Free course · Investing · Intermediate
What's It Actually Worth? A Stock Valuation Course
A stock valuation course for investors who already read a P/E ratio and want an estimate of value they built themselves, with every step done in a spreadsheet.
Who it is for
Investors who read P/E ratios on a quote page and want to build and defend their own estimate of what a stock is worth.
By the end you can
- Work out enterprise value from a balance sheet and compare EV/EBITDA across companies in one industry
- Build a discounted cash flow model with a terminal value and turn it into a value per diluted share
- Set a buy price from a margin of safety and read the growth rate the current price already assumes
- Value a company with no profits yet from a mature-year forecast, adjusted for future share issuance
The lessons
- 01 Valuation Multiples and What Each One Assumes
Valuation multiples explained: what P/E, EV/EBITDA, price to sales and price to book each measure, a worked enterprise value, and when each one misleads.
About 13 minutes, with a quiz at the end
- 02 A Discounted Cash Flow Model, Built Step by Step
Build a discounted cash flow model step by step: forecast free cash flow, pick a discount rate, add a terminal value and get a value per diluted share.
About 15 minutes, with a quiz at the end
- 03 Margin of Safety in Valuation, and Reading What the Price Implies
Margin of safety valuation in practice: set a buy price below your estimate, then run a reverse DCF to see what growth the current share price assumes.
About 12 minutes, with a quiz at the end
- 04 Valuing Unprofitable Companies: Sales, Margins and Time
Valuing unprofitable companies from revenue: forecast to a mature year, apply a margin and a multiple, discount back and adjust for future share issuance.
About 14 minutes, with a quiz at the end
The P/E ratio on a quote page is someone else’s shorthand. It tells you what the market pays for a dollar of last year’s earnings, and it says nothing about whether that price makes sense for the business in front of you. Most investors stop there. The course starts from that number and works outward, until you can write down your own estimate of what a share is worth, show every assumption behind it, and say how far the price would have to fall before you’d buy.
Who it suits
You already know what earnings per share are. You can find revenue, debt and cash in an annual report. You may never have done much with them. If you have ever looked at two companies in the same industry, one at 12 times earnings and one at 30, and wondered which one was actually cheap, you’re the reader the material was written for.
Complete beginners will find it steep. The investing hub covers the ground underneath.
What to have ready
A spreadsheet, any kind. The discounted cash flow model is built cell by cell, and you’ll want to change the inputs and watch the answer move. You also need one company’s annual report, ideally a business you know or own, so each lesson’s method can be run on real lines from a real filing right after you’ve followed the hypothetical example.
Keep the report open to the three statements. The share count note matters too, because diluted shares are what you divide by at the end of every model, and the entry on fully diluted shares explains where the extra ones come from and why the basic count flatters the result.
How to work through it
Take the lessons in order. Each one leans on the last: the multiples lesson gives you enterprise value, the cash flow lesson uses a discount rate that the margin of safety lesson then questions, and the lesson on unprofitable companies stitches all of it together for a business with no earnings to put a multiple on. Do each worked sum yourself before reading the result. Then take the short quiz. Missed one? Go back to the paragraph it came from.
Budget about an hour. Add whatever time your own company takes, which is the part that makes the method stick.
What it leaves out
The course keeps to what an individual investor can use. Banks and insurers are out, since their balance sheets need their own methods. So are sum-of-the-parts models for conglomerates, option pricing for employee stock grants and the finer points of estimating a cost of capital. It gives no opinion on any real stock. Every company in it is hypothetical. Every number is there to be checked.
Where to go after
The natural next step is to run the model backward. Running a reverse DCF before the forward one argues for starting from the price and asking what it implies, which is the habit the margin of safety lesson begins. The entry on terminal value goes deeper on the input that dominates most models. And if you want to see how interest rates feed into all of this, interest rates and stock valuations picks up the discount rate from the macro side.
People also ask
Do I need a finance degree to value a stock myself?
No. The arithmetic is division, multiplication and powers, all of which a spreadsheet handles. What takes practice is judgment: choosing a growth rate you can defend, a discount rate that reflects the risk, and a margin you are willing to be wrong by. Those improve with every company you work through.
Which valuation method is the most accurate?
None of them produces a true number. A multiple shows what the market pays for similar companies today, and a discounted cash flow model tells you what your own forecast is worth. Running both on the same company and asking why they disagree usually teaches more than either one alone.