Finance — value investing cheatsheet

Value investing means estimating intrinsic value and buying only with an explicit margin of safety. This page herds the formulas, ratios, and process — not vibes.

Quick reference

Eight multiples to herd (always sector + cycle + quality):

Mindset

Four ideas. Price is what you pay; value is what you get.

1. Intrinsic value — PV of future cash the business will produce.
2. Margin of safety — explicit % below estimated IV (sized to uncertainty).
3. Mr. Market — daily quote you may ignore or exploit.
4. Circle of competence — only businesses you can understand and value.

KEY: Think in decades. A share is ownership in a business you’d hold for ten years — not a ticket to flip on the next print.

Statements map

Three reports + notes. Read together; normalize before ratios.

Normalize before you trust a number:

✓: Cash is fact, earnings are opinion. Want FCF ≈ NI. Rising AR/inventory vs sales → accruals / channel risk.

Ratio tables

Each row: formula · meaning · use · pitfall. Prefer 5–10y history + peers.

Profitability

Leverage / liquidity

Efficiency

Valuation

Quality

Sector lens

⌁: Cyclicals look cheapest at the top (peak EPS). Low multiples can be a value trap.

DCF machine

Match cash to rate to value:

# FCFF (CFA-style)
FCFF = EBIT(1−t) + D&A − Capex − ΔNWC
     = NI + NCC + Int(1−t) − FCInv − WCInv
     = CFO + Int(1−t) − Capex     # US GAAP: CFO after interest

FCFE = FCFF − Int(1−t) + NetBorrow
     = NI + NCC − FCInv − WCInv + NetBorrow

WACC = (E/V)·r_e + (D/V)·r_d·(1−t)   # V = market E+D
EV   = Σ FCFF_t/(1+WACC)^t + TV_n/(1+WACC)^n
TV   = FCFF_{n+1}/(WACC−g)           # require WACC>g
   or  EBITDA_{n+1}×ExitMult         # check implied g

Equity = EV − NetDebt − Pref − NCI (+ non-op assets)
Value/sh = Equity / diluted shares

Knobs: forecast margins/growth · WACC · g or exit mult · diluted count · TV share of EV (flag if >80%).

fcf  = [100, 108, 117, 126, 136]   # explicit FCFF
r,g  = 0.10, 0.03
pv   = Σ f/(1+r)**t
tv   = fcf[-1]*(1+g)/(r−g)
EV   = pv + tv/(1+r)**n
# then − net debt, ÷ diluted → IV/share; MoS vs bottom of range

!: Single-point DCF is theatre. Bear/base/bull; sensitivity on g/WACC/margins; sanity-check exit mult vs peers; fade ROIC→WACC in the stable phase.

Margin of safety

MoS = 1 − Price / IntrinsicValue
# Buy when Price ≤ IV_low × (1 − required_MoS)
# e.g. IV range 80–120, require 30% → buy ≤ ~56–70 vs low end — pick a rule and stick to it

MoS is an explicit haircut to estimated IV, sized to how wrong you might be — not “feels cheap.”

Graham shortcuts

Graham number = √(22.5 × EPS × BVPS)   # 15×P/E × 1.5×P/B — ceiling heuristic, NOT IV
Owner earnings = NI + D&A + other non-cash − maintenance capex (− ΔWC if needed)

Defensive screen (compressed): adequate size · current ≥2 · low LT debt · 10y positive EPS · long dividend record · EPS growth · P/E≤15 on avg EPS · P/B≤1.5 (or P/E×P/B≤22.5).

!: Owner earnings ≠ reported earnings. Maintenance capex is judgment. Graham number is a ceiling, not a DCF substitute.

Workflow

1. EDGAR — 10-K / 10-Q / 20-F: Business, Risks, MD&A, statements + notes, auditor. IR decks = non-GAAP — reconcile.
2. Normalize — one-offs, SBC, leases, op vs non-op, diluted shares, NCI.
3. Ratios — 5–10y; DuPont on ROE; accruals & CCC.
4. Comps — same model; EV multiples for industrials; P/B+ROE for banks.
5. DCF — bear/base/bull; TV share; implied g; ROIC fade.
6. MoS — vs bottom of credible IV range.
7. Checklist — moat · capital allocation · dilution · cyclical peak · BS survival.

Data: SEC EDGAR + IR are primary. Aggregators (Macrotrends etc.): lag, TTM stitch errors, non-GAAP pollution — spot-check the 10-K.

AI-slop kill-list

Also: value traps, channel stuffing, survivorship bias, anchoring, confirmation bias, recency bias — build the bear case before you buy.

Refs

1. Damodaran
2. Damodaran ch.15 (valuation)
3. CFA — Free Cash Flow Valuation
4. SEC — How to Read a 10-K
5. SEC EDGAR
6. SEC — Beginners’ Guide to Financial Statements
7. Buffett 1986 — owner earnings
8. Graham — The Intelligent Investor (Mr. Market, MoS)