Valuation from earnings or dividends and other questions?


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Posted by Halim on April 29, 19100 at 00:10:04:

Hi Bob.
Thanks for your valueable advice. I do have several
questions that I don't understand.

1)If we are going to value an enterprise(according to
formulas): do we depend on earnings figure(should
we use average earnings or current year earnings?)
or do we use dividends(+future expectation of
dividends(similar to those used in "The Theory of
Investment Value " to find value of an enterprise?).

2)How do we account for reinvestment of earnings if we
use dividend valuation method(since most corporations
now do not give back dividends or give very little
to sharehoders?)

3)Would lack of working capital( or even negative
working capital)be bad for an enterprise?. An
anomaly that I found is in the case of Fannie Mae.
If they are good(supposing they are good in utilizing
debt), wouldn't they be punished by heavy interest
charges during economy downturn?

4)When applying Graham rules of finding cheap stocks
(such as working capital ratio, book value to market
value, etc), why is it that most of the time these
stocks are not really valuable(such as Sears
Roebuck?).





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