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Equity Valuation in the Style of Warren Buffet Project - Essay Example

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Equity Valuation in the Style of Warren Buffet Project

The strategy is proved to be effective over time and prevents investors from making costly and foolish investment losses. The investment strategy uses both quantitative and qualitative factors which finding a good stock. The company chosen for financial analysis is Apple Inc. (Ticker Symbol AAPL) which is a Fortune 500 company whose shares are publicly traded. Apple Inc. is a leading hardware and software company which has headquarters in Cupertino, California, U.S. The company has over 400 global retail stores spread in over 14 countries and it is listed in NASDAQ as a publicly traded company. The Four Filters Approach Filter 1 – Understanding of a company and its products The company sells its products globally through retail outlets, online stores and direct sales with the help of third party distribution networks. The company is best known for its innovative hardware products and next generation media including iPhone, iPad, iPod, Smart Phones, and so on. The company’s products and services also include MAC, iCloud, App stores, Apple TV, App Stores, MAC App Stores and iBookstores. Their software services include iOS operating system, OS X, iTunes, iWork and iLife production and creativity suites. The company’s customers are small and medium sized businesses, retail customers, enterprises, educational institutions, and government customers. Filter 2 – Competitive Advantage Apple Inc. is the second largest company in information technology sector in the world. In terms of revenues, only Samsung Electronics (leading Korean company and key competitor of Apple) exceeds the consolidated revenue of Apple. In the year 2008, Fortune magazine name the company as the most admired company in United States as well as globally. Filter 3 – Ability and Trustworthiness of Management The company delivers innovative products and services to customers that include software, hardware, peripheral, and applications. Apple is committed to providing best user experience by leveraging its ability of producing unique design. The company continuously invests in marketing, advertising, research and development in order to boost sales and produce innovative products and technologies. The company’s long term strategy includes expansion of distribution network for reaching more customers globally in developing countries and providing them with high quality sales and support experience. Filter 4 – Intrinsic Value Analysis Free-Cash Flows The free cash flows are used to measure the financial performance of the company and it is calculated by subtracting capital expenditures from operating revenues. The free cash-flow represents the company’s ability to generate money required for expanding asset base and hence they are important to identify opportunities that can enhance shareholders’ value. Cash is very important to invest in new products, make M&A, reduce debt and pay dividends. The FCF is calculated using the following formula: In order to determine the ...Show more
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Summary

Equity Valuation in the Style of Warren Buffet Project Table of Contents Introduction 4 The Four Filters Approach 4 Filter 1 – Understanding of a company and its products 4 Filter 2 – Competitive Advantage 5 Filter 3 – Ability and Trustworthiness of Management 5 Filter 4 – Intrinsic Value Analysis 5 Free-Cash Flows 5 Key Assumptions 6 Stock Valuation – Determination of Intrinsic Value 7 Ratio Analysis 8 Profitability Ratios 9 Solvency Ratios 10 Turnover Ratios 11 Liquidity Ratios 12 Conclusion and Recommendations 14 Works Cited 15 Appendices 16 Table 1 – Income Statement of Apple Inc 16 Table 2 – Balance Sheet of Apple Inc 17 Table 3 – Cash Flow Statement of Apple Inc 18 Intro…
Equity Valuation in the Style of Warren Buffet Project
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