DISCOUNTED CASH FLOW (DCF) vs.

BEN GRAHAM'S FORMULA (BGF)

| Deb Sahoo | MBA, Finance, University of Michigan | MS, EE, University of Southern California | B-Tech, EE, IIT |
While choosing a stock, it is a great idea to see if you are in for a bargain or not. So comparing the fair value given by a two-stage DCF model with the intrinsic value calculated with Graham's Formula should be a starting point. No method is absolute, but gives you an idea about the objective worth of I use EPS in valuation as opposed to dividends because to look into dividends means you have to really look into the cash flows of the company in detail. Ticker EMC Closing Stock Price $23.08

DISCOUNTED CASH FLOWS (DCF)

Parameters Current Earnings Growth Rate 1 Years of Growth 1 Growth Rate 2 Discount Rate Input Cells Results of Discounted Cash Flows Model INTRINSIC VALUE = The sum of all discounted Cash-Flows = Earnings per share (EPS) for current year The Growth Rate of the first period The number of years of the first period The Growth Rate after 1st period The rate cash-flows are discounted by $1.23 10.0% 5 2.00% 11.00%

BEN GRAHAM's FORMULA (BGF)

Parameters Current Earnings per Share (EPS) Earnings factor Growth factor G : Growth over next 7 years $1.23 8.5 2 7.65%

19.31

Results of Ben Graham's Formula INTRINSIC VALUE = Current Earnings x (8.5 + 2xG) = Conclusion :

29.28

6.0 5.0
Cash-Flows

Graham's Fomula over-estimates the Discounted Cash Flows valuation Graham says the stock may be trading at a bargain.

4.0 3.0 2.0 1.0 0.0 2013 2023 2033 2043 2053 2063
Present value of future cash flows (Discounted Cash-Flows)

Margin of Safety

26.86%