The 2nd para make sense, they really are assuming the same multiple. EV at 20, might be, depending upon prospects is reasonable multiple. But yes, starting at 100, and assuming that multiple to stay, is pure delusional. And, some modifications to that, we can figure out the delusional valuations too, and a good measure against our required rate of return.
They are not assuming any increase in cash. It is simple measure like a bond. Now, the coupon of bond does not increase, but the coupons you get from investing into business are increasing. And, by investing into business now, at its takeover price, is current yield.
So the current income is current yield + growth we will get. I find this relatively easy too, the total return concept.
This one is widely used by investors such as pabrai, joel, einhorn, moubossin etc.
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