Okay, so now what do we have to do in terms of growth rate to justify a 12 billion dollar value?

I have to look at the balance sheet. What does the capital structure look like? What's the debt, if any? What's the tenor of that debt? What have they

historically done with their cash flows? Do they own all of their operations? Do they farm out

manufacturing to someone else? What is the track record of management here? I'm Mary Long and that's Jim Gillies, a fool analyst who heads up our Motley Fool Canada service.

A few weeks ago, Jim joined my colleague Ricky Moldy for a conversation on valuation.

In today's show, Jim walks through Mosaic Theory,

a practice where you're pulling research from a number of different sources in order to determine a company's value.

They also discuss Costco's growth story, how incentives contribute to valuation, and lessons from one company

specializing in sneakers and another in spaceships. We can talk a little bit about mosaic theory. It's basically as an analyst as an investor. I'm going to I'm going to use the words interchangeably because you know the fool is about people dealing with their own stocks, right?

But we are always seeing through a glass half darkly. Okay, we we are always seeing through a glass half darkly okay we are getting bits and pieces of a story like like valuation at its core is not

dissimilar really from the principles underlying it. If you have a bond

where the cash flows are fixed and the maturity is fixed and the discount rate is largely fixed.

We can assess what the value of a bond is, a financial instrument of bond,

fairly easily.

It's literally spelled out the indenture associated with that bond. For stocks, however, it is

Infantly more complex even though at its end the value of any stock in theory is the value of the cash flows all the cash flows that will throw

off for the remainder of its life until time and memorial discounted back to the present at an

appropriate discount rate.

The problem is, buried in there are about a hundred million different assumptions of

varying size or not.

And so as we put together our mosaic, we're looking at what are the things that lead to our

cash flow forecast, what are the things that lead to maybe an appropriate discount rate to discount them back.

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