Franchise Value
A Modern Approach to Security Analysis
Chapter One
An Introduction to the
Franchise Value Approach
ORIGINS
Our work on the franchise value (FV) approach to price/earnings ratios and
equity valuation sprang from work that my associate Stanley Kogelman
and I undertook in the late 1980s at Salomon Brothers. We had been asked
to develop a valuation model to advance our understanding of a foreign equity
market (one that should perhaps best remain unnamed). One of the
key questions was how much an investor should be willing to pay for the
market's exceptional rate of growth. Since it was well known that not all
forms of earnings growth contribute to a firm's value, Stan and I tried to
probe more deeply into the value-additive component of growth, which we
chose to characterize by the term "franchise value" (FV).
At the outset, we decided to base our analyses on the price/earnings
(P/E ... read full excerpt from Franchise Value: A Modern Approach to Security Analysis ebook
