Question

Well basically I was planning on valuing say the S&P 500 using either a dividend discount model while incorporating share buybacks. The other option I was looking into is turning the dividends into free cash flows to equity, since not all firms pay out what they are able to in dividends or buy back as much stock as they truly could with the free cash flows that they have. My problem is in calculating free cash flows to equity for the S&P for example. Do you have to calculate it for each individual firm. If anyone has any good links or papers they could direct me to on how to do a free cash flo

Answer 1

You have to compute FCFE for each company:
FCFE = Net Income + Deprecn - Cap ex - Chg in non-cash WC - Change in net debt
It is not really difficult to do, if you have access to a database like Capital IQ. If not, it can be a pain.

Answer 2

My school has the compustat database (University of Baltimore). I think I could use that. Do you have any papers written about creating a model to do this? I love to read anything I can find on valuation and am currently being asked by a company (as a paid project) to help them define there valuation strategy and to help develop a model or models to value individual companies and possibly specific markets. Any help would be greatly appreciated.