How to value a company

Company valuation

Firstly, there is no set way to value a Company. There are many different techniques, some more effective than others. What follows is an explanation of how I place a value on a Company.

Why do you need to be able to value a Company?

When investing, it is important to know what the true value of a Company should be. No matter how good the business is there is no point in paying an amount more than the business is intrinsically worth. The idea is that when investing you should make an assessment of the true valuation of the Company and only pay a price that is less than your valuation. Of course, this valuation is highly subjective. I would be surprised if two people made an assessment of the valuation of Tescos and calculated the exact same amount.

Valuation Example

For ease of explanation I will use the example of a small apple business. Let's say that you own one apple tree. Every year the tree grows 100 apples that you sell for £1 each to friends. 

What is the value of this business?

Willing to buy/ willing to sell
Some people may argue that the business is worth whatever someone else is willing to pay for it. A buyer may be willing to pay £100 for the apple business, calculating that he could make his money back within one year. However, you also need to be willing to sell the business for £100. You may reason that if you held onto the business for another year then you'd make £100 anyway, you may value the business as higher than £100. Another factor in your willingness to sell may be consideration of where else you could invest your money to earn you a return. If there are lots of other opportunities then it would seem more likely that you would sell at a lower price and invest the cash elsewhere. 

Value is the sum of the business component parts

Some people may argue the above, that a business is worth whatever we can sell each individual component for. In our example, this not only means the business would be worth the equivalent to selling all the apples, but also the value of each seed and the wood from the tree itself.

How would I value the apple business?

I reason that the business is worth the value of the profits over the next few decades. However due to inflation (among other factors) eroding the future value of my profits you need to discount the value of the future profits to today's value. I would reduce the profits by the potential interest that could be earned by investing the proceeds of the sale elsewhere. For example, we could sell the business and invest the proceeds into a Company in the FTSE100 paying a 5% dividend yield. In which case we would need to discount all future profits by 5% per annum.

Final valuation

Let's say that I would have been able run my apple business for the next 50 years upon which I would retire. Thus the future discounted profits are as follows:
Year 1 - £100
Year 2 - £95.2 (£100 X 1/1.05)
Year 3 - £93.4 (£100 X 1/(1.05)^2)

And so and and so forth until year 50...
Year 50 - £8.7    (£100 X 1/(1.05)^50)

In which case the total value of the business is simply the sum of all the cash we can make over the foreseeable future. In this case it would be £1,925.59. As such, the apple business should sell for no less than this amount.

The reason why so many analysts may come out with so many different valuations is because each analyst may discount at a different interest rate or may even have a rate that changes over the years. Furthermore, each analyst may assess the future cash flow of the business to be different. I have assumed that it will generate constant cash flow, however there is no reason why we couldn't predict the Company to have decreasing or increasing cash production over time.

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What is Financial Freedom?

Financial freedom...and how do to get there?

Financial Freedom is difficult to define. It is very clear that financial freedom is a very personal goal.

Financial Freedom clearly means that you reach a life free from the stresses and strains associated with ones personal finances. Financial Freedom means a life without any monetary concerns. In essence this means that if you were to stop working and actively engaging in economic activity to earn an income, you would still be able to live a life that you are comfortable with until death.

Financial Freedom to me 

For me Financial Freedom means that I need to build a mix of cash savings, bonds, property investment and shares such that the combined income generated would mean that not only would I not have to work again but I could go abroad on several trips throughout the year and look after my family. I'm not quite sure exactly what that figure of investments should be. This is because there will be many factors affecting the relevance and the level of income generated. For example, the income generated will go much further if inflation proves to be low over several decades. Other factors may be the performance of Companies that I have invested in and the level of dividends that they choose to pay.

Financial Freedom is extremely personal to your situation and the lifestyle that you would like to lead. Let me know in the comments below if you believe that you know an actual figure that you would need to be financially free and say how you reached that figure.

How do I reach Financial Freedom?

Funnily enough reaching Financial Freedom is really tough. Even some of the richest people in the world are not financially free. This is because they have extremely high outgoings such that they could not live solely off the income derived from the assets that they already hold.

The key to reaching Financial Freedom is to have the discipline to continuously buy income producing assets. This is achieved by making sure that each and every day you are working towards this goal. During every decision made you should be questioning yourself - will this further my goal of Financial Freedom or hinder it?

Make sure that you save something each and every month. Make sure that you invest your money wisely instead of allowing inflation to eat away at the value of your investments. Make sure that you do not stop until you reach your goal.

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

Setting up a credit card

Getting a new credit card

If you are the sort of person who spends regularly on a debit card and are disciplined in areas such as budgeting and saving, then I would suggest that you start spending on a credit card instead. I have written in the past as to the many benefits of using credit cards such as the following:

1) Using credit cards to build up your credit rating (and why this is important)
2) Earning money through cashback credit cards
3) Insurance and legal cover
4) Other general reasons why I think credit cards are good

How to set up a credit card? 

To start to earn all of the above benefits order a credit card in the following easy steps:

1) Self Assessment - use online calculators to estimate your chances of being accepted for various credit cards. The reason is that a failed credit card application can actually damage your credit score making it harder to apply for a credit card in the future.

2) Credit Card Comparison - use any of the many online comparison sites to compare various credit cards. I prefer to compare cashback credit cards, but you can have a look through many different types of credit cards.

3) Choosing your credit card - make sure that the credit card that you eventually choose is one of the above cards identified in part 1, increasing your chances of acceptance.If you are not accepted for the credit card then I would suggest waiting at least 3 months before applying again. Multiple rejections can damage your credit card rating especially when these rejections occur so close together in time.

4) Accepted for a credit card - credit card companies always send your card and pin separately. Receiving both could take over two weeks so be patient. As soon as your card arrives I would suggest you call up the credit card company to set up a direct debit to pay off the amount in full each month. This should help to ensure that you never forget to pay off your credit card balance.

5) Final credit card advice - make sure that you try to use your credit card at every opportunity to receive all the above benefits. Try not to go over your credit card limit - many credit card companies will charge you interest when this happens. Always make sure that you have enough money in your account to pay off the credit card in full each and every month.

Good luck and get spending.

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

Wealth Creation

Wealth creation - building your fortune

Ever since I can remember I wanted to build wealth and make my millions. We can discuss the ethics and motivations of this goal another time. This article will outline my views on a strategy to build wealth. I will outline a general strategy and leave you to search Adam and my respective blogs to find out more.

Me and my millions

I'm a 24 year old trainee accountant for a big global financial services firm with a goal to run my own Investment Company. I spend a lot of time reading and experimenting with personal finance and enjoy investing in shares. I started my blog back in second year of University to track my progress on my goal to become a multimillionaire. I write about all areas of personal finance, but normally things that have inspired me in my daily life. The highlight is my quarterly multimillionaireroad plan review update where I detail all my net wealth. See my most recent March 2014 update. I'm far from making my first million but if you look at my progress over the last year and a half, I believe that I am on track.

Weath Creation Stategy

In my opinion the strategy for wealth creation is pretty straightforward on paper but difficult to implement in practice; particularly in find the motivation! 

Here is the "paper" bit:

Job: The first thing to do is to get a job. You need a primary source of income to ignite your plan. People say that applying for jobs is a full time job in itself. You need to be scouring all avenues in the search for a job - put your CV online, utilise recruiters, call up Companies to see if they have a position and utilise your network.

Avoid Debt: whatever you do, however much debt you have, don't take on any more debt! Debt is the antithesis of wealth creation. By taking in debt you may have more money in your pocket today but in the future you will be poorer as a result than had you never take. On that debt.

Automate your Savings: the second your paycheck hits your bank statement you need to be saving a portion of it. I would suggest setting up a standing order to a savings account from your primary current account. The money should come out the day after you receive your paycheck. I'd recommend saving 10% of your paycheck and then see if you can increase it over the following years. The reason to automate is to take saving out of your hands. Most people do not have the discipline to save regularly and will wait to see what's left at the end of the month. NEWSFLASH: there won't be anything left. Automate!

Make your money work for you: the ideal situation is that you have so much saved up that you could live off the interest alone. In the meantime you don't want (all) your money just sitting on a savings account earning a meager amount of interest. Make sure you have some emergency savings, a couple of thousand in place in case you lose your job. With the remainder of your savings and all future savings place a portion (I'd suggest 50%) into higher risk investments, especially if you aren't saving for anything in particular. 

Give yourself time: Rome wasn't build in a day. Neither will your wealth. Building wealth takes time and patience. You will get frustrated and face setbacks but persevere and you will be rewarded.

If you're interested in a more detailed explanation of building your wealth check my How to become Rich series. 

Now, putting the plan into practice is up to you.

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

Tesco Value

Investing in Tesco Plc shares

At the time of writing this Tesco Plc share price sits at 287p. This is well below its 52 week high if 388p and extremely close to its lowest price of 280p. There have been ongoing recent reports that the likes of discount supermarkets Aldi and Lidl are snatching market share from the "Big Four" supermarkets (Tesco, Sainsburys, Asda and Morrisons). Tesco market share has slipped in the last couple of years from its stable 30% to around 27%. In addition, this week has seen the exit of Tesco Finance Director Laurier McIlwee, which many have suggested as symptomatic of severe disharmony amongst the Directors. In combination, the issues that Tesco faces has resulted in the share price falling a long way off from its former 10 year high of nearly 600p.

Tesco Value!

For investment ideas I try to look for great businesses that have fallen on hard times. In the case of Tesco, I believe that the Company is now vastly undervalued. The Company still generates bags of cash, with plenty if cash in its coffers to invest or defend itself in a price war. I get the feeling that many analysts are forgetting that this Company has consistently made between 1 and 2 billion pounds per year for the last few years, and that it generated £64billion in revenue in 2013. 

We mustn't forget that Tesco is in a period of consolidation, particularly as it pulls out of America. Tesco will need to start to re-compete for the UK market just as it did in 1995 when it overtook Sainsburys as the UK's largest supermarket.

Running the numbers on your Tesco investment

So what is Tescos worth? This is a very subjective question. No two analysts will be able to produce exactly the same numbers as there may be thousands of assumptions that need to be made on those numbers. 

However, a Company's value should scream out to you. In the case of Tesco we can take it's free cash flow per share and project it forward as if it declines at 1% per annum then even at a discount rate of 10%, the fair value of the Company would be 360p. Given that today's market price is 280p, this current price appears to scream that the Company is currently cheap.

Tesco results are being announced Thurday 17 April 2014. I think until this happens markets will continue to be jittery about the price. My assumption is that the results will show (as expected) a decline in the Company's performance. Following this announcement I intend to buy a small stake in the Company.

Of course, all this assumes that Tesco will not decline in performance significantly in the future. Let me know your thoughts?

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

Pension shakeup

Pensions are changing

A few of my previous articles have been about the changes to economic policy following George Osborne's budget speech on 19 March 2013. One of the biggest outcomes following that speech was the changes made to Pensions.

Pensions Previously

I previously explained that Government policy meant that when you came to retirement you were forced to take you pension pot and buy an annuity that would pay you an income for life. There was some flexibility in the scheme. You were able to up to 25% of your pension pot tax free as cash before purchasing your annuity. You were also allowed to choose your annuity provider. There were also different types of annuities.

Pension shakeup

The big change to the pension system is that you no longer have to buy an annuity. You now have the freedom to choose where to put your money when you retire. When you come to retirement you still have the option to take out 25% of your pension pot as cash tax free. However, whilst you may still wish to buy an annuity, you can now take your money out of your pension pot and invest it into the stockmarket or buy an investment property with the cash. You could even buy a Lamborghini with the money , assuming you can afford it! Unfortunately, the drawback to doing this is that whatever you take out of your pension pot will be taxed at your marginal rate of income tax i.e. If you are a higher rate tax payer then you will pay 45% tax on any money that you take out of your pension.

I will discuss in a following article what you should do with your pension.

What will happen to the annuity market?

Many have predicted that the annuity market will crumble. Some have suggested that the market for annuities will shrink by as much as 90%. Insurers such as Aviva reacted by shrinking by as much as 5% (as quoted on the stockmarket), suggesting that investors agreed with this sentiment. I'm not so pessimistic. There will always be a place for annuities. 

I believe that the shakeup to the annuities market such that there is no legislated demand will definitely cause a fall in the demand for annuities. It is hard to predict by how much. However, I am fairly certain that the changes will cause an increase in the attractiveness (or price) of annuities as insurers compete to attract investors who are otherwise strongly tempted to take their pension as cash. This is simple supply an demand. As demand falls for an item, assuming that nothing else changes, the price should go up. I actually believe that these changes will make annuities more attractive.

What if I already have an annuity?

Unfortunately if you already have an annuity then you're too late to change it. The only exception to this is if you purchased your annuity within the last 30 days. If this is the case then you can still change your decision.

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.

Multi-Millionaire Road Plan Review (8)


This post details my financial progress as of the end of March 2014. All posts of a similar title to this one are written to demonstrate how all prior published articles interlink to form my plan to become a Multimillionaire. Think of these posts as a self-review of my progress and the blueprints to my Multi-Millionaire Road Plan. I encourage my readers to add comments on these posts. Feel free to compare to my previous report:

Multi-Millionaire Road End of March 2014 Report:

As always I'd like to offer a huge thank you to all my readers. Without your readership, comments, tweets and following I would not find the motivation to keep posting. I hope you will continue to find this site interesting. 

In particular, I would like to thank all those readers who have recommended any of their friends to start to follow this site.

Website Progress

As you may have noticed, I am not hugely tech-savvy and in terms of a technologically impressive website it is definitely lacking. I have always felt that the pull of my site should be its content of which I am working constantly to improve. If any of you have any suggestions to improve the site then please feel free to email me at 

Recent statistics show that the site attracts on average between 350-500 readers per day. This recent boost in readers is mainly due to the popularity of The Science of Wealth post. I am extremely happy with this level of readership but would always welcome more. If anyone invites a friend or family to read an article that i have written, or shares one of my posts, just let me know and I will personally get in touch to say thank you.

Get Rich Plan Update

Picture from freedigitalphotos
I am 16 months into working life and I am now still able to save roughly 20% of my monthly net (income after tax and pensions comes out of my pay package) income. At times this is a bit of a struggle when all sorts of unexpected costs crop up. I have very recently received a modest pay rise and as such my net income after pension contributions and tax is just over £1,707 per month. 44% of my net income goes on rent and bills. This is an area to focus on reducing in the future. I try to save about £341 per month. £135.75 goes into a Company pension scheme each month and is matched by my employer. Furthermore, I benefit from tax savings from this contribution.

The income set aside for savings is taken directly from my current account into an esavings account with virtually no interest. From there, I can transfer the money either into a stocks and shares ISA or into a cash ISA depending on how much of my allowance I've used. I aim to split all savings 50:50 between, cash and bonds and in stocks and shares. When making investment I aim to buy undervalued and dividend paying stocks (assuming there are any!).

My current share portfolio is performing strongly. The FTSE100, currently sits at about 6653 points. When last I wrote it was at 6750. Although it is folly and fairly meaningless to make a prediction on the stockmarket I shall do so anyway: It will go up or down or stay the same, but regardless of the movement I will look to improve my research in the hunt for undervalued shares.

If you take a look back at an article back in March 2012, I gave my original financial breakdown. I now wish to update my current asset holdings:
  • £685 - Sits in cash as a deposit for the flat I currently rent.
  • £946.10 Current Account. This is obviously before any spending has occurred for the month of January.
  • £341.80 - Everyday Savings Account
  • £8,456.52 - Loyalty Reward ISA
  • £100 - UK Premium Bonds
  • £18,951.87 Online Shares
  • £129.53 Cash within Online Shares
  • £2,115.70 Funding Circle Investment
  • £270 - sitting as capital in a business account 
  • Total Accessible Assets: £31,996.52 (December 2013: £31,854.41)
This represents a growth in Total Accessible Assets of £142.11 (0.4%)
  • £5,330.48 - Friend's Life Pension (contributions since October 2012)
Total Assets £37,327 (December 2013 £36,316.36 - a £1,010.64 or a 2.7% growth)

In terms of my finances it has been an incredibly tough few month. There have been many weddings, miscellaneous and emergency costs that required immediate payment. Given the circumstances I am surprised that I managed to grow my total accessible assets at all. Whilst a growth of £142.11 may seem small, it is certainly better than nothing! In March 2012 I began recording my tangible wealth. Back then it was £22,970. I have grown my net total accessible wealth by about 39.2% and my total wealth (including my pension) by 62.5% in 24 months. My original plan was to grow my wealth over the first few years of my employment (and any significant pay rises) by about £4,000 per annum. As I have grown my wealth by £9,004.24 since the start of recording my Multimillionaireroad Plan Review, I am happy to see that I have beaten my target by about £1,000.

Originally I wrote a post on a Get Rich Plan and am currently in the middle of implementation. Whilst I have a long way to go, I am currently laying the foundations of this plan. I will now go through each section, briefly:

  1. Frugality - I believe that life should be lived whilst preparing for the future. As such I don't buy into the argument that you should count every penny. Instead, you should get the fundamental decisions right. For example, to automate your savings and commit a certain amount to savings each month.
  2. Budgeting - all going according to plan. My method allows me to ascertain where I may be spending too much.
  3. Saving - I am still trying to save 20% of my monthly net income. This is sometimes difficult as I find myself having to make unplanned purchases e.g. Wedding presents, parking fines etc. This has been particularly tough this month.
  4. Debt - Although I have three credit cards, I have no debt. I pay them off in full each month. I have one credit card that gives 1.25% cashback. The other two give 0.5%. Read my article to explain how to maximise the cashback on credit cards.
  5. Housing - My rent currently costs about £750 with bills. This is an improvement on the £800 I was paying previously. For more information on my ideas on Housing read my article: Renting Vs Buying.
  6. Investing - Please look out for an update to my Portfolio. I've recently invested a decent proportion of my portfolio in Banco Santander S.A., hence the big increase in my portfolio.
  7. Tax - There is now far more scope for utilizing my ISAs especially given the recent changes to the New Tax ISA. I am now starting to utilize my investment ISA with an ISA stocks and shares trading account.
  8. Job - My base salary is £27,650 plus my November exam bonus of £1,000 (gross). Living as a young professional living in London has huge opportunities for networking but of course is highly expensive.
  9. Time and Patience 
  10. Self-belief 
As you can see, on the whole things are looking good. There is much work to be done but at 24, I have time on my side.
I would encourage all of you to update your financial position. Feel free to use my post as a template. It helps you clarify what you have to do and where you are going.

What's going on in your personal financial review?

Do you like what you've read? Tell your friends by sharing it with one of the buttons below. Please post this to Facebook or Tweet it to help your friends and family. Feel free to send me an email (mrmoneybanks<at>multimillionaireroad<dot>com), find me on twitter @millionairer0ad or comment. Whether good or bad, I want to hear from you all.


Information on this site is not appropriate for the purposes of making a decision for carrying out a transaction or trade nor does it provide any form of advice (investment, tax or legal) amounting to investment advice, or make any recommendations regarding particular financial instruments, investments, or products.
Always seek advice of a competent financial advisor with any questions you may have regarding a financial matter