Applied Finance began as a consulting firm, assisting then Arthur Andersen to build a global Value Based Management practice in 1995. After the implosion of Andersen, we then partnered with another big four accounting firm helping them understand market expectations for their largest global clients using our proprietary Economic Margin™ framework.
Through our corporate experience we learned that relative to other analytical methods (such as price multiples or perpetuity based DCF models), our valuation approach provided distinctly different, but more accurate insights into explaining market valuations and reaching profitable investment decisions. With that insight, we began offering research to institutional investors and select brokers. By 2004 we worked with over 150 investment houses, banks, RIA’s, and larger brokers.
Our transition to asset management from being a pure research provider in 2004 began with the introduction of what is now the Valuation 50 and followed up with the Valuation Dividend in 2012. Today those products are offered in model delivery, SMA, and mutual fund formats and are available through several platforms.
The Gross Profitability Trap “But this time, it’s different!” More foolish words are rarely spoken in the financial industry, but they always seem to find their way back into the stock market lexicon. A firm’s [...more]
Valuation Driven™ Investing begins and ends with calculating the intrinsic value of every stock in a benchmark against which a portfolio is constructed, and comparing those values against traded prices. All of Applied Finance’s portfolios are Intrinsic Value Driven™, which differs significantly from a “value” perspective. To gain a better understanding into Applied Finance’s Intrinsic Value Driven™ approach, let’s first review traditional approaches to “Value”.
The traditional approaches to finding undervalued stocks use a simple ratio such as P/E or P/B, or a mix of them. These common approaches to value come with many shortcomings: […more]
Over the past couple months, worsening macro economic conditions, declining corporate profitability and a bottomless stock market have investors longing for the good old days when the economy delivered steady increases in GDP growth with [...more]
A corporate performance metric should provide insights into what a firm is worth. Most money managers utilize common earnings-based measures of corporate performance and value, which are suspect and easy to manipulate. Applied Finance developed the Economic Margin (EM) framework to remove the noise inherent in accounting data.
Traditional accounting-based valuation methods provide an incomplete view of a company’s value by not accounting for the investment needed to generate the earnings, cost of capital, inflation or cash flow. […more]