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Calculating Shareholder Wealth Accumulation


Fat Pitch
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So I'm creating a spreadsheet to pull 10yr financials and I'm trying to calculate the shareholder wealth that was created over that time period. Ideally I would just sum up the net income lines, but I realize there's a bit too much discretion for management to fudge the numbers. So I devised two other methods of approximating the earnings.

 

1. Free cash flows (Net Operating Cash Flows (minus) depreciation & amortization). Yeah not absolutely perfect, but it's a good ball park estimate.

 

2. Sum up the changes in Equity from year to year and add back any dividends/buy backs and subtract share (preferred) issuance.

 

Now I ran this screen on several companies and I got some interesting results. For a company like IBM, the % variance between Net Income, FCF and Changes in Equity came out to ~3%. For other companies like ACN (Accenture) the variance was 80%.

 

Of course the numbers I'm pulling may be wrong, but I'm wondering what other reasons could there be? I'm figuring there's mark to market changes in pension liability, hedges, etc from the comprehensive income statement or there might have been spin offs? If there's a spin off then wouldn't the changes in equity capture it?

 

I'm thinking looking at these three methods might be a good barometer for seeing how "clean" the company accounting might be.

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