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re: Considerations before purchasing a small business?
Posted on 6/16/13 at 10:44 pm to TheHiddenFlask
Posted on 6/16/13 at 10:44 pm to TheHiddenFlask
quote:
Increasing eps is not increasing earnings (what you claimed). You were wrong.
He clearly meant earnings per share. You two are arguing over semantics and a misinterpretation there
quote:
And how will they pay back those loans? Please explain to me how it isn't with cash.
When a company buys back those high dividend shares, they essentially get to keep the dividend/are paying themselves the dividend however you watn to think about it.
So for example, if you took out a loan that you have to pay back at a 3% interest rate and you have dividends at around 4%, you are paying back all the interest with dividends that you saved by buying back from stockholders (since those dividends are staying with the company not leaving for stockholders) and you also have 1% left over to pay back the principle.
Essentially PM is pocketing that difference in yield and interest in the long run as they get to hold the value of the stock and are not losing money to interest
1
Posted on 6/17/13 at 10:04 am to GenesChin
quote:
He clearly meant earnings per share. You two are arguing over semantics and a misinterpretation there
Flask's specialty, I've noticed his ego hits most threads about ten minutes before his posts do.
To the OP, generally I'll use a couple methods to arrive at a rough, but generally accurate, valuation, just to see if I am interested in moving forward with due diligence. If you are going to be onsite managing the business daily, 2-3 times annual net is the most it's worth as a cash flow. If you're going to be absentee, subtract the costs of a manager/management team from net, then 4-5 times is pretty much where the value will be after all the lawyers and accountants are done and reach their number. If this number seems reasonable/doable to you, proceed, if not, no need to pay all the pro's because that's roughly where the numbers should fall. Note, this is for the cash flow of the business, it doesn't include real estate. Personally, I don't really consider inventory or FF&E because those are rarely worth much on the secondary market, no matter the quality or condition - you'll only get pennies on the dollar for those.
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