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Home

Stock Screener

Valuator

Education

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Community

Education

Learn the methods behind every number.

Valuations

Due Diligence

Key Financial Ratios

Verify Our Math

ROI Calculator

Institutional-grade investment tools for everyone. Built in Sweden. Trusted by investors worldwide.

Platform

Stock Screener

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Investment Score

Community

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About

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Cash Flow Valuation

What is Cash Flow Valuation (DCF)?

Cash Flow Valuation, commonly known as Discounted Cash Flow (DCF) analysis, is a financial valuation method used to determine the value of an investment based on its expected future cash flows. The principle behind DCF is that the value of an asset is equal to the present value of all future cash flows that the asset is expected to generate. This method is widely used in finance to evaluate investment opportunities, corporate valuations, and to make decisions on mergers and acquisitions.

The basic steps involved in a DCF analysis

How does Cash Flow Valuation (DCF) Work?

DCF works by projecting the future cash flows that an investment will generate and then discounting them back to the present value using a discount rate. This discount rate typically reflects the expected rate of return from the perspective of the investor.

The DCF Formula

How is Cash Flow Valuation (DCF) Calculated?

WritePreview**The DCF Formula is:** $$\mathrm{DCF}=\frac{\text{CASH FLOW}^1}{(1+r)^1}+\frac{\text{CASH FLOW}^2}{(1+r)^2}+\frac{\text{CASH FLOW}^t}{(1+r)^t}$$ **In this formula:** **DCF** Discounted Cash Flow is the total present enterprise value of the company based on future cash flows **Cash Flow** The projected cash flows expected in period. **r** The investors expected rate of return represents how much the investor expects in yearly returns on invested amount. It is used to discount future cash flows to their present value. **t** Time period (typically in years).

Investor Decisions

What does Cash Flow Valuation (DCF) tell an Investor?

DCF provides investors with a measure of the intrinsic value of an investment. By comparing the DCF value to the current market value, investors can make informed decisions. In summary, DCF is a powerful valuation tool that helps investors assess the value of an investment based on its expected future cash flows, adjusted for the time value of money and risk. It provides a clear framework for making investment decisions and understanding the intrinsic value of assets.

Undervalued Investment

If the DCF value is higher than the current market value, the investment may be undervalued and potentially a good buy.

EBITDA Valuation

What is EBITDA Valuation?

EBITDA Valuation is a financial metric used to evaluate the value of a company based on its Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). This valuation method is particularly useful for comparing companies within the same industry as it focuses on the core operational profitability, excluding the effects of financing and accounting decisions.

The basic steps involved in an EBITDA valuation

How does EBITDA Valuation Work?

EBITDA valuation works by analyzing a company’s EBITDA and applying an appropriate multiple to determine its enterprise value. This multiple is often derived from industry standards, comparable company valuations, or historical data. The principle behind this valuation method is that EBITDA provides a clearer picture of a company’s operational efficiency and profitability, making it easier to compare with peers.

Calculating EBITDA

Calculate the EBITDA of the company by adding back interest, taxes, depreciation, and amortization to the net income. This measure isolates the company’s earnings from operational activities.

Choosing an Appropriate Multiple

Determine the EBITDA multiple to be used, based on industry benchmarks, comparable companies, or historical trading multiples. This multiple reflects how much investors are willing to pay for each unit of EBITDA.

The EBITDA Formula

How is EBITDA Valuation Calculated?

WritePreview**The EBITDA Formula is:** $$\mathrm{EBITDA} \times \text{EBITDA\ Multiple} = \text{Enterprise Value}$$ **In this formula:** **EBITDA** Earnings Before Interest, Taxes, Depreciation, and Amortization **EBITDA Multiple** A multiple used to valuate a company to compare it with companies in similar industry.

Investor Decisions

What does EBITDA Valuation tell an Investor?

EBITDA valuation provides investors with a quick and efficient way to compare the operational performance and value of companies within the same industry. By using EBITDA, investors can make informed decisions based on the company's core profitability, independent of capital structure and non-operational factors. In summary, EBITDA valuation is a powerful tool for investors to assess a company’s value based on its operational profitability, providing a clear and comparable measure that aids in investment decision-making and understanding the intrinsic value of a company.

Operational Efficiency

EBITDA valuation focuses on the company’s core operational performance, excluding the effects of financing and accounting decisions.

Comparability

It allows for easier comparison of companies within the same industry, as it standardizes earnings by removing non-operational effects.

Graham Fair Value

What is Graham Fair Value?

Graham Fair Value is a financial valuation method introduced by Benjamin Graham, often referred to as the father of value investing. This method seeks to determine the intrinsic value of a stock by considering both its earnings and growth prospects. Graham’s approach is more conservative than other valuation methods, emphasizing a margin of safety to protect against uncertainties.

The basic steps involved in a Graham Fair Value Analysis

How does Graham Fair Value Work?

Graham Fair Value Valuation works by calculating an intrinsic value based on a formula that incorporates a company’s earnings per share (EPS) and expected growth rate. This formula provides a benchmark for evaluating whether a stock is overvalued or undervalued.

Calculate Earnings Per Share (EPS)

Obtain the company's EPS, which is a measure of the company's profitability allocated to each outstanding share of common stock.

Estimate the Expected Growth Rate

Determine the expected annual growth rate of the company's earnings. This can be based on historical growth rates, industry standards, or analysts' forecasts.

The Graham Fair Value Formula

How is Graham Fair Value Calculated?

WritePreview**The Graham Formula is:** $$\mathrm{Fair\ Value} = \mathrm{EPS} \times (8{,}5 + 2g) \times 4{,}4$$ **In this formula:** **EPS** Earnings Per Share **g** Expected yearly growth of Earnings Per Share

Investor Decisions

What does Graham Fair Value tell an Investor?

Graham Fair Value Valuation provides investors with a measure of the intrinsic value of a stock based on its earnings and growth prospects. By comparing the intrinsic value to the current market value, investors can make informed decisions. In summary, Graham Fair Value is a conservative approach to determine the intrinsic value of a stock by focusing on earnings and growth prospects. It emphasizes a margin of safety to protect investors from uncertainties, making it a valuable tool for value investors seeking to make informed investment decisions based on fundamental analysis.

Undervalued Investment

If the intrinsic value is higher than the current market value, the stock may be undervalued and potentially a good buy.

Overvalued Investment

Earnings Fair Value

What is Earnings Fair Value?

Earnings Fair Value is Invest Viable's proprietary earnings-based valuation method. It estimates what a stock is worth based on the company's demonstrated earnings power and historical revenue trajectory. The method adapts Benjamin Graham's intrinsic value formula with three modifications designed for automated, large-scale application across 3,000+ US stocks. First, reported EPS is replaced by normalized EPS. Reported earnings in any single year can be distorted by restructuring charges, asset write-downs, pandemic effects, or tax windfalls. Normalization uses median operating margins and tax rates across 5 years to estimate what the company would earn in a normal operating year at its current revenue scale. Second, revenue growth replaces earnings growth. Earnings growth can be inflated through accounting decisions without any change in the underlying business. Revenue is the hardest financial metric to fabricate because sustained revenue growth requires real customers paying for real products. Third, the growth rate is capped at 8%. The Graham formula is extremely growth-sensitive: at 15% growth the implied P/E becomes 38.5x, at 20% it reaches 48.5x. These are speculative multiples that assume today's growth continues indefinitely. The 8% cap keeps the valuation grounded in achievable, demonstrated growth. The result is a conservative floor valuation. In the valuation tool, investors can run a standard Graham Fair Value calculation with their own growth rate and EPS assumptions. Earnings Fair Value is the automated base-value version, optimized for consistency and comparability across the full stock universe.

The basic steps involved in an Earnings Fair Value analysis

How does Earnings Fair Value Work?

Earnings Fair Value calculates what a company would earn under normal operating conditions, strips out temporary distortions, applies a conservative growth assumption from actual revenue history, and combines these into a single fair value per share. The result represents the price a disciplined investor would pay based on what the company has already demonstrated.

Normalize Earnings

Calculate normalized EPS using 5 years of operating history. Take the median operating margin and median tax rate, apply them to the latest revenue, and divide by diluted shares outstanding. Why? Because a single year's earnings can be misleading. A company might report high EPS from a one-time asset sale, or low EPS from a restructuring charge. Neither reflects what the business sustainably earns.

Measure Revenue Growth

Calculate the company's 5-year revenue compound annual growth rate (CAGR). Why revenue instead of earnings? Because revenue is the hardest financial metric to manipulate. A company can inflate earnings by changing depreciation methods, capitalizing expenses, or timing asset sales. Sustained revenue growth requires real customers paying real money.

The Earnings Fair Value Formula is:
Earnings Fair Value = EPS_normalized  x  (8.5 + 2 x g)
In this formula:
EPS_normalized
Normalized Earnings Per Share. Calculated using a 7-step process: take the median operating margin and median effective tax rate across 5 years of history, apply them to the most recent year's revenue, divide by diluted shares outstanding. Why normalized instead of reported? Reported EPS reflects one specific year including any unusual events. A company hit by a $500M legal charge will show depressed EPS even if the underlying business is strong. Normalization answers: at this company's current revenue scale, operating at its typical margins and tax rate, what would it earn per share?

g
Growth rate. The 5-year revenue CAGR, floored at 0 and capped at 8. Expressed as a whole number (8 = 8%, not 0.08). Why revenue growth? Because earnings growth can be manufactured through accounting decisions without any change in the underlying business. Why capped at 8? Because at g=8 the implied P/E is 24.5x, a reasonable upper bound for sustainable growth. Beyond that, the formula assigns speculative multiples that assume perpetual hypergrowth.

8.5
The base P/E multiple for a company with zero growth, from Benjamin Graham's original formula.

2
The growth multiplier. Each percentage point of expected growth adds 2 to the P/E multiple. At the 8% cap, the effective P/E is 24.5x (8.5 + 2 x 8).


7-STEP NORMALIZED EPS CALCULATION

Calculate operating margin for each of the last 5 years *EBIT / Revenue for each year*
Find the median operating margin *Median of the 5 annual operating margins*
Calculate normalized EBIT *Latest Revenue x Median Operating Margin*
Calculate effective tax rate for each of the last 5 years *Income Tax / Pre-Tax Income for each year*
Find the median tax rate *Median of the 5 annual tax rates*
Calculate normalized net income *Normalized EBIT x (1 - Median Tax Rate)*
Calculate normalized EPS *Normalized Net Income / Latest Diluted Shares*

Why medians instead of averages? Averages are pulled by outliers. If a company had a 25% operating margin for 4 years and -5% in a restructuring year, the average is 19% but the typical margin is 25%. The median correctly ignores the outlier.

METHODOLOGY NOTE 
*Earnings Fair Value is based on the intrinsic value framework introduced by Benjamin Graham in The Intelligent Investor (1949). Invest Viable's implementation makes three adaptations: (1) reported EPS is replaced by a 7-step normalized EPS using median operating margins and tax rates, (2) earnings growth is replaced by 5-year revenue CAGR for manipulation resistance, and (3) the growth rate is capped at 8% to prevent speculative multiples. To run a standard Graham Fair Value calculation with your own inputs, use the valuation tool.*

Investor Decisions

What does Earnings Fair Value tell an Investor?

Earnings Fair Value gives investors a conservative benchmark for what a stock is worth based on demonstrated earnings power. By comparing it to the current market price, investors can assess whether a stock offers a margin of safety or trades at a premium to its calculated intrinsic value. Because the method uses normalized earnings and capped growth, it is deliberately conservative. It identifies stocks that are attractively priced relative to what the company has already proven it can earn.

Margin of Safety

When the stock trades below its Earnings Fair Value, the discount acts as a cushion against estimation errors or unexpected business deterioration. The larger the discount, the greater the cushion. Used as a first-pass filter for value opportunities.

Premium Signal

When the stock trades above its Earnings Fair Value, the premium may reflect growth expectations beyond the 8% cap, intangible assets not captured by earnings, or market sentiment. It does not automatically mean the stock is overpriced. It means the price depends on assumptions beyond what the company has already demonstrated.

Investment Comparisons

DCF allows for the comparison of different investment opportunities based on their intrinsic value, facilitating better decision-making.

Understanding Risks and Returns

By incorporating the discount rate, DCF accounts for the time value of money and the risks associated with future cash flows, providing a comprehensive view of the investment’s potential returns and risks.

Debt Adjustments

The adjustment for net debt provides a clearer picture of the company’s equity value, making it easier to assess the potential return on investment.

Investment Comparison

This method allows for the comparison of different stocks based on their intrinsic value, facilitating better decision-making.

Understanding Risks and Return

By incorporating earnings and growth expectations, Graham Fair Value provides a comprehensive view of a stock’s potential returns and associated risks.

Cross-Stock Comparison

Because Earnings Fair Value uses the same formula, normalization process, and growth cap for every stock, the results are directly comparable. A stock trading at a 30% discount to its Earnings Fair Value is quantitatively cheaper on this measure than one trading at a 10% discount, regardless of industry.

Multi-Method Validation

Earnings Fair Value is one of three valuation methods Invest Viable runs for every stock. When DCF, EBITDA Multiple, and Earnings Fair Value all point the same direction, conviction increases. When they diverge, the disagreement itself is informative and identifies where further analysis is needed.

Education

Learn the methods behind every number.

Education

Learn the methods behind every number.

What is Cash Flow Valuation (DCF)?

How does Cash Flow Valuation (DCF) Work?

DCF works by projecting the future cash flows that an investment will generate and then discounting them back to the present value using a discount rate. This discount rate typically reflects the expected rate of return from the perspective of the investor.

Forecasting Future Cash Flows

Choosing a Discount Rate

Calculating Present Value

Summing the Present Values

How is Cash Flow Valuation (DCF) Calculated?

What does Cash Flow Valuation (DCF) tell an Investor?

Undervalued Investment

What is EBITDA Valuation?

How does EBITDA Valuation Work?

Calculating EBITDA

Choosing an Appropriate Multiple

How is EBITDA Valuation Calculated?

What does EBITDA Valuation tell an Investor?

Operational Efficiency

Comparability

What is Graham Fair Value?

How does Graham Fair Value Work?

Graham Fair Value Valuation works by calculating an intrinsic value based on a formula that incorporates a company’s earnings per share (EPS) and expected growth rate. This formula provides a benchmark for evaluating whether a stock is overvalued or undervalued.

Calculate Earnings Per Share (EPS)

Estimate the Expected Growth Rate

How is Graham Fair Value Calculated?

What does Graham Fair Value tell an Investor?

Undervalued Investment

Overvalued Investment

What is Earnings Fair Value?

How does Earnings Fair Value Work?

Normalize Earnings

Measure Revenue Growth

How is Earnings Fair Value Calculated?

What does Earnings Fair Value tell an Investor?

Margin of Safety

Premium Signal

Overvalued Investment

Investment Comparisons

Understanding Risks and Returns

Calculating Enterprise Value

Adjusting for Debt and Cash

Valuation Insights

Debt Adjustments

Apply Graham’s Formula

Determine the Margin of Safety

Investment Comparison

Understanding Risks and Return

Cap the Growth Rate

Calculate Fair Value

Cross-Stock Comparison

Multi-Method Validation