HomeNewsEquity Valuation / Financial EngineeringPart 1: Calculating the Core Fundamental Value (FV₀)

Part 1: Calculating the Core Fundamental Value (FV₀)

Part 1: Calculating the Core Fundamental Value (FV₀)

  • August 5, 2025
  • Posted by: Drglenbrown1
  • Category: Equity Valuation / Financial Engineering
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Fundamental Value per Share

Abstract: In this first installment of our six-part series, we derive the foundation of Dr. Glen Brown’s Enhanced Equity Valuation Model: the Fundamental Value per Share. By leveraging 3-year averages of diluted EPS and trailing P/E, we smooth out cyclical volatility and capture market sentiment to establish a reliable base valuation.

1. Why a 3-Year Average?

  • Smoothing Volatility: Earnings and multiples can swing wildly year to year—averaging reduces noise.
  • Capturing Cycles: A three-year window spans one market cycle, balancing recency with history.
  • Market Sentiment: Trailing P/E reflects how the market valued earnings each year.

2. Formula Definition

Fundamental Value (FV₀)
= (Average Diluted EPS over 3 Years)
× (Average Trailing P/E over 3 Years)

Breakdown of Inputs

Diluted EPS Net income ÷ diluted shares outstanding. • Extract from financial statements; restate for one-offs. • Compute arithmetic avg of the last 3 fiscal years. Trailing P/E Year-end share price ÷ EPS (or market cap ÷ net income). • Use closing price on each fiscal-year-end. • Average the three ratios.

3. Worked Example: Tesla (TSLA)

YearDiluted EPS ($)Year-End Price ($)Trailing P/E (×)
20223.62123.1834.0
20234.30248.4857.7
20242.04403.84197.9
3-yr Average3.32—96.54
FV₀ = 3.32 × 96.54 ≈ $320.50

4. Nine-Laws Narrative

Law 9 – Continuous Model Validation & Rebirth: Just as this Law mandates weekly parameter renormalization, our valuation foundation must be periodically reviewed. Recompute these averages annually—and revalidate FV₀—so your base never grows stale.

5. Next Steps

  1. Verify input sources for EPS & P/E in your database or Excel. • Ensure one-off adjustments are properly restated.
  2. Automate the 3-year averaging via VBA or Python to refresh on new fiscal data.
  3. Preview Part 2, where we’ll recalibrate our valuation to “today’s” price via EVDF/EVGF.

About the Author

Dr. Glen Brown is President & CEO of Global Accountancy Institute, Inc. and Global Financial Engineering, Inc., architect of GATS and the Nine-Laws Framework.

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