Where to Start When Analyzing Multinational Stocks

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Once you get to know a business or industry well, you'll develop your own opinion about what's most important. But if you're not sure, a good place to start would be to find out what other people are focused on. Read a few sell-side reports, transcripts, and company presentations and you should get a sense of what metrics people care about and what management wants people to think are the value drivers in the business. Understand that and you can start to see how your perspective might differ from everyone else's.

For a large conglomerate, it helps to think about the business in segments. Try to understand how they fit together, especially through the cycle, but you want to focus on the real sources of value in the company. Where are most of the profits being generated, where is there asset value, where are there major liabilities, where are there opportunities for change? Just starting with reportable segments, you might want to at least start with the largest sources of revenue or earnings.

If you're asking more generally how to start thinking about valuing a company or analyzing financial statements, any good textbook on fundamental analysis will do.

Sorry for the late response. I was actually trying to take your advice and reading through some old threads about what other people tend to look at. Based on some research, it seems as though EV/EBITDA, ROIC, EVA and FCF/EV are the most common metrics that are used and that few people try to run DCFs to select equities. I guess my question is, given that most of these seem to be multiples (except ROIC and Econ Value Added), how does one go about then deciding when to purchase a security based on that multiple?

Obviously one way to do is, for example, by saying that, "Company X has a calculated EV/EBITDA multiple of 12 and has previously traded at multiples of 15, so therefore this stock is a buy", but that seems like a weak thesis IMO because something must have happened in investors' minds in order for the stock to drop and it would require a more thorough analysis as to figure out why it's trading at the multiple it is and what catalysts it would have that could lead to multiple expansion. I don't have much experience in investing yet, but from what I've seen, markets generally don't prescribe low PEs without a decent reason, even though it may be flawed.

My guess is that analysts probably estimate future EV, EBITDA, FCF, etc. and then use this future multiple to estimate the true value of the asset. I was wondering, however, if there was good literature about understanding multiples, when they expand/contract and also on how to estimate future cash flows more accurately. I think my main issue is that I'm not always sure how to estimate certain line items and that's where I get stuck when calculating future EBITDA, EPS, etc. I generally understand how to calculate revenue because it makes sense to me, but estimating current assets, projecting AP, etc. (for NWC calculations) and more obscure items like that becomes tricky and I'm not really sure how to go about doing it.

The other thing was if there is a good book/online resource for learning about ROIC. When I tried to read McKinsey Valuation back my sophomore year of school, all I got out of it was that if ROIC > cost of capital, then the company is creating value, but the book was too technical at that time and I dropped it. Maybe I should try again now that I've had some (limited) experience with valuation, but is there any other source I could check out as well?

Thanks again!