Lesson 6 of 6
Writing the value down
The artefact. The value, its date, its six inputs, the range around it, and the single condition that would show the reasoning behind it had failed.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
Who writes thisEditorial processLinkedIn (opens in a new tab)X (opens in a new tab)
In one minute
- A value with no date, no inputs and no refuting condition is an opinion that cannot later be shown to have been wrong.
- The document is six inputs, one range, one date and one condition, and it fits on a page.
- The condition is what connects a value to the monitoring the rest of the product does.
Five lessons produce a range. This one produces the page that survives into next year, which is the only part of the exercise with a use beyond the afternoon it was done in.
What the page has to carry
- 1The dateWhen the model was built, and the date of every input in it
- 2The inputs, by kindTwo filed, one published and dated, three chosen. Never blended
- 3The rangeThe grid, not the middle cell
- 4The conditionThe one filed figure that would show the reasoning had failed
The document
Value. 112.87 dollars a share at the central assumptions; a range of 96.56 to 136.60 across required returns of 9 to 11 percent and terminal growth of 1.5 to 2.5 percent.
Built on. 18 September 2026.
Filed inputs. Free cash flow, nine-year unweighted mean of 883.3 million dollars, from the cash flow statements of nine annual reports for fiscal years 2017 to 2025, accession numbers in the sources below. Diluted share count of 99,779 thousand, from the fiscal 2025 income statement.
Published input. US Treasury 10-year par yield of 5.00 percent, dated 15 September 2026, from the series stored by ValueScreener.
Chosen inputs. Required return 10.0 percent, explicit growth 2.0 percent for five years, terminal growth 2.0 percent. None is derived from anything and each is the author's own choice.
What the model excludes. Any net cash adjustment, for the reason given in the third lesson. The maturity schedule, the inventory carrying value and everything else the applied cyclical course established, all of which belong in the conditions document rather than in a stream valuation.
What the window lacks. The nine years contain no contraction of the kind this industry has experienced. Every figure above inherits that.
The condition at the foot
The reasoning. This value rests on the business generating something near 883 million dollars of free cash flow in an ordinary year.
The condition. Free cash flow, measured on a trailing twelve-month basis, stays above 500 million dollars.
Why that level. The lowest of the nine filed years was 351 million dollars, in fiscal 2019, and the second lowest was 560 million, in fiscal 2018. A level of 500 sits between them: it would have fired once in nine years, which is enough evidence that it tests something, and it is far enough below the mean that ordinary variation does not reach it.
What a breach establishes. That the starting figure this value rests on no longer describes the business, so the value needs rebuilding. It establishes nothing about the price.
Why the condition is the point
Because it is what turns a value into something the rest of this product can do anything with. A value on its own is a number in a document. A value with a filed condition attached is a claim that can be monitored, and the monitoring is what the product exists for.
And because it is the only part of the page that will still be true next year whatever happens. The number will be revised. The condition either fires or it does not, and either outcome is information.
Check yourself
What does a value with no date and no inputs amount to?
- A conservative estimate
- An opinion that cannot later be shown to have been wrong
- A valid but incomplete model
Show the answer
Answer: B.
The document carries six inputs by kind, a range, a date and one refuting condition, and it fits on a page.Why is the condition level set at 500 million rather than 300?
- Because 300 is below the company's cost base
- Because 300 would never have fired in the nine-year window, while 500 fired once
- Because 500 is the mean of the window
Show the answer
Answer: B.
The mean is 883.3 million. A level that never fires across the available history is one the retro-test lesson says to change before relying on it.What would a breach of this condition establish?
- That the shares are worth less
- That the starting figure the value rests on no longer describes the business, so the value needs rebuilding
- That the required return was too low
Show the answer
Answer: B.
It establishes nothing about the price. It is a prompt to redo work, which is what every condition in this academy is.Sources
- Toll Brothers, Inc., annual reports on Form 10-K for fiscal years 2017 through 2025, for operating cash flow, capital expenditure and diluted share count: accessions 0000794170-17-000065, 0000794170-18-000055, 0000794170-19-000067, 0000794170-20-000066, 0000794170-21-000079, 0000794170-22-000049, 0000794170-23-000066, 0000794170-24-000051 and 0000794170-25-000112.
- US Treasury 10-year par yield as stored by the product, reading dated 15 September 2026, read 16 September 2026.
What this leaves out
- The value, the range and the condition are one worked example built to show the form of the document. None is a recommendation, and the three chosen inputs behind them are the author's own.
- The nine-year window contains no contraction of the kind this industry has experienced, so the starting figure, the value and the condition level all inherit that gap.
- One break in nine years is thin evidence that a level tests anything. It is better than none, which is what a level that never fires provides.
- Nothing here is a view on Toll Brothers or on any security, and no figure in this document is advice.