Valuation Models, Equations and Rules of Thumb
Caveat: Intrinsic value is not a precise figure but rather a range of value. As such one should not rely on one model alone but instead employ multiple valuation methods, where applicable, to determine a range of value. Sir John Templeton advised employing a method he termed 'triangulation', whereby three or more valuation techniques are used to establish a range of value. One can then calculate the mean based upon the lower and upper boundaries of the range or gravitate toward a given boundary based upon the conviction one has regarding the investment thesis and the accuracy of the fundamental analysis. Intelligent investors should always strive to be conservative in valuations and be sure to apply a suitable margin of safety. It should be noted that the margin of safety is not contained within the intrinsic value calculation and should be subsequently applied . For example, if one calculates the intrinsic value of a given stock to be $50 and one wishes for a 20% MOS then a suitable entry point would thus be <$40.
Net Current Asset Value (NCAV) = Current assets  Total liabilities & Prior claims
Netnet Working Capital (NNWC) = Cash & Equivalents + (0.5 x Inventories) + (0.75 x Receivables)  Total liabilities & Prior claims
Net Cash = Cash & Equivalents  Total liabilities & Prior claims
Ben Graham developed this method to find deep value stocks, specifically those selling at a discount to liquidation value as he argued that there is no logical reason why an asset should be being traded for less than this value and as such the mispricing would be subsequently recognized by the market and corrected . He usually insisted on buying a Netnet stock only when it traded at <67% of its fair value but at certain times in his career he increased this to <50%. When employing the Netnet approach one should buy a basket of stocks.
"Statistics say that owning just two stocks eliminates 46% of the non market risk of owning just one stock. This type of risk is supposedly reduced by 72% with a fourstock portfolio, by 81% with eight stocks, 93% with 16 stocks, 96% with 32 stocks, and 99% with 500 stocks."  Joel Greenblatt; 'You Can Be a Stock Market Genius'
Graham recommended a portfolio of 30 stocks to mitigate nonmarket risk. Expanding the number of stocks in the portfolio any further will do little to meaningfully lower nonmarket risk and will begin to negatively impact total returns. Enterprising investors seeking to further boost investment returns could opt for a portfolio of 1520 stocks but must be aware that this will likely result in an increase in volatility and a higher exposure to nonmarket risk.
Netnet Working Capital (NNWC) = Cash & Equivalents + (0.5 x Inventories) + (0.75 x Receivables)  Total liabilities & Prior claims
Net Cash = Cash & Equivalents  Total liabilities & Prior claims
Ben Graham developed this method to find deep value stocks, specifically those selling at a discount to liquidation value as he argued that there is no logical reason why an asset should be being traded for less than this value and as such the mispricing would be subsequently recognized by the market and corrected . He usually insisted on buying a Netnet stock only when it traded at <67% of its fair value but at certain times in his career he increased this to <50%. When employing the Netnet approach one should buy a basket of stocks.
"Statistics say that owning just two stocks eliminates 46% of the non market risk of owning just one stock. This type of risk is supposedly reduced by 72% with a fourstock portfolio, by 81% with eight stocks, 93% with 16 stocks, 96% with 32 stocks, and 99% with 500 stocks."  Joel Greenblatt; 'You Can Be a Stock Market Genius'
Graham recommended a portfolio of 30 stocks to mitigate nonmarket risk. Expanding the number of stocks in the portfolio any further will do little to meaningfully lower nonmarket risk and will begin to negatively impact total returns. Enterprising investors seeking to further boost investment returns could opt for a portfolio of 1520 stocks but must be aware that this will likely result in an increase in volatility and a higher exposure to nonmarket risk.
Discounted Cash Flow (DCF)
The formula for the DCF model can be seen below; DCF = CF1/(1+r)1 + CF2/(1+r)2 + CF3/(1+r)3 ...+ CFn/(1+r)n CF1 = cash flow in period 1 CF2 = cash flow in period 2 CF3 = cash flow in period 3 CFn = cash flow in period n r = discount rate (also referred to as the required rate of return) 
The discounted cash flow model takes future free cash flow projections and discounts them back to the present, at a determined rate, to establish an intrinsic value. There are many variations used in order to establish the value of cash flows and the discount rate used in the DCF model, further it is based upon assumptions of future rates of growth. As such the formula is vulnerable to the distortions of the 'Garbage in  Garbage out' principle and should be used in a conservative manner. This model is best suited to value companies with stable cashflows and reasonable projections for future growth rates. As a general rule of thumb, one should not use a growth rate in excess of >15% as such rates of growth are highly unlikely to be maintained for a prolonged period into the future.

Dividend Discount Model (DDM). There are three different variants of this model, the ZeroGrowth Rate DDM, the ConstantGrowth Rate DDM (Gordon Growth Model) and the VariableGrowth Rate DDM (MultiStage Growth Model).
ZeroGrowth Rate DDM
IV = D/r IV = Intrinsic Value D = Annual Dividends r = Required rate of return; (This is the rate of return one should demand to compensate for the risk of owning the stock. This can be calculated as the sum of the longterm compound annualized growth rate (CAGR) of the market which is the riskfree rate one would achieve by simply investing in an index plus the longterm inflation rate. If the company is perceived as possessing above market risk this discount rate can be increased as appropriate. Taking the S&P 500 as an example the longterm (Jan. 1st, 1871  Dec. 31st, 2015) CAGR is 9.05% (Including dividends) and the longterm inflation rate (19132015) is 3.18%. As such I consider 12.23% as an appropriate base for the required rate of return. If the company in question possesses an economic moat which gives it pricing power it can pass the cost of inflation on to the consumer, in this instance one could reasonably omit inflation. Conversely if the company is perceived as being exposed to certain nonmarket risks an appropriate addition to the rate may be applied). 
The ZeroGrowth Rate Model assumes that dividends remain static and thus the Intrinsic Value is equal to the annual dividends divided by the required rate of return. This model can be used to value preferred stock where the dividend is a fixed percentage of its par value. Note that the intrinsic value of a fixed growth stock can still change if it's perceived risk alters as this requires an appropriate amendment to the required rate of return.
For example; If a zerogrowth stock has an annual dividend of $2 and the required rate of return is 10% (Expressed as 0.10) then it's Intrinsic value is $20 2/0.10 = $20 
ConstantGrowth Rate DDM (Gordon Growth Model)
IV = D1/(rg) IV : Intrinsic value D1 : Next year's expected dividend r : Required rate of return g : Dividend growth rate 
The ConstantGrowth Rate Model assumes a fixed rate of growth each year and as such it is useful for valuing the stock of mature slowgrowth companies where the dividend growth rate has been stable and predictable over the preceding years. To find stocks which fit this criteria one can consult the lists of Dividend Aristocrats, Champions and Contenders
For example; If a stock with a stable growth rate has an expected dividend of $3 the next year, the dividend growth rate has been determined as 5% and the required rate of return is 10% then it's intrinsic value is $60 3/(0.100.05) = $60 
VariableGrowth Rate DDM (MultiStage Growth Model)
IV = D1/(r+1)1 + D2/(r+1)2 + D3/(r+1)3 + . . . + Dn/(r+1)n IV : Intrinsic value D1 : Next year's expected dividend D2 : Dividend expected in yr 2 D3 : Dividend expected in yr 3 Dn : Dividend expected in yr n r : Required rate of return 
The VariableGrowth Rate Model can take many different forms assuming two, three or more varying rates of growth. The most common is the threestage growth model which assumes an initial high rate of growth, a transition to a slower growth rate and then a subsequent transition to a stable and sustained rate of growth. In order to construct this model, the constantgrowth DDM is extended assuming different rates for the corresponding stages of assumed growth. The present intrinsic values of each stage are then added together to determine the intrinsic value of the stock.

Original Graham formula
IV = EPS x (8.5 + 2G) IV : Intrinsic value EPS: (ttm) Earnings per share G : Earnings growth rate 
The original Graham formula is taken from 'Security Analysis' and determined the intrinsic vaue of a stock by taking the trailing twelve months earnings per share of a company, then multiplying it by 8.5 (the average P/E ratio of a stock with 0% growth) + 2x the 710 year historical earnings growth rate. The Graham formula should be considered to occupy the upper boundary of intrinsic value range and adjustments to should be made to EPS figures to account for cyclical fluctuations and nonrecurring items.

Modified Graham Formula
IV = EPS x (8.5 + 2G) x 4.4 / Y IV : Intrinsic value EPS : (ttm) Earnings per share G : Growth rate Y : AAA Corporate bond rate 
Ben Graham later modified his orginal formula to include a required rate of return, this is the number 4.4 in this equation. At the time of the formula's publication in the early 1960's this was the risk free interest rate. In order to adjust to the present one divides the resulting figure by the current AAA corporate bond rate.

Old School Value adjusted Graham formula
IV = EPS x (7 + 1G) x 4.4 / Y IV : Intrinsic value EPS : Normalized EPS (adjusted for non recurring items and averaged out over a 510 year period) Y : AAA corportae bond rate though Jae Jun recommends the A corporate bond rate for a more conservative estimate of intrinsic value 
Jae Jun of Old School Value recommends a more conservative version of the Graham formula. EPS figures are normalized by removing nonrecurring items and averaging out over a full business cycle. The assumed P/E of a 0% stock is lowered to 7 and the growth rate multiplier is lowered from 2 to 1. He also recommends using the A corporate bond rate to err on the side of caution.

Graham number formula
IV = √ (22.5 x EPS x BVPS) IV : Intrinsic value EPS : Earnings per share BVPS : Book value per share 
Benjamin Graham developed this formula to ensure he didn't pay more than 15x Earnings and 1.5x Book value for a stock, thus the number 22.5 in this formula is 15 x 1.5. This fomula will only work for companies with both earnings and book value which are positive. EPS should be normalized for cyclicals and companies with recent nonrecurring items. Growth is not factored into this equation and so it is not suitable for young fast growing companies. If tangible book value is being used the formula will not capture the value of intangible assets such as brand names, trade marks, patents, proprietary software etc.

Al Meyer's P/S Ratio Rule of Thumb
This simple rule of thumb gives an approximate idea of the P/S ratio one may consider acceptable dependent upon the net profit margin achieved by a given company. 
Net Profit Margin
5% 10% 15% 20% 25% 30% 
P/S Ratio
1 x 2 x 3 x 4 x 5 x 6 x 
GrahamandDodd Full Growth Value Formula
Full Growth Value = NAV x (ROICg/Rg) or Full Growth Value = NAV (Net asset value) + franchise value + growth premium 
R : Desired rate of return
g : conservative estimate of earnings growth into perpetuity NAV : Net asset value ROIC : Return on invested capital 
Net Present Value Formula (NPV)
= ∑ {AfterTax Cash Flow / (1+r)^t} – Initial Investment The NPV formula calculates the difference between the present value of cash inflows and the present value of cash outflows, it helps the investor to determine what the future profit growth of a stock is worth now. 
Earnings Power Value (EPV)
= Adjusted earnings x 1 / R This formula requires an adjustment to earnings to compensate for nonrecurring items and business cycle fluctuations. EPV assumes cash flows are constant, thus no Growth factor (g) is included in the calculation. R = the current cost of capital. 
Fair EV/EBIT formula
= (1T/ROIC) x (ROICg/WACCg) T : Tax rate ROIC : Return on invested capital g : growth rate WACC : Weighted average cost of capital 
The Fair value EV/EBIT formula assumes a constant ROIC and WACC, futher it assumes a constant growth rate (g). The fair multiple will only increase with growth if said growth is profitable (i.e. when ROIC > WACC)

Fair P/BV formula
= (ROEg)/(C,eqg) ROE : Return on equity C,eq : Cost of equity g : Growth rate 
The Fair value P/B formula represents the value of a company with a constant growth rate (g), a constant Return on Equity (ROE) and a given Cost of equity ( This is the return investors demand given a company's risk profile). This formula is intended to account for the fact that most companies are valued as going concerns, as such investors should be primarily concerned with the discounted cash flows a company can earn on its net assets rather than those assets alone. A company's Fair P/BV increases when the expected growth rate increases or when a company earns a higher ROE. Conversely, a company's Fair P/BV decreases when its risk profile rises. It follows that companies with a high ROE and low risk deserve a P/BV > 1 and those with poor returns and/or higher risk may be overvalued at P/BV = 1.

Earnings Retention Rate
= 1 Dividend Payout Ratio For Example; If a company's payout ratio is 40% then it's earnings retention rate will be thus, 1  0.4 = 0.6 or 60% 
Company Growth Rate
= ROE x Retention Rate For Example; If a company's retention rate is 30% and it's ROE is projected to be 40% then it's growth in the coming year should be 12%. (0.3 x 0.4 = 0.12 or 12%). 
John Neff portfolio check and rank method
Earnings growth + dividend yield/(P/E)
Neff calculated and ranked every stock in his portfolio and removed those which ranked lowest.
Earnings growth + dividend yield/(P/E)
Neff calculated and ranked every stock in his portfolio and removed those which ranked lowest.
Strong Balance Sheet Rule of Thumb
Current Assets  Current Liabilities = Working Capital. If Working Capital > Longterm Liabilities = Strong Balance Sheet
Current Assets  Current Liabilities = Working Capital. If Working Capital > Longterm Liabilities = Strong Balance Sheet
Richard H. Lawrence Jr. Valuation equation
Target P/E = (ROE + Normalized earnings growth rate)/4 
E.g. If you have a Return on Equity of 20% and a normalized earnings growth rate (adjusted for business cycle fluctuations and nonrecurring items) of 10% then the calculation would be thus: (20 + 10)/4 = 7.5, This is the target P/E at which the stock is likely to be trading at around fair value.

Present Value of Growth Opportunities (PVGO)
= Return on Equity (ROE)  Required Rate of Return 
The PVGO represents any additional growth a company achieves after it's return on equity matches the required rate of return demanded by the investor. If ROE is equal to RRR then the PVGO will be 0, in this instance the stock price will not increase, irrespective of whether earnings are reinvested or not.
If the PVGO is >0 then a company's share prcie will increase if it reinvests it's earnings for future growth. Conversely, if the PVGO is <0 then a company's ROE and thus it's stock price will decline, even though it may still achieve some level of growth. In this instance the most efficient use of capital would be to distribute earnings to shareholders in the form of dividends. 
Economic Value Added (EVA)
= (Return on Invested Capital  Cost of Capital) x Average Amount of Invested Capital or = Net Operating Profit after Taxes (NOPAT)  Weighted Average Cost of Capital (WACC) x Invested Capital 
Economic value added (EVA) is the spread which exists between the return on invested capital (ROIC) a given company generates relative to it's cost of capital multiplied by the total amount of capital invested. It essentially measures the amount of value which is added by new funds invested. If a company earns more from the investment of new funds than the cost of capital then EVA is positive, conversely if the cost of capital exceeds the return earned on the new funds invested then EVA will be negative.

Charles W. Mulford Earnings Quality Indicator (EQI)
= (Operating Cash Flow –Income from Continuing Operations) / Revenue 
This indicator is not intended to be used as an absolute independent figure or for comparison between numerous companies, instead it should be applied over a historical period to establish a trend in the quality of earnings of a particular company.

ROE (DuPont Formula)
= (Net profit/Revenue) x (Revenue/Total Assets) x (Total assets/Equity) = Net profit margin x Asset turnover x Financial leverage 
The DuPont model is a method for evaluating a company's Return on Equity by breaking it down into three parts which are as follows;
If a company's ROE is unsatisfactory the DuPont model helps investors determine which part of the business is underperforming. 
Compound annualized growth rate (CAGR)
CAGR = ( EV / BV)1 / n  1 EV : Investment's ending value BV : Investment's beginning value n : Number of periods (months, years, etc.) 
The Compound annualized growth rate (CAGR) is a geometric progression ratio which expresses the mean annual growth rate of an investment over a specified period of time. In order to calculate it one takes an investment's ending value and divides it by it's beginning value. One then raises the resulting figure by the power of 1 and divides it by the period length. Finally 1 is subtracted from the resulting figure to establish the CAGR.
