Michaelis Formula
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| YIELD = (RETURN ON EQUITY*PAYOUT RATIO )
/ PRICE TO BOOK VALUE GROWTH = RETURN ON EQUITY * REINVESTMENT RATIO TOTAL RETURN = YIELD + GROWTH |
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| Abbreviations we will use: ROE = Return on Equity PO = Payout Ratio PBV = Price to Book Value RIR = Reinvestment Ratio PR/MTR = Price Compounded / Michaelis Total Return Compounded Real PE = PE/ ROE PE = Average Price to Earnings Ratio or for last year only TTM Current TTM = Trailing Twelve Months TTM Current = The current estimates for all the above for 1999 TTM Current Information is gathered from The Motley Fool Snapshot for each company MF SNAPSHOT= Found by going to the (For example KO) board and where it says quote hit go then hit snapshot, all estimates are there. EPS = Earnings Per Share = Total Earnings/ Common Shares Outstanding Book Value = also known as “Shareholders Equity” or “Net Worth” Market Price = current quote that you see when you want to see where your stock is trading
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| HOW TO CALCULATE EACH COMPONENT: ROE = Earnings Per Share / Book Value PO = Dividends per share/ Earnings Per Share RIR = 100% - PO PBV = Market Price / book value per share
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| Important Point ****** For stocks that do not pay a Dividend ; Total Return = Return on Equity
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| REAL PE Real Pe is an abstract way of including “Management Effectiveness” into the PE Ratio. You will not find it in any books for it is 692738's invention. It abstract for it should Not be considered a ratio in the strict sense of the word. It should be used when comparing two companies with similar PE's or in the same Industry. Example: Coca – Cola ROE = 45.89% PE = 45.41% Real Pe = PE/ ROE ==== For KO would be; 45.41%/45.89% = .98 Celestial Seasonings ROE = 14.23% PE = 35.17% REAL PE = (35.17%/14.23%) = 2.47 The lower the result the better. Thus from just a PE point of view Celestial looks like a better buy but when you factor in Management then you can see that KO is the clear winner. The second stage in our analysis has determined that a RealPE of < .66, and passing 14 of 15 of Fisher's points indicates a buy signal for a company. The ROE for Financial companies should be doubled. And the ROE for companies which conduct business in both Financial and non-financial markets should be multiplied by 1.5. THE
FORMULA is not really an event related tool but I suppose it can be used in
industry analysis in setting up a point where an industry would be considered cheap.
I have used it in the past to find possible buyouts. I use it strictly as a way to
tell if an individual company is a steal in relation to its, "Owners Earnings"
which is what Buffett calls it. Companies with high Capital spending should be
avoided. MYCROFT |
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