EARNINGS POWER VALUE (EPV)

One should value a stock based on the current free cash flow of a company and not on future projections Con: Better to use Discounted Cash Flow Takes into consideration growth assumptions Assumption: Current profitability is sustainable.

Lafarge: - 6.35Holcim: 27.54

P/E RATIO

The number of years it takes for the company to earn back the price you pay for the stock You assume that earnings are constant Problem: earnings never stay constant If earnings increase, it takes fewer year to pay back If earnings decline, it takes more years Shareholders want companies to pay them back as soon as possible Lower P/E ratio = more attractive High P/E ratio = not as attractice, should not be negativeLafarge: 129.5/ FWD: 17.30Holcim: 18.98/ FWD: 15.70

WEIGHTED AVERAGE COST OF CAPITAL (WACC) How much interest the company has to pay for every dollar it finances Average of all financing methods equity and debt Rate that a company is expected to pay on average to all its security holders to finance its assets

Holcim WACC: 8.28%Return on Invested Capital: 6.36%Analysis: Because WACC is higher, the company is paying more in interest rather than making moneyLafargeWACC: 5.81%Return on Invested Capital: -0.28%Analysis: Because WACC is higher, the company is paying more in interest rather than making money

Return on invested capital measures how well a company generates cash flow relative to the capital it has invested in its business.

Both companies are not generating sufficient cash flow that reflects its invested capital. Both companies have a similar capital structure. Both companies are at risk and may lose value in its capital over time if it does not start generating more cash flow.Enterprise Value Consider it as a takeover price Takes into consideration market cap plus debt and minority interest and preferred shares, minus total cash and cash equivalents.

Holcim DCF: 29.4B LafargeDCF: 27.8B ROE rate of return on the ownership interest (shareholder's equity) of the common stock owners measures a firm's efficiency at generating profits from every unit of shareholders' equity (also known as net assets or assets minus liabilities). ROE shows how well a company uses investment funds to generate earnings growth.HolcimROE: 8.16%LafargeROE: -3.74%Analysis: Holcim is more efficient in managing investment funds.

DISCOUNTED CASH FLOW (DCF) Cash flow is estimated based on cash flow growth rate and discount rate Future cash flow is discounted in order to determine its current value By getting a current value of future cash flow, you can estimate the intrinsic value of the company Focuses on future earning power versus the assets

Holcim DCF: 10.49 LafargeDCF: 0.81