Welcome to Full Picture Investment (FPI).  We embarked several years ago on a journey to understand the various methods used to value investment opportunities.  Along the way, we encountered the usual traditional investment valuation short-comings. Towards the end of our journey we formulated a new hybrid valuation method to address those traditional short-comings.

Have you ever pondered why all of today's different investment discipline's valuation methods couldn't be unified under a single method?  Along our journey's path, we began to think about the possibility of a single unified method ourselves.  

The time-value of money doctrine states a future amount is valued at a discount to an amount today.  Does not the time-value of money doctrine and its discounted-cash-flow concept touch equally every investment opportunity in every investment disclipine?  Does not the current lack of a unified investment valuation method point to a lack of consistent application of the time-value of money doctrine?  Would not finding a way to consistently apply the time-value of money doctrine to investment opportunities create a unified investment valuation method?

We began to think what a unified investment valuation method would look like.  Would a unified investment valuation method forego possible IRR and NPV conflicting valuations?  Would a unified investment valuation method create reciprocal investment present and future valuations?  Would a unified valuation method allow an investment opportunity's equity cash flow IRR to equal the investment's equity return assumption?  Would a unified investment valuation method make subjectively weighting multiple valuations (IRR, NPV and EBITDA . . . or more) unnecessary?  Would a unified investment valuation method make IRR hurdle rates obsolete?

Traditional investment valuation methods can be classified into one of two techniques: discounted-cash-flow and exchange-ratio techniques. A new valuation method borrows from both techniques to create a hybrid investment valuation method.  The hybrid valuation method is born from the first ever investment valuation standard and its valuation benchmark.  The hybrid valuation method is not only time-value based but has a business case application exceeding that of EBITDA.

The process leading to the discovery of Full Picture Investment’s investment methodology began by looking at differences between two major investment disciplines – capital budgeting and mergers and acquisition valuations.

The only difference the Full Picture Team found between capital budgeting and mergers and acquisitions valuations is capital asset budget valuations deal with a single asset and mergers and acquisitions deal with a combination of assets at various stages in their life.  The capital budgeting and merger and acquisition difference is eliminated when the hybrid valuation method  recognizes an asset’s life may begin before the start of an investment opportunity and also an asset’s life may extend beyond an investment opportunity's ending period.  An investment valuation method capable of managing various asset start and end dates allows an organization's multiple assets to be individually assessed as single assets within a common beginning and endiing time-frame and then consolidated back into an organization's total assets. The hybrid valuation's method for mergers and aquistions is the same hybrid valuation method for capital budgeting.  We found making a microeconomic investment decision should treat an asset as an asset whether the asset is within a group of assets or a stand-alone asset.

By unifying investment disclipline capital budgeting with mergers and acquisitions, the only difference found among remaining investment disciplines is an asset’s depreciation status.  To address an asset’s depreciation status, the new hybrid valuation process has an election for whether an investment’s asset depreciates or not.  

In other findings, a universal concern the Full Picture Team found and addressed is a traditional valuation methods' lack of a re-investment rate (secondary flow) rate apart from primary cash flow.  The new hybrid valuation process solves this issue with an input for a user-defined secondary flow (re-investment) rate.

Another  FPI Team finding was a need to provide unique investment opportunity working capital.  The new hybrid valuation method solves this issue with inputs to alter an investment opportunity's periodic working capital needs. FPI's periodic changes in Other Assets (Liabilities) represents an input to reflect an investment's accounts receivalbe and accounts payable balance sheet items.

A new investment valuation standard manifests itself through hybrid valuation method.  Achieving the valuation standard brings a consistent application of the time-value doctrine to investment opportunities.

  FPI’s Solve/Assumption Synchronicity (SAS) investment benchmark states: an investment evaluation technique should reciprocally answer investment opportunities among different investment categories.  The SAS reciprocity benchmark can be easily summarized: an analysis starts with initial assumptions and solves for an investment’s missing value as an answer.  A second analysis should be able to use the first analysis’s recently solved missing value as an assumption and reciprocally solve a selected first analysis’s former assumption as the second analysis’s missing value.  Said another way, a full set of SAS investment assumptions can alternate solving for any of its assumptions using only the other assumptions.  The SAS reciprocity benchmark may sound straight forward but, the benchmark has not been achieved until now.  Over the last forty years, the lack of investment evaluation reciprocity, combined with higher leveraged and deferred profit investment opportunities has led to the re-emergence of the exchange-ratio evaluation technique.  See the brief chronological history of investment evaluations.

Within a SAS investment opportunity assumption set, the new Full Picture Investment evaluation technique can alternatively solve for any of the  predominant investment categories – return, initial cost, operating performances or sale price.  The previous problematic lack of reciprocity in solving investment categories among separate investment disciplines and industry segments is no longer a barrier to an over-arching investment evaluation methodology.

SAS answered investment opportunities enable the generation of affirming financial statements.  For the first time, the return calculated from an investment’s prospective financial statements now matches the investment’s return.  Never before affirming financial statements, exhibiting their investment's return, invoke unprecedented validation and credibility in an investment opportunity through advanced evaluation outcomes.

Full Picture Investment envelopes both academic theory and practical application.  Full Picture Investment implications cut a wide swath across Accounting, Economics and Finance doctrines.  The Full Picture Investment Team has found academic and business professionals experienced in all three doctrines engage more easily in Full Picture Investment’s methodology and techniques.  The Full Picture Investment Team enthusiastically  provides the opportunity for all academic and business professionals to broaden their general business acumen and participate in the discussion we call FPI.

To be successful, Full Picture Investment needs additional input and refinements only an interactive user-community can provide.  Please join our journey and help us significantly upgrade the current investment evaluation paradigm used to make investment decisions. We suggest start by reviewing demo#1 and demo#2 and then downloading the Beta FPI software and taking it for a spin.

Next: Initial FPI Reactions

In the Hopper: EBITDA, something old, something new, something borrowed and  something really really bad