1988 Valuation of Coca-Cola

For years, we have wondered how Warren Buffett valued Coca-Cola, (Ko), stock at such a deep bargain in 1988. This book describes a simple two stage discounted cash flow model that delivers a close approximation. This exercise is our quantitative estimation of Coca Cola's Intrinsic Value Per Share in 1988. First, we describe our 2-stage "discounted cash flow" valuation model. Our estimating model is strict. It assumes a business will only "live" for 15 years. Within the model, we apply compounding growth to the first 10 years. Then, we take the cash flow from the 10th year and assume no additional growth for years 11 till the end of year 15. Since intrinsic value is a highly subjective figure, readers can adjust their model to the quality of the business they wish to value.