Part of the investment process involves valuing a business.

Investments are considered attractive when the Free Cash Flow (FCF) yield is significantly above the “risk free” rate (that is, the relevant bank bill rate). To analyse the quality of the FCF and to achieve a level of comfort to invest, KAM undertakes rigorous analysis to ensure that it has as comprehensive an understanding of the risks as possible.

1. Firstly, KAM looks at a broad range of valuation metrics (or measurements) to determine what a company is worth such as:

• PER
• EV/EBITDA
• P/BV
• NAV
• FCF yield

These and other ratios will be used with emphasis placed on the ratios most appropriate to the specific situation. No investment is made on one valuation ratio or financial metric.

2. Secondly, extensive work is undertaken on a company’s financial statements. KAM compares financial metrics to a company’s peers and their competitors to identify anomalies. They analyse the income statement, balance sheet and cashflow statement together to gauge the quality of the earnings and risk, and to look for surprises and issues that require further investigation. Most importantly, KAM compares the story, as management tells it, to the numbers that the company’s auditors are willing to sign off to spot inconsistencies