Valuation models

Intrinsic value · Implementation difficulty: High

FCFF DCF

Discounts future cash flow available to all capital providers, providing a comprehensive bridge from operating forecasts to enterprise value.

View formulas, evidence and limits → Intrinsic value · Implementation difficulty: Medium-high

Residual income

Starts with current book equity and treats only earnings above the required return as added value; especially useful for banks, insurers and brokers.

View formulas, evidence and limits → Intrinsic value · Implementation difficulty: Medium-high

Insurance embedded value

Splits a life insurer into the value of policies already in force and the value of continuing to write new business; the standard way insurers are valued.

View formulas, evidence and limits → Asset value · Implementation difficulty: Medium-high

NAV

Revalues assets and liabilities at realizable economic value rather than historical cost; suited to asset-driven businesses.

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Relative valuation · Implementation difficulty: Medium

Relative valuation

Compares peer and historical trading multiples to estimate what the market pays for earnings, book value, revenue or cash flow.

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Intrinsic value · Implementation difficulty: Medium-high

Duan cash-flow valuation

Treats investing as buying a company's lifetime net cash flows while minimizing parameters and emphasizing business understanding, opportunity cost and a wide margin of safety.

View formulas, evidence and limits → Intrinsic value · Implementation difficulty: High

Buffett owner earnings

Uses cash owners can take out without harming long-term competitiveness instead of mechanical accounting earnings, then values its compounding potential.

View formulas, evidence and limits → Intrinsic value · Implementation difficulty: Medium

Greenwald EPV

Capitalizes sustainable current after-tax operating earnings without paying for unproven growth, providing a conservative anchor beyond DCF.

View formulas, evidence and limits → Market expectations · Implementation difficulty: Medium-high

Reverse DCF

Works backward from the current price to infer the growth and margin expectations embedded by the market.

View formulas, evidence and limits → Asset value · Implementation difficulty: Low-medium

Graham NCAV

Subtracts all liabilities and senior claims from current assets to identify deep-value companies trading below conservative liquidation protection.

View formulas, evidence and limits → Relative valuation · Implementation difficulty: Low

Lynch PEG

Compares P/E with sustainable earnings growth to impose simple price discipline on profitable growth companies.

View formulas, evidence and limits → Screening and validation · Implementation difficulty: Medium

Greenblatt Magic Formula

Ranks stocks by earnings yield and return on capital to find companies that are both inexpensive and capital-efficient.

View formulas, evidence and limits → Intrinsic value · Implementation difficulty: High

Life-cycle growth valuation

Lets growth, margins, reinvestment and risk converge as a company matures; useful when conventional multiples fail for growth companies.

View formulas, evidence and limits → Intrinsic value · Implementation difficulty: Medium

Williams DDM

Defines equity value as the present value of all future shareholder distributions, a foundational cash-flow valuation framework.

View formulas, evidence and limits → Screening and validation · Implementation difficulty: Low-medium

Piotroski F-Score

Uses nine public financial signals to separate improving low-valuation stocks from potential value traps.

View formulas, evidence and limits → Screening and validation · Implementation difficulty: Low

Shareholder yield

Combines cash dividends and net buybacks to measure cash returned to continuing shareholders.

View formulas, evidence and limits → Return decomposition · Implementation difficulty: Low-medium

FCF yield plus growth

Adds current free-cash-flow yield to sustainable medium-term growth to decompose long-run return drivers.

View formulas, evidence and limits → Intrinsic value · Implementation difficulty: High

Gabelli PMV

Values the company or its segments from a strategic acquirer's perspective and looks for catalysts that close the public/private value gap.

View formulas, evidence and limits → Screening and validation · Implementation difficulty: Low

Acquirer's Multiple

Divides enterprise value by normalized operating earnings to screen for inexpensive businesses from an acquirer's perspective.

View formulas, evidence and limits → Cycle context · Implementation difficulty: Medium

Shiller CAPE

Uses long-term inflation-adjusted average earnings to smooth cycles and assess market or sector valuation context.

View formulas, evidence and limits → Asset value · Implementation difficulty: Low-medium

Schloss asset discount

Emphasizes tangible assets, low debt and price discounts, using asset protection instead of optimistic distant-earnings forecasts.

View formulas, evidence and limits → Intrinsic value · Implementation difficulty: Low

Graham Number

Takes the geometric mean of EPS and book value per share to produce a conservative price ceiling that folds in both earnings and assets, screening out clearly overpriced traditional value stocks.

View formulas, evidence and limits → Intrinsic value · Implementation difficulty: Low

Gordon growth model

Assumes dividends grow at a single perpetual rate and capitalizes next year's dividend directly — the most transparent baseline form of dividend discount valuation.

View formulas, evidence and limits → Intrinsic value · Implementation difficulty: Medium

H-Model

Within the dividend discount framework, assumes growth fades linearly from a high initial rate to a perpetual rate, approximating the two-stage model with a closed-form solution and avoiding valuation jumps from abrupt growth changes.

View formulas, evidence and limits → Relative valuation · Implementation difficulty: Medium-high

Absolute P/E

Starts from a no-growth P/E, adds points for earnings growth and dividends to set a basic P/E, then adjusts for business risk, financial risk and earnings visibility, turning qualitative quality into an explainable fair P/E.

View formulas, evidence and limits → Relative valuation · Implementation difficulty: Medium-high

Justified multiples

Algebraically rearranges the Gordon growth model to derive the P/E and P/B a company's fundamentals justify from its retention rate, ROE, growth and cost of equity, then multiplies by current fundamentals.

View formulas, evidence and limits → Intrinsic value · Implementation difficulty: High

EVA economic value added

Splits enterprise value into invested capital plus the present value of future economic profit (NOPAT minus a WACC-based capital charge); growth adds value only when returns exceed the cost of capital.

View formulas, evidence and limits → Screening and validation · Implementation difficulty: Medium

Altman Z-Score

Uses a weighted discriminant of five financial ratios to estimate the probability of financial distress within about two years, adding a bankruptcy-risk veto layer to deep-value conclusions.

View formulas, evidence and limits → Intrinsic value · Implementation difficulty: Medium

Ohlson EBO

Makes the residual-income model explicit: equity value equals book value per share plus the present value of future excess returns (ROE minus cost of equity), decayed by a persistence factor.

View formulas, evidence and limits → Screening and validation · Implementation difficulty: High

Beneish M-Score

An 8-variable discriminant built from two periods of financial line items, flagging abnormal changes in receivables, gross margin, asset quality, growth, depreciation, expense ratios, accruals and leverage to detect earnings-manipulation tendencies.

View formulas, evidence and limits → Intrinsic value · Implementation difficulty: High

APV

Splits enterprise value into unlevered operating value and financing side effects like the debt tax shield, priced separately — suited to companies whose leverage path will change materially, where a fixed-WACC assumption breaks down.

View formulas, evidence and limits → Intrinsic value · Implementation difficulty: High

CFROI

Reconstructs accounting returns into an inflation-adjusted internal rate of return, assumes it fades toward the economy-wide long-run average, and discounts the resulting economic profit to a warranted value — reducing distortion from depreciation policy and asset age.

View formulas, evidence and limits → Intrinsic value · Implementation difficulty: High

Real options

Prices pipeline assets, undeveloped reserves, or explicit expansion/abandonment options as call options via Black-Scholes, capturing unpriced optionality that a DCF would otherwise value at zero or negative.

View formulas, evidence and limits → Screening and validation · Implementation difficulty: Medium

Rule of 40

Treats revenue growth plus FCF margin summing to 40 as healthy growth, maps the degree of attainment to a suggested EV/Sales multiple band, and cross-checks with LTV/CAC and CAC payback period.

View formulas, evidence and limits → Cycle context · Implementation difficulty: Medium

Tobin's Q

Divides equity market value plus net debt by asset replacement cost to gauge the premium or discount the market assigns to a company's assets, mainly as cycle context for asset-heavy industries.

View formulas, evidence and limits → Screening and validation · Implementation difficulty: Low

Neff total return ratio

Adds earnings growth rate and dividend yield, then divides by the P/E — a single number capturing cheapness, growth, and income together to find underpriced value stocks.

View formulas, evidence and limits → Screening and validation · Implementation difficulty: Low

Sloan accruals anomaly

Measures how much of reported profit has not yet turned into real cash via (net income − operating cash flow) / total assets; a higher accrual ratio has historically predicted lower future returns.

View formulas, evidence and limits → Screening and validation · Implementation difficulty: Low

Novy-Marx gross profitability

Divides gross profit by total assets to gauge profitability quality; the ratio has historically correlated positively with future returns and hedges cheap stocks against being value traps.

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