When working on the valuation of UFP Technologies, I realized that it was time for me to bite the bullet and make an improvement to the Framework Valuation model.
UFP made a large acquisition in February of this year and will likely not spend too much more than this on investments any time soon. As such, we already have a good idea of what Expansionary Cash Flow will be for the year in dollar terms.
In our legacy valuation model, there was no way to enter in a dollar value forecast for ECF — only a mechanism for forecasting ECF as a percentage of Owners’ Cash Profits.
On one hand, I knew the lack of ability to forecast dollar investment expenditures was a weakness in the model, and I had wanted to fix it for a long time. On the other hand, I thought changing the architecture of the sheet would prove too difficult or time-consuming, so I had not wanted to attempt it.
Looking at the problem yesterday, I suddenly realized there was a simple solution, so I made the change and tested it out on the UPL Technologies valuation.
The switch from ECF as a percentage of OCP to dollar ECF is done with a new drop-down field.
Figure 1.
When the drop-down box in cell B12 is set to zero as in figure 1, future ECF projections will be pulled from the range C13:G13 — nominal dollar values.
When the drop-down box in cell B12 is set to one as in figure 2 below, future ECF projections will be calculated, as before, as a percentage of Owners’ Cash Profits.
Figure 2.
This change allows an owner greater flexibility in assessing the value of a company, so I’m pleased with the improvement. In our next Office Hour session, I’ll be happy to walk through the cases where inputting investment assumptions in dollar terms makes sense. You can get a copy of the new version of the model through the link below.
Framework Investing Valuation Model 
A copy of this model is also stored in the Knowledge Base.