David Trainer, CEO of New Constructs, will present “Pitfalls of Price-to-Book Ratios, ROE, and EV/EBITDA” on the Interactive Brokers Education platform.
There are many ways to calculate free cash flow. Most approaches are short cuts to our more comprehensive approach to the calculation. The formula for FCF can be seen in Figure 1. For more on FCF, see within.
To derive economic earnings, 30+ adjustments must be made to accounting earnings. These adjustments remove items hidden in the footnotes and MD&A of annual filings and close loopholes within GAAP accounting.
WACC plays a key role in our economic earnings calculation. It is hard to be 100% certain about the exact cost of a company’s capital. Our guiding principle when calculating WACC is that it is better to be vaguely right than precisely wrong.
We calculate NOPAT in two ways, from an operating and financing perspective. See Figure 1. Figure 1 shows the basic calculations. On page 2, we share the complete calculations for specific companies.
If you haven't noticed, we recently added an "Education" section to our website, accessible via the tab at the top of this and every page. In this tab, you'll find almost all of the metrics and theory behind our research