Pdf [top] — Value Investing Bruce Greenwald
Normalize current operating cash flows, remove growth-related capital expenditures, and capitalize the earnings by the weighted average cost of capital (WACC).
Instead of a simple 33% discount, Greenwald advocates: “At what growth rate or ROIC does the current market price make sense?” If the implied assumptions are unrealistic, avoid the stock. value investing bruce greenwald pdf
EPV=Normalized After-Tax Cash FlowCost of CapitalEPV equals the fraction with numerator Normalized After-Tax Cash Flow and denominator Cost of Capital end-fraction Step 3: Comparing Asset Value and EPV This is called the
The foundation of Greenwald's framework is determining what it would cost a competitor to replicate the company's current position today. This is called the . In a capitalist economy, high profits inevitably attract
Only after assessing assets and earnings power does Greenwald turn to growth. This is the most volatile and least reliable source of value. In a capitalist economy, high profits inevitably attract competitors, which erodes returns. Greenwald argues that a company can only be said to have a "franchise value" or "profitable growth" if it possesses a durable competitive advantage—a "moat"—that protects it from competition. Without such a barrier, growth can actually destroy value by consuming capital in a losing battle for market share.
