Enterprise Value per Diluted Share plotted as black line.
Bands start at 5x and stops at 30x, each represents a 5x increment. Band Options (per Diluted Share, Fiscal Year): ①Free Cash Flow ②Operating Income ③Adjusted Funds from Operations ④Core Earnings where:
Core Earnings = Net Income - Unusual Income/Expenses + Tax Distortion (default 25% tax rate)
These two adjustments are coarse and watered-down, so take them with a grain of salt. For professional assessments of Core Earnings versus GAAP Earnings you may go to David Trainer at Great Speculations(costs money). I am unaffiliated with these entities.
Tips:
①③ are unapplicable to financials.
③ may work for REIT-like companies whose depreciation is mostly overstated(e.g. hydro-elec utility companies whose dams typically don't wear out in ten years; companies with assets that APPRECIATE in reality but they D&A them anyway).
Probably none works for cyclicals, especially extreme boom-bust cyclicals such as oil, aluminum & shipping etc.
Beware unnaturally low (dividend_payout+buyback)/net_income ratio as some majority shareholders may funnel money to themselves/cronies at the expense of small shareholders.
Disclaimer: Use at your own discretion. No guarantees for any accuracy or usefulness. If you decide to use it, I take no responsibility whatsoever for any consequences. Does not constitute financial advice. Past performance is not Indicative of future results.
Thank you. Why isn't EV/FCF metrics is more popular in valuation aspect?
Nagumo_Tetora
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@WannabeVI, It's not really forward looking enough, for instance Amazon's FCF turned deeply negative then they fired a huge amount of employees and suddenly they have all-time high FCF. Also not all investments are "wasted" like the will-be-retired-worthless TV panel production lines of BOE, which requires more comrehensive analysis.
Aggressive capex cutting may mask drop in cash flow from operations and reduce drop in free cash flow. If one is confident of the cyclical nature of the very industry, one may look past it. Still, bear in mind that the significance of a company is always its operations(including investment if that IS their operations), hence no accounting or managerial gimmick can save a business whose operations become fundamentally flawed. Berkshire had been a textile mill until it wasn't.