Mistake #2 Underestimating expenses causing unrealistic profit | 9 Valuation mistakes

My name is Andrew Stotz and I've been valuing companies for decades. When I was Head of Research at CLSA, I was voted the No. 1 Analyst in Thailand two years in a row.

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Mistake # 5 Forecasting drastic changes in cash conversion cycle

In this video, I am
* Talking about underestimating expenses, causing unrealistic profit as one of the most common valuation mistakes.
* Analyzing and forecasting 17 000 companies around the world over a 15-year period.
* Defining the value of the gross profit margin in forecasting.
* Providing real examples based on his own coffee business, CoffeeWORKS, and the IKEA, etc.
* Giving other sound advice, including the idea from the fantastic book: Understanding Michael Porter. The idea is that to forecast changes in gross profit margin, an analyst should study the supply chain.
* Looking at some common valuation mistakes in the academic-style research. ABC analysis and valuation.
* Evaluating the accuracy of net profit and net profit margin forecast analysts in Asia, based on the result of 540 the largest companies in Asia.
* Presenting expenses with the highest variability in the net profit margin.

And, most important, curb your optimism in the area of forecasting. Stay optimistic in life.

Want to know more about common valuation mistakes. Follow the links below:

# 1 Overly-optimistic revenue forecasts

# 2 Underestimating expenses causing unrealistic profit

# 3 Growing fixed assets slower than revenue

# 4 Confusing growth with maintenance Capex

# 5 Forecasting drastic changes in cash conversion cycle

# 6 Underestimating working capital investment

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[johnathansevigny]

Thank you for this video. I really enjoyed it.

[jd]

Great points re Gross Margin... One person who's mastered supply chain optimization is Michael Dell.
The GM / supply chain analysis doesn't hold true for software companies which have low COGS though.
The more intangible the product sold, the more important SG&A + R&D vs COGS

[mujahidrasul]

Wonderful Andrew Stotz, I enjoyed watching first two mistakes in valuation videos and I learned something new. I was waiting for these videos since a while. Please keep the good work up and produce the remaining videos on Top 9 mistakes in valuation. Again I will be waiting for those. After that, i would expect a series of videos on valuation methods (DCF, Relative valuation, etc.). Please return back to the world what you have learned in over two decades of experience in investment industry. Thank you very much for the initiative