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Price ofStock Using a Given Formula | Linkedln
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Price ofStock Using a Given Formula | Linkedln
Rod Bu rkert
Well it depends : —) If the "he" is being pai...
1 1/3/201 5
Price ofStock Using a Given Formula | Linkedln
to a headhunter) it grows at the | ong—term sustainable grow...
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Price of stock using a given formula linked in

Price of stock using a given formula linked in
Published on: Mar 4, 2016
Published in: Economy & Finance      
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  • 1. 11/3/2015 Price ofStock Using a Given Formula | Linkedln Search for people, jobs, companies, and more. .. I: Advanced rfi If‘, 1;v_ Home Profile Connections Jobs Interests Business Services Try Premium for free Add Your Position — Get 3 times more prolile views I Update Your Profile » Valuation . o-«v----w Valuation 12,710 members Member Q A Discussions Jobs About Search Rusty Grunwald Owner, V. Russell Grunwald, CPA v Your group contribufian | eVe| Price of Stock Using a Given Formula What is the price of a stock using the formula P = D/ K where the subject company has no dividend paying history in an industry where the sole shareholder takes all profits out in the form of salary and there is no data available on reasonable compensation? Comment (8) ' Like (0) ' Unfollow - Report spam rat January 8,2013 Rod Burkert I'll start this off where the subject company has no dividend paying history — it's not distribuTED cash flow, it's distribuTABLE cash flow (with cash flow being the proxy for dividends) and there is no data available on reasonable compensation - talk to a headhunter Like (0) - Reportspam January8,2013 Rusty Grunwald so I take it you are saying there is no cash flow’? since he took all of it in compensation in exchange for working? ... .no cash f| ow. ..no dividend. ... no price here? Like (0) - Replyprivately - Reportspam Janua| y8,2013 https: //www. Iinkedin. com/ grp/ post/114512-202420441 Start by commenting in a discussion. Group participants get 4x the number of profile views. Getting Started Find your next opportunity Update your profile 1/3
  • 2. 1 1/3/201 5 Price ofStock Using a Given Formula | Linkedln Rod Bu rkert Well it depends : —) If the "he" is being paid a market salary — and there is no CF left — you still have the value of any assets. If the "he“ is being paid an above market value salary — and that is causing there to be no cash flow — then you have an issue. What size interest are you valuing? Like (1) - Report spam January 8, 2013 Sukarnen Suwanto Hi Rusty, P= D/K is a perpetuity formula, and this makes me wonder whether the situation you put there is sustainable into the perpetuity. Salary itself should have base portion and allowance portion. By taking all "dividends" and treated as ‘salary’, mechanically, we need to keep the allowance portion changing even every month. Not too sure whether the tax authority will allow this happen, and probably, they will deem some portion of the "salary" as dividends, and not allow that portion as a deductible expense. Following Rod's comment, I agree that salary to the extent possible should be benchmarked to market, and this will necessitate us to reconstruct the profit and loss statements and make necessary adjustment accordingly (including the tax portion on business profits) and whatever left, will be going to the free cash flow, after delta NWC and CAPEX be included. Like (0) - Delete Januan/9,2013 Rusty Grunwald I agree that the basic P= D/K is a perpetuity formula. But D1/(1 + K1) + D2/(1 + K2) is not. Compensation can change. My original parameter stated that market compensation is an unknown. ... it really is not available to proxy. Secondly, I don't think this well known equation to set the value of common stock says anything about the companies assets or liabilities? This same equation, adjusted slightly for issuance costs is often used to value a bond The price under this formula, I believe, addresses three factors, annual dividends (if any), growth of the dividend stream (if there is one) and the discount. What are your arguments if you are faced with these questions in court? Is this formula a first approach. ... or a cut check? Is there a value at all? in the stock. ..they may be a value that one can place on the shareholders compensation . ..but that's outside the entity that is being valued? Like (0) - Replyprivately - Reportspam Januaw9,2013 Rod Bu rkert @Rusty. The D is distributable cash cash flow NIAT + Depn - changes in NWC - CapEx +/ - changes in LTD. Yes, compensation can change. But once you establish a market salary (talk htlpsz/ /www. |inkedin. com/ grp/ post/114512-202420441 About I Feedback I Privacy&Terms Linkedln Corp. ©2015 2/3
  • 3. 1 1/3/201 5 Price ofStock Using a Given Formula | Linkedln to a headhunter) it grows at the | ong—term sustainable growth rate you establish for the business. Also the formula you are citing is a capitalization model. If that is not appropriate, you would use a DCF model and the formula you are using becomes a formula for the terminal value. Like (0) - Reportspam January9,2013 Rod Bu rkert BTW, there is no "value" to compensation except to the person receiving it. It is a retum on time, given the duties and responsibilities of the wage earner, and generally it would be the market compensation he/ she would receive in a comparable position in any other company. It may also be helpful if you told us what the purpose of the valuation is, type of company, etc. Like (0) - Report spam January 9, 2013 Sukamen Suwanto I guess it is important to know that in valuation, we need to differentiate the management compensation with dividends. Just because the company is sole proprietorship, it does not mean that the differentiation of those two items does not exist. I assume you want to get the fair (market) value of the company's stock, then I see it is incorrect to assume that all payments received by the owners are dividends. The management compensation is management compensation, regardless who receives that, and we still need somebody to run the show. It is just a coincidence that the owner becomes the management of the company, he/ she could still appoint somebody else to do that function. And this management compensation should be benchmarked to market rate. If you still want to stick to the DDM, then there are a couple of scenario that you might need to consider, no growth, constant growth, two-stage, or multi-stage. As the company's business normally grows or expected to grow, then no growth scenario is somehow not reasonable. But once you factor the growth rate into the model, then the growth rate plays a major role in the constant growth DDM. It is very important that great care is taken to estimate it. Any small error will greatly impact the estimated value of the common stock. Like (0) - Delete January9,2013 Add a comment. .. V Send me an email for each new comment I: htlpsz/ /www. |inkedin. com/ grp/ post/114512-202420441 3/3

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