Using a balance sheet is a more conservative way to calculate intrinsic value than running a
discount cash flow calculation using estimates for future cash flow or earnings.
Including unexpected costs in your
monthly cash flow calculations will help to ensure you not only have invested in the right market, but in the right property, too.
Cash flow calculations provide information on profitability, quality of earnings, liquidity, risks, capital requirements, future growth, dividends, etc..
This contrast
between cash flow calculations is a topic of much debate between bears and bulls of Valeant and really gets at the heart of why non-GAAP metrics continually fail investors when analyzing a company.
While a simple earnings, less capex, [04:45:39] yields and annual
free cash flow calculation, I figure, of around $ 10 to $ 12 billion, in reality it seems to be much higher, closer to $ 20 billion.
Rents and Royalties could be considered in an «Equivalent Value» calculation, much like social security with a «present value»
of cash flow calculation, for asset allocation purposes.
I believe you will find this a useful guide to the different types of cash flow and
cash flow calculations, along with practical step by step comparisons and uses for each metric.
Smart investors factor in a vacancy rate of 5 % into
their cash flow calculations, as a risk management measure, even if the current vacancy rate for the area is lower.
This can be beneficial since building and landscaping maintenance is often the responsibility of the HOA, but you'll need to build these fees into
your cash flow calculations, and keep in mind they often go up over time.
Ideally, you've already accounted for some vacancy in
your cash flow calculations.