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Originally Posted by Xyvern
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Indeed. Joe explains this very well. I tend to give a bit more weight to CROIC when it comes to estimating future growth, rather than go by the growth in free cash flow.
He also gives some very good other valuations. Have a look at his Wal Mart analysis.
If you want to hear it from the horses, mouth then read Mr Buffetts 1994 Letter to Shareholders.
Either way, you won't end up estimating ridiculous figures like EPS and PE. I hope you are aware that capital expenditures (ie overheads) are not part of the earnings reported. If you go by earnings you are effectively putting a company earning 10$ per share but with 11$ capital expenditures per share on the same par as a company earning 10$ with capital expenditures of 3$. Clearly, both companies are not the same. Whereas one is approaching ruin if it doesn't get capex under control, the other is producing a nice profit.
Why calculate intrinsic value using projected earnings multiplied by an anticipated PE? That's nuts. Furthermore, growth in book value does not equal growth in intrinsic value. Mr Town is misquoting Mr Buffett on that issue. Either way, that whole Rule1 thing does not make sense to me. You are better off with Joe's advice and services as well as with Buffetts essays.