How Do You Calculate A Company's Core Value?

Video Transcript 

My name is Robert Bonavito, New Jersey Forensic Accountant. This video is part of a series of videos where I discuss forensic accounting topics for educational purposes only.

When we do an appraisal, we look for many things, and one of the things we look for is core value. And what core value is that mainly, the owners or investors of a company are investing cash now in order to generate more cash in the future. And the interplay of these three core values is what determines how much cash you're gonna get as a business in future.

The first one, of course, is cash flow, okay? How much cash flow do you have? In the beginning, there's gonna be low cash flow. Hopefully, as the company progresses, there's gonna be more cash flow. Return on invested capital. We're looking for a higher return on invested capital. That the company, the minimum, they should be making their cost of capital. But we look for a high return on invested cost. And growth, we look for growth in sales.

Recently, we head to the quarter and a lot of companies issued their quarterly statements. And the earnings came out really good. So we went online and what we were doing is looking through 10-Ks and 10-Qs to do our own analysis of some of these stocks for clients. Even though the earnings, the net earnings were up, it was interesting that these growth sales were down year over year, 3% or 4%. So even though everybody was talking about how great the company did, the growth wasn't there. The growth in sales was not there. What they did was they basically cut expenses. And you can't cut expenses and become a successful company. You need growth.

And the interplay of these three things are what make companies successful whether it's the mom-and-pop store in the corner or a Fortune 500 company. So we always look at core value.

If you have any questions concerning core value, feel free to give me an email.