Any specific examples of company valuations according to Value Investing philosophy?
"I highly recommend http://pages.stern.nyu.edu/~adamodar/ Professor Damodaran. He's written some of the best valuation books in existence (my favorite, simply ""Investment Valuation""). On his website you'll find a big pile of spreadsheets, that are models for working the various approaches to valuing a company.  Also, he teaches an MBA-level valuation course at Stern School of Business in NYC. And he videotapes it and you can watch it for free. Very smart, kind, generous man." Buffet is in a different league from other value investors. He looks for stable companies with no debt and good management. Then he looks to deeply understand the industries of candidate companies, and looks for companies that are not in commodity businesses or sell commodities that can be bought for 25% of the valuation that he believes reflects the true value of the company. Deeply understanding the market is really the key.  Consider the Burlington Northern Santa Fe Railroad, which Buffet purchased last year. Railroads benefit from higher oil prices, as they can transport cargo much cheaper than trucks. They also tend to have natural monopolies in the regions they operate in. Buffet bought the railroad just as production of oil and natural gas in North Dakota started picking up. Since pipeline capacity between North Dakota and refineries in Texas/Oklahoma is very limited, the railroad is making alot of money transporting crude.
It's been awhile since my last finance course, so school me here:  What is the market cap of a company actually supposed to represent? I get that it's the stock price X the # of shares, but what is that actually representing? Revenues? PV of all future revenues? PV of future cash flows?  In any case, good write up. Valuation of tech stocks is quite the gambit, and you've done a good job of dissecting it for a layman. There are books on the subject of valuing stocks. P/E ratio has nothing directly to do with the value of a company. It may be an indication that the stock is undervalued or overvalued, but does not indicate the value itself. The direct value of company is what it would fetch if it was liquidated. For example, if you bought a dry cleaner and sold all of the equipment and receivables, how much would you get? To value a living company, you can treat it like a bond. For example, assume the company generates $1 million in profit every year and has a liquidation value of $2 million. Given the risk profile of the business, let's say we would like to make 8% on average per year, then the value of the business is approximately $1/0.08 + $2 = $14.5 million to us. To someone who expects to make more or less the value might be different. If the company has growth potential, you can adjust this figure by estimating the estimated income at different percentage chances of growth and decline, a growth curve so to speak. The value is then the net area under this curve.  Of course, if you do this for NYSE and most NASDAQ stocks you will find that they have a capitalization way over these amounts. That is because they are being used as a store of wealth. People are buying the stocks just as a way to store money, not necessarily make a profit. It's kind of like buying land. Even though the land may never give you a penny of profit, you know you can always sell it and get your money back. Because of this, it is difficult to value high-profile equities. You are dealing with human psychology, not pennies and dollars. "I hate to be the guy that says this but if you are indeed competing in the CFAI Research Challenge it is probably important. Remember you cannot use CFA as a noun (CFA's) you can only use it as an adjective ie a CFA charterholder.  As far as you question, what was provided below is pretty much all you need. Security Analysis, anything from the NYU professor and Greenwald stuff (although Greenwald, like someone already mentioned, is balance sheet focused) will get you where you need to go.  I am not sure what you mean by ""exotic valuation"" methods. As far as I know, the three most accepted and used valuation models by practitioners are the DCF model, the multiple model and the residual income model.  DCF uses short term cash flows and a terminal value discounted to today at some discount rate. The multiple model puts some multiple on earnings, book value, cash flow to arrive at a fair value. The residual model is the opposite of the DCF. One starts with the assets book value, then accrues all income generated in excess of WACC from all future periods.  Find some CFAI Level 2 books on equity and bond valuation. They pretty much cover it all.  And for a closing note, to perform well in investing and valuing companies it is not about what valuation model you use. Focus on WHY an asset should be worth what you think it is worth, not HOW you get to some valuation of that asset. Just my two cents." all of these examples are great if you actually believe in fundamentals, but who believes in fundamentals alone any more? Stock prices are driven by earnings, news, and public perception. For instance, a pharma company named Eyetech has their new macular degeneration drug approved by the FDA, and yet their stock price plummeted. Typically when a small pharma company gets a drug approved, it's off to the races. But, Genetech came out said their macular degeneration drug was going to be far more effective, and that they were well on track for approval. "You should distinguish between the price and the value of a company:  ""Price is what you pay, value is what you get"". Price is the share price you pay for one share of the company. Value is what a company is worth (based on fundamental analysis, one of the principles of value investing).  I would recommend selling the stock only if the company's value has deteriorated due to fundamental changes (e.g. better products from competitors, declining market) and its value is lower than the current share price." "Complex matter that doesn't boil down to a formula.   The quant aspect could be assessed by calculating WACCs under various funding scenarii and trying to minimize, but it is just one dimension of it.  The quali aspects can vary widely depending on the company, ownership structure, tax environment and business needs and it really can't be covered even superficially in a reddit comment...  Few examples from the top of my mind to give you a sense of it:  - shareholders might be able to issue equity but want to avoid dilution, so debt is preferred in the end despite cost. Or convertible debt under the right scenario.  - company has recurring funding needs and thinks that establishing a status on debt market is worth paying a premium to ensure they can ""tap"" it whenever hey need to.  - adding debt is a way to leverage and enhance ROI/IRR for certain types of stakeholders (think LBOs)  - etc etc etc  Takes time and a lot of experience/work to be able to figure out what's best and there isn't always a clear answer.  Source: pro buy side credit investor with experience and sizeable AuMs." "One way to value companies is to use a Dividend discount model. In substance, it consists in estimating future dividends and calculating their present value. So it is a methodology which considers that an equity is similar to a bond and estimates its current value based on future cash flows. A company may not be paying dividends now, but because its future earnings prospects are good may pay some in the future. In that case the DDM model will give a non-zero value to that stock. If on the other hand you think a company won't ever make any profits and therefore never pay any dividends, then it's probably worth 0! Take Microsoft as an example - it currently pays ~3% dividend per annum. The stock has been listed since 1986 and yet it did not pay any dividends until 2003. But the stock has been rising regularly since the beginning because people had ""priced in"" the fact that there was a high chance that the company would become very profitable - which proved true in the long term (+60,000% including dividends since the IPO!)." Aswath Damodaran's [Investment Valuation 3rd edition](http://www.amazon.com/Investment-Valuation-Techniques-Determining-University/dp/1118130731/ref=sr_1_12?ie=UTF8&amp;qid=1339995852&amp;sr=8-12&amp;keywords=aswath+damodaran) (or save money and go with a used copy of the [2nd edition](http://www.amazon.com/gp/offer-listing/0471414905/ref=dp_olp_used?ie=UTF8&amp;condition=used))  He's a professor at Stern School of Business. His [website](http://pages.stern.nyu.edu/~adamodar/) and [blog](http://aswathdamodaran.blogspot.com/) are good resources as well. [Here is his support page](http://pages.stern.nyu.edu/~adamodar/New_Home_Page/Inv3ed.htm) for his Investment Valuation text. It includes chapter summaries, slides, ect. If you're interested in buying the text you can get an idea of what's in it by checking that site out. Other metrics like Price/Book Value or Price/Sales can be used to determine if a company has above average valuations and would be classified as growth or below average valuations and be classified as value. Fama and French's 3 Factor model would be one example that was studied a great deal using an inverse of Price/Book I believe. This fortune article is referenced in his either 2003 or 2004 annual report in which he does say that the market will not likely return much in the future and generally talks numbers. I am also a value investor, such that I can be in this environment and believe there is a bit of value in knowing where you think the market is headed but the real value is in underwriting each deal. In long, I agree with you I was thinking that the value of the stock is the value of the stock...the actual number of shares really doesn't matter, but I'm not sure. You're correct.  Share price is meaningless.   Google is $700 per share, Apple is $100 per share, that doesn't say anything about either company and/or whether or not one is a better investment over the other. You should not evaluate an investment decision on price of a share.  Look at the books decide if the company is worth owning, then decide if it's worth owning at it's current price. "I tell you how I started as an investor: read the writings of probably the best investor of the history and become familiarized with it: Warren Buffett. I highly recommend ""The Essays of Warren Buffett"", where he provides a wise insight on how a company generates value, and his investment philosophy. You won't regret it! And also, specially in finance, don't follow the advice from people that you don't know, like me." "Each company has X shares valued at $Y/share. When deals like ""Dragon's Den"" in Canada and Britain or ""Shark Tank"" in the US are done, this is where the company is issuing shares valued at $z total to the investor so that the company has the funds to do whatever it was that they came to the show to get funding to do, though some deals may be loans or royalties instead of equity in the company. The total value of the shares may include intangible assets of course but part of the point is that the company is doing an ""equity financing"" where the company continues to operate. The shareholders of the company have their stake which may be rewarded when the company is acquired or starts paying dividends but that is a call for the management of the company to make. While there is a cash infusion into the company, usually there is more being done as the Dragon or Shark can also bring contacts and expertise to the company to help it grow. If the investor provides the entrepreneur with introductions or offers suggestions on corporate strategy this is more than just buying shares in the company. If you look at the updates that exist on ""Dragon's Den"" or ""Shark Tank"" at least in North America I've seen, you will see how there are more than a few non-monetary contributions that the Dragon or Shark can provide." I could argue Amazon. And Facebook the other way.  Before the down-vote brigade appears, I'll just say I said I could *argue* those points. Also, I haven't done valuation in years, and definitely not for tech because while I am a big techie, the industry itself seems likes a clown lottery with respect to valuation. As I have worked for H&R Block I know for a fact that they record all your activity with them for future reference. If it is their opinion that you are obligated to use their service if you use some other service then this, most likely, will affect your future dealings with them.  So, ask yourself this question: is reducing their income from you this year worth never being able to deal with them again in future years? The answer to that will give you the answer to your question.