In this video, we explain our philosophy on valuation, and why the accurate calculation of enterpise value is a core skill for every analyst and investor. Without a strong foundation in this, your other work may be useless. This short introductory video which explains why. 

This foundation module of the Valuation series is primarily concerned with the precise and accurate calculation of Enterprise Value. This is a pre-requisite to be a successful equity analyst. It's also quite a dry and technical subject. We try in all our courses to bring the subject to life using practical examples - this is a recurring feature of the positive feedback we get from the physical courses we run in London and overseas. In our online courses, we try to repeat this, by using real life examples in the presentations. One advantage of the online format is that we can include reading, and although this is hard to do when talking about EV calculations, instead what we have included in the course here is a series of articles about valuation more generally - we hope this brings the subject to life and enthuses you to learn more.

If you are in a hurry and simply want to improve your technical skills, you don't need to read any of the extra material, but we would encourage you to do the exercises. These will certainly give you practice and ensure you have understood the principles of calculating Enterprise Value accurately.

Reading materials for this module include two interesting papers. The first is a paper by Michael Mauboussin when he was at Legg Mason, talking about the mistakes people commonly make with DCFs. Also in the reading is an academic paper showing that the market was cheap in 2010 using actual rather than forecast cash flows. One of the criticisms of the DCF method is the difficulty in forecasting future cash flows. This is an unusual paper, and it suggests that historical cash flows might be a way round this dilemma, but rarely have stocks been as cheap as they turned out to be post the GFC.