Comment, question or quotation of the day
18-10-2019 : Question from a Vernimmen reader.
For which type of companies is direct valuation (P/E ratio and discounting of dividends) no worse than indirect valuation (determination of the enterprise value first by using multiples of operating income or of EBITDA or discounting of free cash flows, then subtracting the value of net debt)? For a company that has no significant net bank and financial debts and pays almost all of its profits in dividends and/or share buybacks, such as BIC for example. These cases are still quite rare. The absence of significant net debt avoids the distortion of the multiples that debt causes. A payout ratio close to 100% means that dividends and free cash flows are very close, which avoids, in the direct approach of discounting dividends, mispricing reinvestment since it is (almost) zero. For more details, see Chapter 37 of the Vernimmen. Have a nice day.
17-10-2019 : Quote of the day
“If all of our work goes towards amassing material goods, we end up building our own prison. We lock ourselves up, alone with our dead currency that buys nothing worth living for.” Antoine de Saint-Exupéry
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The Vernimmen.com Letter
Number 123 of October 2019
News : How to finance the construction in Mali of the largest solar power plant in West Africa?
Statistics : Capital expenditures, dividends and share buybacks in the United States
Research : How are shares allocated to investors in IPOs
Q&A : pre-money or post money?
COMMENTS : Comments posted on Facebook