Posts From Allan Millar

Allan Millar
Allan has an MBA from Strathclyde Business School, where he specialised in Finance. Key elements of his course were Financial Accounting, Financial Management and Analytical Support for Decision Making. Following on from this, he is now studying for the CIMA qualification, taking the Master’s Gateway route. He has worked in Commercial roles for two global brewers and currently works for a global Bank. His interest in Finance was kindled by reading Malkiel’s “A Random Walk Down Wall Street” and he is particularly interested in the Equity Risk Premium. Allan lives near Glasgow, with his wife and son.
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Using The PEG Ratio As A Valuation Tool

In my last few articles we have looked at several valuation metrics, using Caterpillar, Inc. (CAT) as an example. The final method will use discounted cash flow, but before that it is worth considering the PEG ratio – price/earnings to growth. This has the advantage of being very easy to calculate. When considering the PEG ratio, remember that it is considering a company’s future earnings, whereas P/E most commonly uses

How To Apply WACC: Weighted Average Cost Of Capital

In previous articles, using Caterpillar, Inc. (CAT) for the figures, we have looked at different ways in which to value the company. Those considered so far have been Asset Valuation, Calculated Intangible Value and P/E Method. In a future article we will consider perhaps the most reliable – the discounted cash flow. To calculate this, we need a weighted average cost of capital (WACC) for CAT, and that is what

Applying The P/E Valuation Method To Today’s Market

We have looked at asset based valuation and calculated intangible value, and in this article we will look at the P/E valuation method (price to earnings).  It is the most commonly used way to value an entity. And it is simple to calculate: Company value = post-tax earnings x P/E Breaking this down, we know that the P/E ratio is the share price of the entity divided by its earnings

How To Calculate Intangible Assets In Company Valuation

In my last article we looked at valuing a business using an asset valuation method. One of the issues identified was that intangible assets are not included, thereby giving a misleadingly low valuation of the company. Caterpillar (CAT) value their intangible assets on the balance sheet ($3,596m at 2013 YE) but if the intangible assets are not on the balance sheet, there are a couple of ways in which they

Using Asset Valuation To Determine A Company’s Worth

How much is a business worth? Well, basically what you are willing to pay for it. Fortunately, there are some straightforward ways to assist you to determine the value; these are the Asset Valuation Method, Discounted Cash Flow Method and the Dividend Valuation Model. Over my next few articles we’ll look at each in turn, pointing out the obvious problems. For illustrative purposes, we’ll look at Caterpillar’s (CAT) balance sheet.

Interview With Greg B Davies, Head Of Barclays Behavioural Finance

I recently sat down with Greg B Davies, Managing Director at Barclays to discuss his team’s innovative applications of Behavioral Finance. As Head of Behavioural and Quantitative Investment Philosophy, Davies and his team at Barclays are engaged in groundbreaking work at the intersection of two sub-disciplines in Finance typically treated as irreconcilable, finding creative solutions for portfolio and risk management. What follows is a brilliant and wide-ranging Q&A encompassing topics

Financial Accounting Standards: IAS and IFRS Changes in 2013 and 2014

I recently attended a PwC conference where they provided some commentary on changes to the International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS). IAS and IFRS changes are listed below and may be of use to those of you who take a fundamental approach to investing. This may also be of use to those of you going through exams. Note that all IAS and IFRS definitions are from

Bonds 101: Understanding the Price-Yield-Value Relationship

The incessant noise around whether to taper or not to taper got me thinking that it may be a good idea to cover off on some bonds investing 101. Afterall, there is a bit more to investing in bonds than just price and yield. Additionally, Korey Bauer has written a couple of great articles on bonds: Why Bond Yields May Be Headed Lower (Short Term) and  Why Bond Yields May Continue to

The Conclusion to The Equity Risk Premium Series

From a review of the Literature on the Equity Risk Premium it becomes apparent that there is little consensus on the historical value, what it may be today or what it is likely to be. Today there can even be some doubt that it is the  “difference between the returns on risky stocks and the return on safe bonds”, as it was described by Dimson et al (2002 p.193). Regarding

Influences on the Prospective Equity Risk Premium

From the examples we have looked at in previous articles it is apparent that there are a number of factors which significantly affect the Equity Risk Premium (ERP). Dimson et al (2002 p.193) say that the ERP “is often described as the most important number in finance. Yet it is not clear how big the equity premium is today or how large it has been in the past”. In previous