

You can click on the chart below for historical numbers, but it shows Metro had €1.97 billion in debt in September 2021, up from €2.29 billion a year earlier. However, he also had €1.47 billion in cash, so his net debt is €498.0 million.

XTRA: B4B Debt to Equity February 11, 2022

How strong is Metro’s balance sheet?

Zooming in on the latest balance sheet data, we can see that Metro had liabilities of €6.33 billion due within 12 months and liabilities of €4.65 billion due beyond. In return, it had 1.47 billion euros in cash and 1.05 billion euros in receivables due within 12 months. It therefore has liabilities totaling 8.45 billion euros more than its cash and short-term receivables, combined.

The deficiency here weighs heavily on the company itself of 3.69 billion euros, like a child struggling under the weight of a huge backpack full of books, his sports equipment and a trumpet. We would therefore be watching his balance sheet closely, no doubt. Ultimately, Metro would likely need a major recapitalization if its creditors were to demand repayment.

We use two main ratios to inform us about debt to earnings levels. The first is net debt divided by earnings before interest, taxes, depreciation and amortization (EBITDA), while the second is how often its earnings before interest and taxes (EBIT) covers its interest expense (or its interests, for short). Thus, we consider debt to earnings with and without amortization and depreciation expense.

Given that net debt is only 0.64 times EBITDA, it is initially surprising to see that Metro’s EBIT has a low interest coverage of 1.6 times. So, even if we are not necessarily alarmed, we think that his debt is far from trivial. Unfortunately, Metro’s EBIT actually fell 2.5% over the past year. If earnings continue to fall, managing that debt will be as difficult as delivering hot soup on a unicycle. The balance sheet is clearly the area to focus on when analyzing debt. But it’s future earnings, more than anything, that will determine Metro’s ability to maintain a healthy balance sheet in the future. So if you are focused on the future, you can check out this free report showing analyst earnings forecast.

Finally, a company can only repay its debts with cold hard cash, not with book profits. We therefore always check how much of this EBIT is converted into free cash flow. Over the past three years, Metro has actually produced more free cash flow than EBIT. There’s nothing better than incoming money to stay in the good books of your lenders.

Our point of view

To be frank, Metro’s interest coverage and track record of keeping total liabilities under control makes us rather uncomfortable with its level of leverage. But on the bright side, its conversion from EBIT to free cash flow is a good sign and makes us more optimistic. Once we consider all of the above factors together, it seems to us that Metro’s debt makes it a bit risky. Some people like that kind of risk, but we’re aware of the potential pitfalls, so we’d probably prefer it to take on less debt. Even though Metro lost money on the bottom line, its positive EBIT suggests that the company itself has potential. You might want to check how income has changed over the past few years.

In the end, sometimes it’s easier to focus on companies that don’t even need to take on debt. Readers can access a list of growth stocks with no net debt 100% freeat present.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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We think Electra Real Estate (TLV:ELCRE) can stay on top of its debt http://freedominst.org/we-think-electra-real-estate-tlvelcre-can-stay-on-top-of-its-debt/ Wed, 09 Feb 2022 04:43:40 +0000 http://freedominst.org/we-think-electra-real-estate-tlvelcre-can-stay-on-top-of-its-debt/

Berkshire Hathaway’s Charlie Munger-backed outside fund manager Li Lu is quick to say, “The biggest risk in investing isn’t price volatility, but whether you’re going to suffer a permanent loss of capital “. So it seems smart money knows that debt – which is usually involved in bankruptcies – is a very important factor when you’re assessing a company’s risk. Above all, Electra Real Estate Ltd. (TLV:ELCRE) is in debt. But the more important question is: what risk does this debt create?

What risk does debt carry?

Debt and other liabilities become risky for a business when it cannot easily meet those obligations, either with free cash flow or by raising capital at an attractive price. An integral part of capitalism is the process of “creative destruction” where bankrupt companies are mercilessly liquidated by their bankers. Although not too common, we often see companies in debt permanently diluting their shareholders because lenders force them to raise capital at a ridiculous price. By replacing dilution, however, debt can be a great tool for companies that need capital to invest in growth at high rates of return. The first thing to do when considering how much debt a business has is to look at its cash and debt together.

Discover our latest analysis for Electra Real Estate

What is Electra Real Estate’s net debt?

As you can see below, at the end of September 2021, Electra Real Estate had a debt of ₪672.7 million, compared to ₪434.8 million a year ago. Click on the image for more details. On the other hand, he has ₪96.5 million in cash, resulting in a net debt of around ₪576.2 million.

TASE: ELCRE Debt to Equity February 9, 2022

How healthy is Electra Real Estate’s balance sheet?

We can see from the most recent balance sheet that Electra Real Estate had liabilities of ₪256.5 million due within one year, and liabilities of ₪648.5 million due beyond. In return, he had £96.5 million in cash and £54.6 million in debt due within 12 months. Thus, its liabilities outweigh the sum of its cash and receivables (short-term) by ₪753.9 million.

While that might sound like a lot, it’s not that bad since Electra Real Estate has a market capitalization of ₪3.76 billion, so it could probably strengthen its balance sheet by raising capital if needed. However, it is always worth taking a close look at its ability to repay debt.

In order to assess a company’s debt relative to its earnings, we calculate its net debt divided by its earnings before interest, taxes, depreciation and amortization (EBITDA) and its earnings before interest and taxes (EBIT) divided by its expenses. interest (its interest coverage). In this way, we consider both the absolute amount of debt, as well as the interest rates paid on it.

We would say that Electra Real Estate’s moderate net debt to EBITDA ratio (1.5) indicates prudence in terms of leverage. And its towering EBIT of 13.8 times its interest expense means that the debt burden is as light as a peacock feather. What is even more impressive is that Electra Real Estate has increased its EBIT by 200% in twelve months. This boost will make it even easier to pay off debt in the future. There is no doubt that we learn the most about debt from the balance sheet. But it is the profits of Electra Real Estate that will influence the balance sheet in the future. So, when considering debt, it is definitely worth looking at the earnings trend. Click here for an interactive preview.

But our last consideration is also important, because a company cannot pay debt with paper profits; he needs cash. So the logical step is to look at what proportion of that EBIT is actual free cash flow. Over the past three years, Electra Real Estate has generated free cash flow amounting to 10% of its EBIT, an uninspiring performance. For us, such a low cash conversion creates a bit of paranoia about the ability to extinguish the debt.

Our point of view

The good news is that Electra Real Estate’s demonstrated ability to cover its interest costs with its EBIT delights us like a fluffy puppy does a toddler. But the harsh truth is that we are concerned about its conversion from EBIT to free cash flow. All in all, it looks like Electra Real Estate can comfortably manage its current level of debt. On the plus side, this leverage can increase shareholder returns, but the potential downside is more risk of loss, so it’s worth keeping an eye on the balance sheet. There is no doubt that we learn the most about debt from the balance sheet. But at the end of the day, every business can contain risks that exist outside of the balance sheet. These risks can be difficult to spot. Every business has them, and we’ve spotted 3 warning signs for Electra Real Estate (2 of which are significant!) that you should know.

If you are interested in investing in companies that can generate profits without the burden of debt, then check out this free list of growing companies that have net cash on the balance sheet.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.

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