Marginal Value

Attributes of marginal value and the associated principles and formulas to achieve; the why’s and how’s of generating extreme value utilizing marginal adjustments and measurements to leverage the business value and ultimately the owner’s wealth.

Railroad Fund Balance 06/30/2020

49.060606 Shares of Norfolk Southern Corporation – Closes at $175.82/Share  FMV =  $8,625.84 (Avg Buy Price/Share = $203.83 for Basis of $10,000.00)
Cash Position including recent dividend payment from NSC                                        =  $1,555.16
Total Fund Balance                                                                                                         = $10,181.00
FMV Gain as a % Since Inception:                                                                                 =       1.81%

56.67% Return on Investment: Union Pacific Railroad

Value investing is a principle of investing whereby the investor uses ratios and comparative analysis of similar investments over an extended period of time. In this case, I compared the six publicly traded Class I railways in the United States. Then based on the results, I exercise buy and sell points for each stock within the fund. In this case, Union Pacific’s prior peak (high selling price) was $188.96.

Union Pacific – Buy/Sell Model

Union Pacific’s stock carries the highest price to book ratio among the six Class I Railways. It is about a 1.43 times factor over the next best price to book ratio of CSX at 4.73. Strong price to book ratio investments infrequently have deep or extended price depressions. Therefore, an investor must be patient and wait for opportunities to buy.

Canadian Pacific Railroad – Sold Stock at $241.47

Today is November 15, 2019 and Canadian Pacific Railroad recovered in accordance with my railroad fund investment model to $241.47 per share. The value investing model automatically sold at $241.47 and the price per share continued to climb to $241.86 when the market closed at 4 PM.  This sale generated a 9.31% return on the investment over 27 days. Annualized return is > 100%.

EBITDA – Drawbacks

EBITDA

There are several business financial attributes required for EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) to work well as a basis for the multiple of earnings method (the method used with the Market Comparable Valuation Approach); see Fair Market Value  for a better understanding of the three primary business valuation approaches.

EBITDA – Buyer Beware (Case Study)

EBITDA

This article will illustrate the opposite effect using the same business information. A buyer of a business should be leery of financial information and look for improper accounting processes. The goal is to reduce the operational income and ultimately the value of the business. The goal is to get the business valuation to a realistic number.

EBITDA

EBITDA

EBITDA is an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization. The value is generally known as operational profit before capital expenditures and tax obligations.

Fair Market Value

Fair Market Value

Value at the individual level is strictly personal.  But as more buyers for the same item come into play the price of the item begins to stabilize. If there are hundreds of thousands of buyers, the price reaches a high level of consistency or what is called ‘Fair Market Value’.

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