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How to Make a Million – Slowly by John Lee

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Chapter 4

Valuations

What I look for

I have always believed that most investors and analysts overcomplicate matters. I try to focus on just two yardsticks when investing in a trading company, e.g. PZ Cussons: dividend yields and PERs, and two for an investment or property company, e.g. Daejan – net asset values (NAVs) and gearing, i.e. the level of borrowings a company has relative to assets. The gearing factor importantly also applies to trading companies.

Dividend yield

Company A has a share capital of £1,000 in shares of £1 each.

It pays a dividend of 10p on every share.

Thus, if an investor buys £100 worth of shares at £1 each they will receive a dividend of 100 × 10p = £10.

Therefore their return is £10 on an investment of £100, ...

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