Company valuation Flashcards
Technical analysis
Looking for patterns in historic prices and returns. Using to predict future trends
Fundamental analysis
Aim to find the intrinsic value of assets by examining their expected future cash flows and risk characteristics
Market capitalization
Total market value of a company’s outstanding shares of stock. Useful for publicly quoted companies.
Equity valuation
Estimating a companies intrinsic value (whether a stock is over or under valued).
Market capitalization =share price x number of shares
Enterprise valuation
A comprehensive measure of companies total value.
Enterprise value = market capitalisation + net debt - cash
Discount rate equity valuation
Discount rate reflects only the cost of equity financing, rS
Discount rate enterprise valuation
Discount rate reflects the cost of both debt and equity financing, in proportion to their use, rWACC
Book value of asset
Shows what the company holds in terms of current assets.
Book value of total equity (net asset value)
Total assets - total liabilities (current and non-current).
Equity valuation measure.
Book value of total assets
= non-current assets + current assets.
Enterprise valuation measure.
Limitations of book value of assets
-Based on historical accounting
values
-Subject to company accounting
policy’s.
-Focus on accruals profit rather
than cash flows.
-Little relevance outside of
liquidation or disposal of parts or
business.
It is useful for all companies?
No.
Highly inappropriate for comapnies with high proportion of income stemming from intangible assets
Net realisable value of assets
Value left for shareholders is assets sold off and liabilities settled.
Largely ignores intangible assets.
Replacement value of assets
What is the cost of setting up the business if it were started now?
Again, largely ignores intangible assets and sets a floor valuation.
Floor valuation
The minimum valuation that an investor is willing to accept for a company when investing
