Buffett Stock Value Formula: Free Cash Flow / Risk Free Rate
What we know about Warren Buffett’s approach:
2. He uses both quantitative (formulaic) and qualitative (management incentives and ethics).
Why does Buffett use the risk free rate?
Risk free rate vs. the WACC?
Why does Buffett use the free cash flow of the business?
Why is his formula superior to complicated valuation models?
Buffett’s Critique of Beta?
Buffett’s Critique of Stock Splits?
Why does Wikiwealth modify the formula?
Explain the significance of the scoring system:
CapEx % < Buffett Portfolio?
WC Investment % < Buffett Portfolio?
Free Cash Flow…Lots of cash is great.
1. Consistency: 50% of the score relates to the consistency of the individual financial operations of the company.
2. Cash Flow: 50% of the score comes directly from the financial results that affect cash flow: capital expenditures, working capital, depreciation & amortization, and free cash flow.
Valuation Analysis: Score
3) Does the business have favorable long term prospects?
2) Does the business have a consistent operating history?
4) Is management rational?
5) Is management candid with its shareholders?