How to Value a Stock Step 3: Economic Earnings
This article is the third in a four part series that walks readers through how to rate and value a stock. For this article, we will continue the process of valuing chemical manufacturer DuPont (DD). We began by calculating operating profit (NOPAT) and then calculating Invested Capital. Our third step to gauge the value of a company is to determine its economic earnings. Economic earnings are very different from accounting earnings. As we have shown in the previous steps, a lot of homework goes into scouring footnotes and making numerous adjustments to ensure proper calculation of economic earnings.
Step 4 can be found here. To learn more about all the adjustments we make, visit our Accounting Loopholes section.