Monday, November 26, 2012

The MacDonald Media Model, is a very simplistic model that relies on data from MSN Investing, Yahoo Finance and Google Finance. They get their data from company reports and SEC filings and from the financial exchanges. We/I have been developing this model over the past two years. It uses tools and formulas from google docs sheets.

No-one should rely on this model for anything! It is the work of one person trying to create an investing framework for himself! I am sharing the analysis to get feedback and to see how far one can model future financial results for free!

I have no position in the shares discussed and may or may not initiate any position in the shares, at least until 5 business days have passed from the date of posting.

This is an overly simplistic approach because it is built around a given and arbitrary projection for sales. In Apple's case, the first I have published, I have slashed the historical growth in sales from a CAGR of 41% by 75% to slightly under 9%. As you can see Apple still has substantial value upside based on these projections of future growth in sales.

In another table, we compare projected earnings from the brokerage houses who write on the shares, against estimates based on our model and its simplistic extrapolation of prior five year results (modified) into the future. (For interest we added another type of projection based of the results of the prior quarter into the future. The latter is really a tangential point estimate and can be skewed by transitory factors: seasonality in results, weather, new product introductions. Etc.)

What is interesting in Apple's case is that the estimates from the brokerage houses and the extrapolation of five year results agree. Agreement means that one of two things: either that the future is predictable and consistent with the past and that could and should lead to higher earnings multiples or that the brokerages houses are not adding value and that their estimates are as mechanical as the projections my simplistic model has produced.

Here are the others:

Operating margins remain what they have been in the last two years. Uses of capital for inventory, receivables (net), plant and equipment are projected at the same ratio to sales as in the prior five years; in other words, days turnover for inventory remains the same as do average days for accounts payable and accounts receivables. Plant and equipment are added to support increased sales in the same ratio as the prior year.

Weighted average cost of capital is calculated on the daily rate of the two year treasury, the ratio of debt to total capital, beta as provided by Yahoo and projected growth in the market is the current year growth estimates provided by Standard's and Poors. I have made no provision for reinvestment of cash or acquisition activity by the company and presumed dilutive or accretive effect on results.

There will be errors in my work from time to time--I am just one person and do not hold out the quality of my proofreading for anyone to rely on.

No comments:

Post a Comment

Share your thoughts and quarrels with the posts here. I will moderate but not censor.