Chingo De Dinero

Finally, I stopped screening the hard way. If you have read some of the other information I have written, I think Enterprise value is not valued as much as it should. You hear PE all of the time, but miss the cash position, either positive or negative.

I used to screen for PE and price to book, then look at individual stocks and pick out those with a ton of cash and little debt. I just noticed today, a great measure, not perfect, but good, Enterprise Value / EBITDA. If you didn’t know EBITDA, is Earnings Before Interest Tax Depreciation and Amortization. My way to interpret this, how many year will it take for the company to buy itself. For example, NCTY or The9. They have an Enterprise Value / EBITDA of roughly 3.588. To break this down, the Market Cap is 630 MUSD, they have 316 MUSD cash, 0 debt and have EBITDA of 88.18 MUSD. This means, if they did a full buyback with their cash, then used their profit to buy back shares, they could purchase the whole company in 3.588 years. Of course, this will not happen, and you need working capital, and to reinvest in the business, but man, this is a great way to tell price. Also, this is a stat Yahoo keeps, so you can run screeners off of it….so much time to be saved. Of course, you have to factor in growth, but that isn’t too hard, just look at the analyst estimates, not totally accurate, but will give a flavor.