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What Are AFG Users Saying?
“AFG's Economic Margin is our preferred metric for security selection and portfolio construction.AFG's annual conference is a great opportunityto "sharpen the saw" and continue to improve our investment process."
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Institutional Global Equity Valuation Tools & Research
Economic Margin: From Accounting to Economics to Valuation
The Applied Finance Group (AFG) helps institutional investment, consulting and corporate firms globally in accurately measuring corporate performance and identifying mispriced equities. AFG developed its proprietary framework, Economic Margin, to correct distortions created by traditional accounting-based analysis.
The Economic Margin Framework is more than just a performance metric, as it encompasses a valuation system that explicitly addresses the four main value drivers of enterprise value: profitability, competition, growth, and cost of capital. Unlike traditional valuation approaches that utilize highly sensitive perpetuity assumptions, AFG’s approach incorporates company specific competitive advantage periods which identify companies that may lose excess returns over time faster than their competitors.
Helping Investment Managers Make Better Investment DecisionsThrough Unique Corporate and Valuation Insights
AFG provides its clients a clear and robust set of applications to easily compare valuations and corporate performance over time, firms, industries and countries. By understanding differences between a stock’s intrinsic value and market price, management effectiveness, and earnings quality, the firm’s recommendations outperform the market regardless of a company’s sector, size, or growth/value orientation. AFG’s research covers over 25,000 companies around the globe.
AFG's Client Benefits Include:
- Identifying Under/Over Valued Companies
- Ability to evaluate a company's ability to create shareholder value
- Understanding market expectations embedded in stock prices
- Tools and Research to help portfolio managers/analyst focus on investment decision-making.
Why Traditional Accounting-Based Metrics Fall Short
Earnings are a poor proxy for economic profitability because they do not accurately reflect the true cash flow of the firm.
- On average, corporate earnings represent only 45 to 50 percent of a company’s cash flow.
- Earnings do not reflect risk.
Accounting ratios mix/confuse many different value drivers.
- Return on Assets/Return on Equity fail to reflect wealth creation or destruction.
- Different Asset Life, Asset Mix, Asset Age, Capital Structure distort ratios across firms.
Accounting rules distort many aspects of economic reality.
- Research & Development costs, which are long term investments, are immediately expensed under GAAP accounting.
- Operating Leases, obligations which must be paid similar to debt never appear on company balance sheets.
Key questions when evaluating any investment:
- How much capital is required? How much capital does the company use in its operations? Is the amount growing or declining through time?
- What is the cash flow? How much cash does the company generate per unit of invested capital? Is the company’s cash yield increasing or decreasing?
- What are the opportunity costs of capital? In the current marketplace, what should the average investor expect as a return for an investment given its risk?
Institutional and Academic Testimonials
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"In my opinion, there is no better cash flow valuation available."
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"AFG's Value Expectations model neatly incorporates the key measures of firm performance into a rigorous valuation framework. A powerful tool for identifying potentially mispriced stocks."
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"When I was a Principal at Stern Stewart & Co., many corporate managers would tell me that Wall Street does not care about EVA or CFROI so why should they manage for it. That led me to search for a tool that would link EVA to the common value driver language of Wall Street. The Applied Finance Group's Economic Margin Framework is that link. Of all the Value - Based approaches, AFG offers the best blend of theoretical completeness and practical applications as it provides a clear, robust and simple path from the accounting to the economics. And just as important, AFG's ever-increasing number of web-based applications, tools and research greatly increase the efficiency and effectiveness of our analytical processes."
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"AFG provides the most comprehensive, intrinsic value tool for both top down stock screening and detailed stock specific modelling. It helps generate ideas overlooked by the market and traditional research firms, by highlighting the mismatch in current market assumptions and a firm’s ongoing ability to create value. AFG is an integral part of our nvestment process and allows us to identify and analyse stocks and industries quickly and efficiently.”
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"Having been a user since almost day one, I have seen your research service continue to improve and it has become a more important part of my investment process. Having seen first hand the importance of the direction of Economic Margins, this factor is now part of my quantitative ranking model. One of the more important uses is the role it plays in questioning management/analyst projections - are they realistic based on previous results, can the company actually deliver with the present asset base, etc. Your firm continues to refine and improve the tools. Fairly recent additions, which I especially like, are the industry reviews and monthly buy/sell list. Previously, I used Holt for many years, and was pleased with that service. Upon the creation of AFG, I found your approach more intuitively-friendly. Retrieving the information via the internet is also fast and convenient." Portfolio Manager |
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"AFG provides our organization with the tools we need to make investment decisions based on a sound valuation discipline. We are a small investment management firm and use AFG as our “outsourced” valuation research team. I am continually struck by how much time the AFG staff has been willing to invest in our relationship. Their products and support have been invaluable to our stock selection success. "
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"We are extremely pleased with AFG and their web-based Economic Margin valuation tools. We have found that the relationship of projected EM to MVIC is a clear differentiator of valuation that is greatly superior to PE and PEG ratios. Further, we are able to leverage our research efforts by using AFG's models as a default starting point. This allows our analysts to put more attention on those factors which will drive a stock's future performance."
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Economic Margin is our preferred metric for security selection and portfolio construction.
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"In the course of my academic research on equity valuation, and my professional career as a portfolio manager, I have evaluated numerous performance metrics and valuation methodologies. AFG offers an unbeatable combination of Economic Margin Framework and Value Expectations software that is one of the most theoretically sound and practically useful equity valuation platforms available today."
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"AFG's rigorous research and powerful analytical tools leverages our time effectively to make better investment decisions and better serve our clients. AFG is a valued partner in our research process!"
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Robert F. Hill, Jr..png)
Richard G. Sloan, .png)
David Berkowitz, Principal.png)
James Kinghorn
Robert Bingham, CFA, 
Howard B. Aschwald, CFA 
Gerald W. Laurain, CFA
Bruce Johnson, Accounting Professor.png)
Ralph Weil, CIO
Economic Margin Framework
The Economic Margin framework is more than just a performance metric, as it encompasses a valuation system that explicitly addresses the four main value drivers of enterprise value: profitability, competition, growth, and cost of capital. Unlike traditional valuation approaches that utilize highly sensitive
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