3. The United States companies in metal and mining industry reflected negative net income;

This point should be broken down in a proper way because net income is often one of the most crucial KPIs for the analysis. Now then, net income directly influences the total number of dividends which is distributed to the shareholders, total free cash flow, embodiment of strategic plans and goals a company has set up (in most cases for increasing shareholders' wealth). If the income is negative, it will also affect share market price, share turnover on the stock exchange and so on.

First of all, the time period is 6 years (between 2012 and 2017). For NCAV calculation the authors extracted the following needed data:

1. Current assets from the Income Statement (all cash and its equivalents which can be easily transformed into cash);

2. Total liabilities (both current and noncurrent ones, or short-term and long-term);

3. Preferred stocks (in this case the company did not have any preferred stocks);

4. Number of shares outstanding (as the companies report both diluted and basic, the authors took into account the latter one).

Secondly, calculated the fundamental valuation model NCAV, we receive not desired results because during the considered period the company demonstrated significantly small NCAV per share, but also negative periods. NCAV (for EMX Royalty) shows that truly share price was $ 0,17; $ 0,05; $ -0,015; $ -0,001; $ 0,017; $ 0,06. The low NCAV might be explained because of enormous total liabilities and disproportionate current assets. At this point this should be required to set up a demarcation line between net current assets and working capital. Net current assets represent real “net” and “clear” cash which a company possesses. Another KPI - working capital - represents the difference between current assets and current liabilities, ignoring non-current liabilities. It is highly important to mention and compare two different KPIs for better interpretation of NCAV. Turning back to the company EMX Royalty, the authors also outline that between 2014 and 2015 was, without any doubt, overvalued, because its intrinsic value was below zero (and market price must be higher than 0).

The next sound step is to compare intrinsic value of a stock, or calculated NCAV, with market price of that stock in order to figure out margin of safety. According to the Yahoo finance analytical platform, average market prices of the stock of EMX Royalty during considered period of time were: $ 2,6; $ 1,81; $1,63; $ 0,61; $ 0,67; $ 0,93; $ 0,7. If we again compare the intrinsic and market values, we can conclude that the company is overvalued, regarding Benjamin Graham and Warren Buffett value investing philosophy.

On the one hand, the company has significant current assets which are higher than all total liabilities of metal and mining company with its total liabilities. Secondly, company's market price is increasing over time (partly with some fluctuations), showing stable performance. Both current assets and liabilities are also increasing that is a valid premise of the company which reinforces its performance and occupation. On the other hand, the company did not pass Benjamin Graham's requirements because the margin of safety is negative (intrinsic value minus market price). However, the authors took into account the size of the companies, that is why one of the selection criteria was a positive difference between all the liabilities and current assets, meaning that a company has extra cash after all minuses.

		2018	2017	2016	2015	2014	2013	2012
Canfor Corp.	NCAV	-3,2	-4,0	-6,0	-6,9	-4,1	-4,2	-5,2
	Graham's number	31,7	27,9	16,9	6,3	17,1	18,7	6,2

For the profound and thoughtful description of the Graham's number for the companies from different industries, the authors begin with a descriptive example of Graham's number calculation for Canfor Corporation:

Example of Graham's number calculation

Some highlights concerning the example of Canfor Corporation:

1. There is no correlation between net current asset value and Graham's number;

If the correlation existed, the research would be overflowing because of two similar techniques.

2. Between 2012 and 2016 there are perfect conditions to invest because Graham's number was significantly lower than 22.5;

Breaking down the number for 2016, we can see that the company had $ 1,1 EPS and $ 11,2 book to value per share. However, comparing market prices, we can see that the stocks are traded above Graham's number which gives a premise of overvalued stocks.

5.2 Betas and Portfolio returns.

Overall, during the process of choosing company for including within the portfolios, we have stopped with the mentioned number of years, companies and pools.

		2012	2013	2014	2015	2016	2017
1	Company name	Beta	Beta	Beta	Beta	Beta	Beta
2	Bed Bath & Beyond	1,24					0,9009
3	Invesco Ltd.	0,12				1,51
4	BIOAMD Corp.		0,46
5	Inspired Builders	0,97
6	Global Gold Corp.	0,11
7	Golden minerals company	0,81	0,83
8	EMX Royalty Corp.	0,78	0,73
9	Signet Jewellers Ltd.	0,28	0,28				0,607
10	CNO Financial Group			1,34	1,34		1,45
11	Canfor Corporation			0,64	0,71		0,72
12	Bunker Hill Corp.		0,025
13	GameStop Corp						1,09
14	Unum Group.						1,36

Beta for each company in different years

Out of these companies, which were considered undervalued by all valuation models. The frequency of correspondence of one model detecting undervalued share with the same by the other model cannot be explained as statistically significant or based on dependency. All models had been put to find the intrinsic value of a stock, recalling, V/P ratio is the only factor influencing the choice of a stock to be put into the next stage of the research process. It is important to point out that particularly only these companies were used for testing hypotheses. As it appears to be, 2012 and 2013 financial years became the most frequent in terms of undervalued. This phenomenon can be explained with the Great Recession argument. By 2012-2013 the world economy has reached its pre-crisis conjuncture. Effectively, United States economy, being the most damaged, has recovered by these time period.

Going forward, once the undervalued capability of a stock had been found and affirmed, it became possible to calculate beta for a stock. Beta is a universal measure of a stock's risk in comparison to a market risk, stock return to market return, calculated as a covariance between the market return and the stock return accounted for variance of market return. Market return in the entire research has been used as year-to-year in general, but day-to-day index of stocks for S&P500 benchmark. As an example, please find the beta graphical interpretation for Bed Bath & Beyond Corp. (BBBY):

Figure 3. Graphical interpretation of returns (S&P and BBBY)

For each company in the beta represents the following procedure of uploading historical prices for specific company, leaning them with S&P500 index in form of stock returns, measured as a natural logarithm - excel function LN(Massive1; Massive2). This method estimates stock return per data as closely as possible, comparing to traditional (X1-X0)/X approach.

At this point the next step of the data analysis is calculation of portfolio betas. But before that we shall elaborate on the chosen portfolios. The description of the companies in each portfolio please find next.

Split of regarded companies by 4 portfolios

	DDM - 10 multi-industry (2012)	FCF - 10 single-industry (2012)	RI - 10 multi-industry (2017)	Graham's number - 10 multi-industry (2014-2015)
	1. Invesco 2. Bed Bath & Beyond	1. Global Gold Corp. 2. Inspired Builders 3. BIOAMD Corp. 4. Bunker Hill Corp. 5. Golden minerals company 6. EMX Royalty Corp.	1. GameStop Corp 2. Canfor Corp 3. Signet Jewellers 4. Bed Bath & Beyond 5. Unum 6. CNO Financial	1. CNO Financial 2. Canfor Corp 3. Invesco
NCAV	1. Signet Jewellers 2. Bed Bath & Beyond	1. BIOAMD Corp. 2. Bunker Hill Corp. 3. Golden minerals company 4. EMX Royalty Corp.	1. Signet Jewellers 2. Bed Bath & Beyond	1. Signet Jewellers 2. Bed Bath & Beyond

In order to create each portfolio, we separated the companies by sector attribute. Each portfolio out of the first line is paired to the same sector and period of the second line. We have been testing return of each portfolio in comparison to its counterpart and market return to, actually, see if the return makes difference.

S&P 500 index growth in 2012, 2014, 2017

	S&P500 annual average benchmark return
	2012	2014	2017
Market return	15%	12%	18%

Proceeding next, we have calculated each beta for portfolio using traditional formula:

	2012	2012	2014-2015	2017
10 multi-industry	10 single industry	10 multi industry	10 multi industry
NCAV	0,7602	FCF	0,5237	NCAV	0,6602	RI	1,0172
DDM	0,6831	NCAV	0,5189	Graham	1,1517	NCAV	0,7602

The output for all portfolio betas please find below:

Calculated beta for each model in 4 portfolios

The last step in the entire analysis is to calculate the portfolio return using Capital Asset

Pricing Model. During this phase, we used the conventional approach and the formula as below we have discussed in the theoretical background:

The risk free was considered as the return on US 10-year Treasury Bonds, subsequently for each observed period. The final output regarding returns on each portfolio with comparison to market return please find next:

Calculated beta for each model in 4 portfolios

2012	2012	2014-2015	2017
10 multi industry	10 single industry	10 multi industry	10 multi industry
NCAV Beta	0,7602	FCF Beta	0,5237	NCAV Beta	0,6602	RI Beta	1,0172
Return	12%	Return	8,98%	Return	8,5%	Return	18,267%
DDM Beta	0,6831	NCAV Beta	0,5189	Graham Beta	1,1517	NCAV	0,7602
Return	11%	Return	8,91%	Return	13,4%	Return	14,1%
Market return	15%		15%		12%		18%

5.3 CAPM calculation. Portfolio 1.

There are two detailed examples of CAPM calculations for Portfolio 1 (2012) and 3 (2014-2015).

Calculating all the variables separately is not representative because we do not figure out the most effective way to identify whether the stocks are undervalued or not. The authors chose CAPM model for calculation because it allows to compare the models separately by calculating the overall return, that is why the next calculations are related to Capital Asset Pricing Modelling.

As the pool of the companies was split up into four groups in which any two models were compared, we start describing the first portfolio analysis.

The first portfolio includes two companies, Signet Jewellers and Bed Bath and Beyond, from the Retail industry. The period considered for the analysis is the whole year of 2012 because namely in this year the stocks of the companies were considered as undervalued. The above two companies were analysed by Net Current Asset Value and Dividend Discount models.



		2012				2012
Signet Jewellers Ltd.	NCAV, $	19,5		Bed Bath & Beyond	NCAV, $	9,8
	DDM, $	0,01			DDM, $	1,4
		2012				2012
Signet Jewellers Ltd.	NCAV/P	0,4		Bed Bath & Beyond	NCAV/P	0,18
	DDM/P	0,0002			DDM/P	0,02

Companies' calculated NCAV and DDM in 2012:

Calculated DDM and NCAV models for Signet Jewellers ad BBBY

The above data demonstrates actual NCAV and DDM in 2012, and also the relationship between the value of NCAV and DDM and share market price. At the first glimpse, it becomes quite clear that Signet Jewellers demonstrated higher NCAV/market price than the company Bed Bath and Beyond did, however the BB&B company had higher DDM value because the company paid higher dividends in comparison with Signet Jewellers.

The second step which brings the analysis closer to CAPM is beta calculation. Beta is the sensitivity of the expected excess asset returns to the expected excess market returns. The formula for Beta is a ratio between covariance of adjusted close price of a stock during a period (in this case the period is a year of 2012) and close price of any reliable, acknowledged index, and then the covariance is divided by the variance of adjusted close market price. The way of beta calculation is transparent because Yahoo finance allows to extract the data from considered period. As the result, Betas for Signet and Jewellers and Bed Bath and Beyond in 2012 were 0,28 and 1,24, respectively.

Thirdly, for the risk-free rate of interest from CAPM we considered 10-years the United States treasury stocks with annual return of 1,8%. Last but not least, the expected return of the market was one year growth of Standard and Poor's 500 in 2012. At the beginning of 2012, index price of S&P 500 was $ 1277,81, close year price was $ 1466,47, hence the annual growth was roughly 15%.

Calculating CAPM for both Net Current Asset Value and Dividend Discount model, we get the following results:

- For NCAV model the expected return of the portfolio which is composed of two companies from Retail industry is 12%

- For DDM model the expected return of the portfolio which is also composed of two companies from Retail industry is 11%

- The expected market return is 15%

The conclusion, which might be followed after comparing the returns, is that in 2012 undervalued stocks demonstrated the return quite lower the “perfect” higher return of S&P 500. Nevertheless, the return is high. The comparison of the results is still quite controversial question because we ignore the size of a company, its financial opportunities, market value and volume shares.

5.4 CAPM calculation. Portfolio 2.

At the same time in the single industry portfolio the situation is relatively worse both in terms of returns of portfolios and betas. Apparently, FCF portfolio overruns NCAV formed one, however with the very small difference. This difference could be related to transaction costs, specifically trading costs, reviewed in theoretical backgrounds. As long as the single industry consists of Metal and Mining sector only, the transaction costs for market operations with raw materials can produce a lag for the stock prices for such types of companies. Therefore, we may consider that both returns are 9%. Another very important factor that can explain the small difference between the numbers is not including dividends paid into NCAV return (in-depth analysis please find the next section). On the contrary, as we observed in the previous portfolios', the market return in 2012 has been around 15%, which is about twice as high as returns for particular portfolio in this period. Concerning this bit of analysis, we have:

1. Based on distinctions between DDM and NCAV we suppose that:

2. NCAV outperforms DDM in multi-industry portfolio - NOT REJECTED

3. Based on distinctions between FCF and NCAV (by operational efficiency parameter)

4. NCAV outperforms FCF in controlled single industry portfolio - REJECTED

5. Undervalued stocks investment strategy outruns the market (as S&P500)

6. Graham's Number fails to NCAV in multi-industry portfolio

a. NCAV outperforms the Market - REJECTED (2012)

b. DDM outperforms the Market - REJECTED

c. RI outperforms the market

d. FCF outperforms the market - REJECTED

e. Graham Number outperforms the market

5.5 CAPM calculation. Portfolio 3

The next comparison between NCAV and Graham's number portfolios exhibited a very sophisticated situation.

The third portfolio includes three companies, Invesco, CNO Financial and Canfor Corporation, from the financial services industry and forest products. The period considered for the analysis is 2 years between 2014 and 2015 because namely during this period of time the stocks of the companies were considered as undervalued. The above three companies were analysed by Net Current Asset Value fundamental valuation model and Graham's number.

The data demonstrates actual NCAV and Graham's number in 2014 and 2015, and also the relationship between the value of NCAV and share market price. At the first glimpse, it becomes quite clear that Invesco, CNO Financial and Canfor Corporation demonstrated negative Net Current Asset Value that did not match with Warren Buffett and Benjamin Graham's principles. Total liabilities are higher than current assets, meaning that, potentially, investors would not have margin of safety. However, Graham's number is below recommended (two of three companies had preferable ratios), a good premise to take into account for investment.

The second step which brings the analysis closer to CAPM is beta calculation. As the result, Betas for Invesco, CNO Financial and Canfor Corporation in 2014 and 2015 were 0,76, and 1,34 and 0,64 respectively.

Thirdly, for the risk-free rate of interest from CAPM we considered 10-years the United States treasury stocks with annual return of 1,8%. Last but not least, the expected return of the market was one year growth of Standard and Poor's 500 between 2014 and 2015. At the beginning of 2014, index price of S&P 500 was $ 1841.4, close year price in 2015 was $ 2044, hence the annual growth was roughly 12%.

Calculating CAPM for both Net Current Asset Value and Graham's number, we get the following results:

- For NCAV model the expected return of the portfolio which is comprised of two companies from financial services and forest industry is 8,5%;

- For Graham's number the expected return of the portfolio which is also composed of three companies from financial services and forest industry is 13,4%

- The expected market return is 12%

The conclusion, which might be followed after comparing the returns, is that in 2014 -2015 undervalued stocks calculated by Net Current Asset Value model demonstrated the return lower than the “perfect” higher return of S&P 500. Moreover, as the authors described above, the initial value of undervalued stocks calculated by NCAV was negative when Benjamin Graham's number demonstrated favourable conditions to invest in. The comparison of the results is still quite controversial question because we ignore the size of a company, its financial opportunities, market value and volume shares. Last but not least, the authors do not include additional return which is denoted by annual dividends paid to shareholders. If the amount of money invested in stocks is insignificant, hence the proportion of dividends paid might be insignificant, hence the return will be invisible. On the other hand, if the number of stocks bought by an investor is significant, consequently the return will be tangible. Regarding dividends paid to shareholders, the authors also do not calculate net income of the companies. Overall, it depends on the situation and condition of the investment:

1. If an investor is focusing to invest significant amount of money in diversified portfolio, he might increase the return (additional to NCAV, Benjamin Graham's model) because of dividends paid. However, there are some risks:

- The company experiences net losses, hence the amount of money for dividend distribution is zero;

- The policy of a company might pay small share of net income to shareholders, and even if an investor contributes lots of money, the return might be insensible.

2. If an investor does not hold a huge amount of money, it is impossible to receive additional return which will cover the difference between the return of S&P 500 index and fundamental valuation model (Net Current Asset Value, Dividend Discount Model, Free Cash Flow, Benjamin Graham's number, Residual income)

The investor, taking into account company's corporate governance, distribution of net income, dividends policy, historical data of payments, dividends per share, and other indicators, can easily increase the return and even overcome the indices (S&P 500, Dow Jones Industrial Average).

First of all, it is clear to observe that hypotheses showed unpredictable results. In multi-industry (pool) portfolio (2012) NCAV outperformed DDM by 1% of return. Nevertheless, in this period S&P expressed 15% of market return, so it would have made investors unreasonable to invest in these portfolios.



5.6 CAPM calculation. Portfolio 4

The fourth component of the final output represents a comparison between Residual Income framework and NCAV. RI had managed to gain estimated return 1) above the market return 18,26% against 18% 2) outperform NCAV portfolio. The difference between the former and a latter show a strong dominance of RI in 2017. A fair question in this regard would be to ask either NCAV low return is forecasted by 2 companies within portfolio. RI contains 6 companies and NCAV only 2. Definitely, there is a limitation to advocating the correctness of using portfolios, where one is 2 firms and other is 6. However, the most valuable argument in this regard would be that the number of firms chosen was predicted only by the capability of the frameworks to find intrinsic value (undervalued stocks). The final listing of hypotheses looks the following way:

1. NCAV outperforms DDM in multi-industry portfolio - NOT REJECTED

2. NCAV outperforms FCF in controlled single industry portfolio - REJECTED

3. NCAV outperforms RI in multi-industry portfolio - REJECTED

4. Graham's Number fails to NCAV in multi-industry portfolio - REJECTED

5. Undervalued stocks investment strategy comparing to the market (as S&P500)

a. NCAV outperforms the Market - REJECTED

b. DDM outperforms the Market - REJECTED

c. RI outperforms the market - NOT REJECTED

d. FCF outperforms the market - REJECTED

e. Graham Number outperforms the market - NOT REJECTED

Now shall discuss the overall results of hypotheses testing in more subjective and critical analytical form. We also conclude the next part with primary limitations and contribution of the results towards the investor's strategy. We shall finalise the section with the concluding remarks and suggestions to future developments.



Conclusion

6.1 Primary discussion

As the beginning for the last section of this paper, we ought to say that NCAV did not show required results for the majority of observed cases. These results correspond with Richardson, Tuna & Wysoski's (2010) research on the frequency of application of fundamental analysis models, so as to say that the opinions of the professionals are more than approved. NCAV did not hold any leading position amongst various models, whilst Residual Income and DDM showed significant leadership in terms of survey results, for both scientist in financial analysis and practitioners. As a result, we have a visible advantage of other models apart from NCAV. In a given situation for NCAV against DDM and similar NCAV against FCF, the return estimated is not significantly differs between all pairs of portfolios. The number of companies in each set exhibits the same tendency. However, if we look at the last fact we will understand that all in all NCAV has crucial advantages over the abovementioned approaches. Effectively, NCAV forecasts the similar return which differs by non-integer digits from others, but with less companies in portfolio. That means that NCAV predicts higher return more efficient. Nonetheless, DDM, NCAV, FCF did not get the return exceeding the market. Knowing that the final distinction between value investment and growth investment is in the degree of return produced by stocks, the linked hypotheses are rejected. At this point we face another important limitation, that we will cover a moment later. What we should stress in this regard is that the following situation is only relevant in 2012-2013 time periods, as in 2014-2015 and 2017-2018 NCAV losses to other frameworks significantly.

In terms of 2014-2015 and 2017-2018, RI and Graham's number frameworks demonstrate strong return advantage. Given models not only outperformed NCAV, but produced return exceeding the market, which is crucial to admit. Starting from Graham's number, a derivative from the Benjamin Graham's key development on value investments, it has outrun the NCAV. The situation falls into the same pit of number of companies' limitation, but we will cover it in detail later on. The similar situation can be considered also about RI and NCAV case. The companies within four portfolios were taken out from different traditional sectors, so that the chances for each company to be included in any portfolio were close to be the same, however, except of GameStop Corp and Unum, which are said to be IT-driven company, as on NYSE and Nasdaq. Perhaps, essentially, this fact has produced so big difference between RI and NCAV. Initially, NCAV was suggested by Benjamin Graham as a tool for fundamental analysis of traditional sector companies. We call them traditional right now, but in times of Graham (1930s-1940s) there was no such technologically advanced companies, in terms of produced margins compared to traditional business models.

Initially, the authors saw this research as a quantitative mass sample analysis of value of stocks, and then referring them back to the fundamental model they were estimated by. Yet, the goal of finding undervalued stocks on a massive scale has been considered as a complicated task. It appears to be that Dividend Discount Model and Net Current Asset Value put together were estimating, approximately, 5 out of 70 cases as the undervalued stock. Predominately, that means that in order to fulfil a portfolio with 25 companies over 6 year we would needed around 1500 cases observed. Unfortunately, without financial market direct access such a task becomes nearly impossible, as for BA academics level and non-professional investors. In contrast, to make a solution for such a rare probability of a case (year-to-company) of undervalued stocks, we have been provided an in-depth analysis of two situations of pool of single-industry companies and multi-industry pool. With given frameworks, we crystallised that NCAV in the modern terms has low advantage over popular valuation of fundamental approaches.

Guiding that we could formulate a framework to find undervalued companies in different periods for non-professional investors and for professional non-institutional. Regarding 2012-2013 years (4 to 5 years after the world economic crisis) investors can select a range of companies

1. Either in single traditional sector,

2. Or from traditional sectors in one pool.

Then apply NCAV or DDM, NCAV or FCF. After detecting undervalued stocks form portfolios; using CAPM calculate betas for shares, betas for portfolios. Whichever portfolio is displays higher return exceeding the market is worth investing, as that will increase the value of an enterprise or an individual.

As for more recent years, 2014-2015 and 2017-2018, the guide for non-institutional investors looks the following way:

1. Choose non-single sector pool of companies, to diversify risk.

2. Apply Residual Income or Graham number approach calculating intrinsic value of the stocks to find undervalued characteristic (V/P ratio).

3. Formulate a portfolio based on approach.

4. Using CAPM find betas for stocks, portfolio betas.

5. The highest return is a choice for increasing value for one's assets.

6.2 Limitations & Assumptions of the research

One of the most fundamental assumption we use within this paper is the accounting principle used in measuring risk for the entire population of stocks and share returns. The issue we try to undermine here is best described in Penman and Reggiani (2010). Specifically, the US GAAP and IFRS that used as accounting principle is rather conservative. Saying that we understand that in financial statements, e.g. all revenues are deferred until their appearance in company's general ledger is almost guaranteed. The majority of costs are exhibited and incurred as soon as they take place. In contrast, such costs could be capitalised and expensed over a period of time (costs as R&D or advertising) (Richardson, Tuna & Wysoski, 2010). Consequently, book-value of the company has tendency to be less than market value. Specifically, this fact can be attributed to complications in finding undervalued stocks, as in V/P>1 we assume that book-value is to be higher than the market value of a certain company. This fact can, in theory, correspond to another type of accounting anomalies, using deducting method of finding undervalued stocks, backwards, starting from low book-to-market value. However, we shall regard this idea for the future developments.

Concerning limitations of the paper, first one is attributed to NCAV's completed observation of expected return. When approaching DDM and RI models, discounting factor is considered to be the future expected return. Which, basically, consists of rate of return per stock plus dividend per share (DPS). On the other hand, NCAV does not operate with returns on company's assets whatsoever, which actually means that we skip any DPS related issues. What it also means is that when we are choosing undervalued companies, using NCAV, we tend to estimate intrinsic value as a figure less than in DDM and RI, as they include DPS and EPS, as the measure of stocks remunerative nature. If we should trace this argument to the stage of calculating betas for portfolio, the number of companies and their risk can be statistically biased. In this regard, NCAV has some limitations in comparison to other fundamental tools. As a solution for diminishing this effect, we would suggest adding book per share figure to realised NCAV valuation, because in its roots NCAV reflects the terminal value of the company's assets, in other words net book-value (net current assets). Hence, the overall return using NCAV model with taking into account of the return of dividends might outperform DDM, Graham's number and Residual Income model.

Another limitation which should be stated is a dilemma of company's investment choice. For calculating satisfied Net Current Asset Value per share, a company has to have huge current assets, perfectly the biggest part of current assets is cash, and minimum total liabilities. However, as the company in the twenty first century is in front of a broad range of investment opportunities (invest in property, plant and equipment, increase the remuneration policy in favour of CEO and NEOs, scale the business by purchasing small enterprises, and so on), it does not usually have enough cash and cash equivalents for NCAV calculation. In other words, the companies are becoming more enthusiastic to invest in the drivers of their development than merely buying stocks and waiting for high returns.

Abiding by Benjamin Graham and Warren Buffett's advice, the authors found it extremely difficult to analyse the companies which are totally independent from a thorough and rigorous attention of analytical agencies and analytics' reports. The most appropriate to mitigate the effect of this limitation is to select random companies from random industries (the only mandatory rule of selection was that a company should not be at the top of different ratings, should be counted in different indices such as Standard and Poor's 500, Dow Jones Industrial Average, and others).

There should be mentioned that some companies do not pay dividends to their shareholders, however the crucial part of syntax of DDM is related to the dividends. The alternative way to calculate Dividend discount model is to use net income instead of dividends, as the part of net income is distributed to shareholders. This alternative way is quite limited because we can only assume that all net income should be distributed, not just a part of. At this point it is relevant to mention Graham's selective criteria that a company has to pay dividends to its shareholders, demonstrating stable net income and overall “health” performance. We can also only assume that the assumption of net income usage as a potential number of dividends did not affect the DDM model, not increasing in its value with subsequent return in CAPM.

Last but not least, Benjamin Graham's number has not yet proved by researches and empirical tests. Graham only explained why the number might seem to be relevant, and the authors, through a deep analysis of Graham and Buffett' philosophy, suggested to test the number. On the one hand, it is quite brave to compare Standard and Poor's 500, well-known residual income model, acknowledged the Dividend Discount model by both professional investors and amateurs, with a number which have not found any statistical approval. On the other hand, we suggested Graham's number as a postulate, which is reinforced by Graham's expertise, tremendous contribution to the fundamental analysis and elaboration of value investing philosophy, and tested it across different companies.

The authors assume that the results gained in this paper could be different if the pool of companies was more extensive. For example, the sample could be comprised of companies from absolutely different industries where the split of current and non-current assets had some differences, shares of net income presented as the dividends paid to shareholders, and so on. Without any doubt, considered period of time for analysis could also affect the final results. However, the structure of the research, its assumptions and methodology are presented in a manner of original ideas and enthusiasm to compare existing

The research paper has some precise ways for future development. First of all, with the analysis of increasing of enterprise value, the research should identify the alternative ways of increasing that value. There are some questions we prepared to answer in future development:

- In terms of enterprise strategic focus, how does a company make a decision to utilize its current assets? 

- In which cases does a company, when choosing the alternative ways of investing, put aside to have high returns?

The strategic focus of any company is different because of internal and external conditions, however the theory of the firm, setting up that any firm exists and makes decisions to maximize its profit, might explain the reasons to choose one or another way of profit maximization. 

Secondly, current study did not cover in practice other well-known valuation models such as Fama-French three-factor model, a broad range of discounted cash flow variations, McKinsey and Company approach of valuation, sum of perpetuities method, and so on. Presumably, putting the most frequent and popular models in the research might be a premise to figure out the most effective one which leads to higher returns. However, the authors prefer thinking about a firm which gains profit to delving into the profound theory of finance.

The further research of investment in undervalued stocks might also lead to a new valuation method, not explored yet, which will be applicable to the real market conditions. If the Net Current Asset value showed its absolute dominance in 1960-1990, when the majority number of companies were not so big in terms of liabilities, not so ambitious in terms of alternative investing, and not so popular in terms of external interest from the stock market participants. Moreover, technical analysis is also influencing on a stock price, making it overvalued because participants of stock market blindly make speculations, undermining the initial stock price. For the fundamental analysis and its followers, it is a challenge to outperform the technical tools, decisively focusing on the long-term perspective.

The world of equity trading is much about alternative paths. Investor either chooses growth stocks or value stocks. Depending on the strategy, he or she is to apply his own methods of creating value for him/herself. Undoubtedly, undervalued shares is a very intriguing option.

“The Nation too late will find, 

Computing all their Cost and Trouble, 

Directors Promises but Wind, 

South-Sea at best a mighty Bubble.”

(last stanza of Jonathan Swift's “The Bubble”) (Carswell, 1993)



References

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