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$quietArg = "--quiet"
}

pandoc $_.Name -o $outputFile --template=$templatePath --lua-filter=./bootstrap_filter.lua $quietArg
pandoc $_.Name -o $outputFile --template=$templatePath --lua-filter=./bootstrap_filter.lua --mathjax $quietArg
}
81 changes: 77 additions & 4 deletions BlogSource/cashflow-multiple.md
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Expand Up @@ -6,11 +6,84 @@ tags: ["cashflow", "multiple"]

# Cashflow Multiple

Investing is always about giving money now for money later.
So, you need to ask, is this a good price?
Investing is always about exchanging money now for money later.
So, you need to ask, "is this a good price for this investment?"
Is the stock cheap or expensive? How economical is the price?

#### The _Cashflow Multiple_ helps answer:
#### _Is the business cheap or expensive?_
<p class="lead">
The **Cashflow Multiple** helps answer:
_Is the business cheap or expensive?_
</p>

It does so by specifically answering:
**How many years** would it take for the business to earn back the price I paid for it **in discretionary cashflow**?

For example, say that a stock is selling for $200 per share.
<!-- Image of price tag -->
If the business earns $10 per share in discretionary cashflow, then the _Cashflow Multiple_ is 20. "It's 20x cashflow."

### Pop Quiz

1. If the _Cashflow Multiple_ is 5, how long would it take for the business to earn back the price I paid for it in discretionary cashflow?
2. A stock has a _Cashflow Multiple_ of 9 and costs $45 per share. How much discretionary cashflow does the business earn per share?
3. Which is the better deal: a stock with a _Cashflow Multiple_ of 10x or a stock with a _Cashflow Multiple_ of 20x?

#### Answers

1. 5 years
2. $5 per share
3. The stock with a _Cashflow Multiple_ of 10x is the better deal. It would take 10 years for the business to earn back the price you paid for it. The stock with a _Cashflow Multiple_ of 20x would take 20 years to earn back the price you paid for it.

### Formula

The _Cashflow Multiple_ is calculated by dividing the price of the stock by the discretionary cashflow per share.

$$
\begin{align*}
\text{Cashflow Multiple} &= \frac{\text{Share Price}}{\text{Cashflow Per Share}} \\
&= \frac{\text{Market Cap}}{\text{Annual Cashflow}}
\end{align*}
$$

### Discretionary Cashflow

Discretionary cashflow is the cash "left over" each year that the owners can direct as they please.
The owners could pay the cash to themselves, pay down debt, retain it, or reinvest it in the business.
The freedom to pay the cash to themselves is what makes it a good metric for evaluating the price of a business.

When looking at financial statements you will not find a line for discretionary cashflow.
It is not a GAAP or IFRS metric.
When evaluating a business you should use your best understanding of the business and its operations to approximate discretionary cashflow.
Remember the principle that it is better to be roughly right than precisely wrong.

### So, Is it a Good Price?

Once you've found an estimate for the _Cashflow Multiple_ you can compare it to other _Cashflow Multiples_.
Most commonly you will compare it to the _Cashflow Multiples_ of other stocks in the same industry,
or to the _Cashflow Multiples_ of the stock's own history.

For example, you follow ACME INC. and the stock has been trading at a _Cashflow Multiple_ of 25x for the past 10 years.
You would love to own ACME INC. but, 25x seems expensive.
Then, one day, the stock drops to 15x.
The multiple versus the historical norm gives you a sense that the stock is relatively cheap.

### Tie it to Intrinsic Value

Finally, you should use the [Annuity Calculator](/annuity) to
develop a sense for what multiples correspond to what rates of growth.

For example, a 17x multiple may be reasonable for a business growing at 20% per year.
But, for a business without growth prospects, 4x may be more reasonable.

--- --- ---

#### Additional Info

The _Cashflow Multiple_ is the inverse of the _Cashflow Yield_.

Free Cashflow (FCF) is equivalent to Discretionary Cashflow for the purpose of this article.
While there are technical formulae for FCF, the purpose of either is to represent cash that can be freely directed by the owners.

We may use the term "stock" or "business" interchangeably when talking of investing in the stock market. We evaluate buying stocks in the same way we would an entire business.

GAAP and IFRS are accounting standards which dictate what items appear in financial statements.
40 changes: 39 additions & 1 deletion BlogSource/templates/template.html
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</head>

<body>
$body$
<nav class="navbar navbar-expand bg-light">
<div class="container-fluid">
<a class="navbar-brand" href="/"><img src="/logo.png" alt="intBASIS" width="24" height="24"></a>
<button class="navbar-toggler" type="button" data-bs-toggle="collapse" data-bs-target="#navbarText"
aria-controls="navbarText" aria-expanded="false" aria-label="Toggle navigation"><span
class="navbar-toggler-icon"></span></button>
<div class="collapse navbar-collapse" id="navbarText">
<ul class="navbar-nav me-auto mb-2 mb-lg-0">
<li class="nav-item">
<a href="/" class="nav-link">

Introduction
</a>
</li>
<li class="nav-item">
<a href="/present-value" class="nav-link">

Present Value
</a>
</li>
<li class="nav-item">
<a href="/annuity" class="nav-link">

Annuity
</a>
</li>
</ul>
<span class="navbar-text d-none d-lg-block">
<em>A bird in the hand is worth two in the bush.</em>
</span>
</div>
</div>
</nav>

<main class="container mt-3 mb-3">
$body$
</main>

<!-- <script src="https://cdn.jsdelivr.net/npm/[email protected]/dist/js/bootstrap.bundle.min.js"
integrity="sha384-C6RzsynM9kWDrMNeT87bh95OGNyZPhcTNXj1NW7RuBCsyN/o0jlpcV8Qyq46cDfL"
crossorigin="anonymous"></script> -->
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<script id="MathJax-script" async src="https://cdn.jsdelivr.net/npm/mathjax@3/es5/tex-mml-chtml.js"></script>
</body>

</html>
137 changes: 129 additions & 8 deletions wwwroot/blog/cashflow-multiple.html
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Expand Up @@ -14,18 +14,139 @@
</head>

<body>
<h1 id="cashflow-multiple">Cashflow Multiple</h1>
<p>Investing is always about giving money now for money later. So, you
need to ask, is this a good price? Is the stock cheap or expensive?
How economical is the price?</p>
<h3 id="the-cashflow-multiple-helps-answer">The <em>Cashflow
Multiple</em> helps answer:</h3>
<h3 id="is-the-business-cheap-or-expensive"><em>Is the business cheap
or expensive?</em></h3>
<nav class="navbar navbar-expand bg-light">
<div class="container-fluid">
<a class="navbar-brand" href="/"><img src="/logo.png" alt="intBASIS" width="24" height="24"></a>
<button class="navbar-toggler" type="button" data-bs-toggle="collapse" data-bs-target="#navbarText"
aria-controls="navbarText" aria-expanded="false" aria-label="Toggle navigation"><span
class="navbar-toggler-icon"></span></button>
<div class="collapse navbar-collapse" id="navbarText">
<ul class="navbar-nav me-auto mb-2 mb-lg-0">
<li class="nav-item">
<a href="/" class="nav-link">

Introduction
</a>
</li>
<li class="nav-item">
<a href="/present-value" class="nav-link">

Present Value
</a>
</li>
<li class="nav-item">
<a href="/annuity" class="nav-link">

Annuity
</a>
</li>
</ul>
<span class="navbar-text d-none d-lg-block">
<em>A bird in the hand is worth two in the bush.</em>
</span>
</div>
</div>
</nav>

<main class="container mt-3 mb-3">
<h1 id="cashflow-multiple">Cashflow Multiple</h1>
<p>Investing is always about exchanging money now for money later.
So, you need to ask, “is this a good price for this investment?” Is
the stock cheap or expensive? How economical is the price?</p>
<p class="lead">
The <strong>Cashflow Multiple</strong> helps answer: <em>Is the
business cheap or expensive?</em>
</p>
<p>It does so by specifically answering:<br />
<strong>How many years</strong> would it take for the business to
earn back the price I paid for it <strong>in discretionary
cashflow</strong>?</p>
<p>For example, say that a stock is selling for $200 per
share.<br />
<!-- Image of price tag --> If the business earns $10 per share in
discretionary cashflow, then the <em>Cashflow Multiple</em> is 20.
“It’s 20x cashflow.”</p>
<h3 id="pop-quiz">Pop Quiz</h3>
<ol type="1">
<li>If the <em>Cashflow Multiple</em> is 5, how long would it take
for the business to earn back the price I paid for it in
discretionary cashflow?</li>
<li>A stock has a <em>Cashflow Multiple</em> of 9 and costs $45 per
share. How much discretionary cashflow does the business earn per
share?</li>
<li>Which is the better deal: a stock with a <em>Cashflow
Multiple</em> of 10x or a stock with a <em>Cashflow Multiple</em> of
20x?</li>
</ol>
<h4 id="answers">Answers</h4>
<ol type="1">
<li>5 years</li>
<li>$5 per share</li>
<li>The stock with a <em>Cashflow Multiple</em> of 10x is the better
deal. It would take 10 years for the business to earn back the price
you paid for it. The stock with a <em>Cashflow Multiple</em> of 20x
would take 20 years to earn back the price you paid for it.</li>
</ol>
<h3 id="formula">Formula</h3>
<p>The <em>Cashflow Multiple</em> is calculated by dividing the
price of the stock by the discretionary cashflow per share.</p>
<p><span class="math display">\[
\begin{align*}
\text{Cashflow Multiple} &amp;= \frac{\text{Share
Price}}{\text{Cashflow Per Share}} \\
&amp;= \frac{\text{Market Cap}}{\text{Annual Cashflow}}
\end{align*}
\]</span></p>
<h3 id="discretionary-cashflow">Discretionary Cashflow</h3>
<p>Discretionary cashflow is the cash “left over” each year that the
owners can direct as they please. The owners could pay the cash to
themselves, pay down debt, retain it, or reinvest it in the
business. The freedom to pay the cash to themselves is what makes it
a good metric for evaluating the price of a business.</p>
<p>When looking at financial statements you will not find a line for
discretionary cashflow. It is not a GAAP or IFRS metric. When
evaluating a business you should use your best understanding of the
business and its operations to approximate discretionary cashflow.
Remember the principle that it is better to be roughly right than
precisely wrong.</p>
<h3 id="so-is-it-a-good-price">So, Is it a Good Price?</h3>
<p>Once you’ve found an estimate for the <em>Cashflow Multiple</em>
you can compare it to other <em>Cashflow Multiples</em>. Most
commonly you will compare it to the <em>Cashflow Multiples</em> of
other stocks in the same industry, or to the <em>Cashflow
Multiples</em> of the stock’s own history.</p>
<p>For example, you follow ACME INC. and the stock has been trading
at a <em>Cashflow Multiple</em> of 25x for the past 10 years. You
would love to own ACME INC. but, 25x seems expensive. Then, one day,
the stock drops to 15x. The multiple versus the historical norm
gives you a sense that the stock is relatively cheap.</p>
<h3 id="tie-it-to-intrinsic-value">Tie it to Intrinsic Value</h3>
<p>Finally, you should use the <a href="/annuity">Annuity
Calculator</a> to develop a sense for what multiples correspond to
what rates of growth.</p>
<p>For example, a 17x multiple may be reasonable for a business
growing at 20% per year. But, for a business without growth
prospects, 4x may be more reasonable.</p>
<hr />
<h4 id="additional-info">Additional Info</h4>
<p>The <em>Cashflow Multiple</em> is the inverse of the <em>Cashflow
Yield</em>.</p>
<p>Free Cashflow (FCF) is equivalent to Discretionary Cashflow for
the purpose of this article. While there are technical formulae for
FCF, the purpose of either is to represent cash that can be freely
directed by the owners.</p>
<p>We may use the term “stock” or “business” interchangeably when
talking of investing in the stock market. We evaluate buying stocks
in the same way we would an entire business.</p>
<p>GAAP and IFRS are accounting standards which dictate what items
appear in financial statements.</p>
</main>

<!-- <script src="https://cdn.jsdelivr.net/npm/[email protected]/dist/js/bootstrap.bundle.min.js"
integrity="sha384-C6RzsynM9kWDrMNeT87bh95OGNyZPhcTNXj1NW7RuBCsyN/o0jlpcV8Qyq46cDfL"
crossorigin="anonymous"></script> -->
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</body>

</html>
46 changes: 42 additions & 4 deletions wwwroot/blog/index.html
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Expand Up @@ -14,14 +14,52 @@
</head>

<body>
<h1 id="hello-blog">Hello, Blog</h1>
<p><em>This is the blog for Discounted.Cash</em></p>
<h2 id="articles">Articles</h2>
<p><a href="./cashflow-multiple.html">Cashflow Multiple</a></p>
<nav class="navbar navbar-expand bg-light">
<div class="container-fluid">
<a class="navbar-brand" href="/"><img src="/logo.png" alt="intBASIS" width="24" height="24"></a>
<button class="navbar-toggler" type="button" data-bs-toggle="collapse" data-bs-target="#navbarText"
aria-controls="navbarText" aria-expanded="false" aria-label="Toggle navigation"><span
class="navbar-toggler-icon"></span></button>
<div class="collapse navbar-collapse" id="navbarText">
<ul class="navbar-nav me-auto mb-2 mb-lg-0">
<li class="nav-item">
<a href="/" class="nav-link">

Introduction
</a>
</li>
<li class="nav-item">
<a href="/present-value" class="nav-link">

Present Value
</a>
</li>
<li class="nav-item">
<a href="/annuity" class="nav-link">

Annuity
</a>
</li>
</ul>
<span class="navbar-text d-none d-lg-block">
<em>A bird in the hand is worth two in the bush.</em>
</span>
</div>
</div>
</nav>

<main class="container mt-3 mb-3">
<h1 id="hello-blog">Hello, Blog</h1>
<p><em>This is the blog for Discounted.Cash</em></p>
<h2 id="articles">Articles</h2>
<p><a href="./cashflow-multiple.html">Cashflow Multiple</a></p>
</main>

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