What are free Fair Value Calculators and Instructions for Their Uses?

What are free Fair Value Calculators and Instructions for Their Uses?

What is Fair Value?

A fair value is the sale price decided by a willing buyer and seller. The fair value of a stock is estimated by the market where the stock is traded. Fair value depicts the value of a company’s assets and liabilities when a subsidiary company’s financial statements are consolidated with a parent company.

More specifically, the fair value is a theoretical calculation of how a future stock index contract should be valued keeping in view the current index value, current interest rates, dividends paid on stocks in the index, and days to the expiration of the futures contract. There are three different free fair value calculators are as following:

1. Simple Fair Value:

 All you need is to insert the Earnings Per Share (EPS) & revenue growth (%) into the approximate fair value calculator and you will obtain the approximate true fair value (intrinsic value) of the stock. 

2. Advanced Fair Value:

 The advanced calculator allows you to derive a precise fair value of the stock. With the help of many different financial metrics such as EPS, Cash Flow per Share, EBIT Margin & book value per share, Revenue Growth, Earnings per Share Growth, and Return on Equity.

3. Auxiliary Calculators:

 Auxiliary calculators complement main calculators by adding a layer of historical average on the main calculators. With the use of historical averages to adjust the fair value obtained from the main calculators, it is desired to eliminate any short-term errors that might have crept in. Investors, however, simply use the last available key figure or can calculate their average numbers.

Important instructions

  1. All the data which is used in the fair value calculator must be positive with a minimum value of at least 0.1 In case, a fundamental figure is negative, try using the average value of that same data point from the recent past. 
  2. Avoid using numbers that significantly deviate from the previous year’s numbers. These are exceptional cases and exceptional cases do not determine fair value. To have more accurate and realistic outcomes, numbers should be homogeneous.
  3. It is great if there is more length of the period is used to calculate average data. With longer periods being considered while calculating the average, more accurate results are certain.
  4. Avoid companies with negative growth or no income. Focus companies that are in profit and with increased revenue.
  5. In case any abnormality occurs in the fundamental data of a company, further investigation is a must. Exceptions are usually one-time affairs but if this abnormality occurs consistently it could indicate some issues in the company’s operations. If revenue is growing strongly across the years for example, but margins are decreasing considerably, it shows that the company is sacrificing profits to push sales and is not something undesirable in your investments.
  6. Calibrating tools can be used as a supplement to investment decisions. Trust your insights and study the company and its general operations to make a judgment call on the future of the company. 
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Christophe Rude

Christophe Rude

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