Sunday, March 4, 2012

The water dragon...and when to invest.

Dear readers,
This blog has been quiet for the past month as there hasn't been any new events that create buying opportunities. In this post, I will include some formulae for you to do your own calculation. Please note that these formulae suit me in my investments and some investors may have their own investment formulae.

I have been using the same formula

Future value = Present Value x (1 + Rate/100)^years

All I need to do is to manipulate the formula into other formulae. With this single formula I am able to calculate the future value of the earnings, share value and revenue. I can also calculate the present values, at what rate is the value growing. These are the 3 things that interest the value investors.

The Microsoft Excel can also help us in our calculations. For now, I will just teach you the RATE function.
By typing "=RATE(number of years,,first value, final value)" Excel will return a value in percentage format. For example, 12.4% means that the figures are growing at a rate of 12.4% compounded for the number of years you keyed into the formula. There is no mistake in the function, you need to type two commas after the number of years.

We use the RATE function to calculate the rate of growth of sales, equity or net asset value (NAV), cash generation and earnings per share (EPS). Why do we need to know the growth rate? These four components form the heart of a company. A business needs to have growth in these four components in order for the company to grow. As a rule of thumb, any company that doubles their value in five years is a value company to invest in.

Meanwhile, enjoy doing your homework.


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