Equity #27: Eq Valuation: Valuation Concepts

Question 1

Define valuation

Answer 1

valuation is process of determining the value of an asset

Question 2

Going concern vs. liquidation value

Answer 2

going concern assumes the company will continue to operate and liquidation value does not assume this but assumes the company will continue to operate as a business

Question 3

define fair market value

Answer 3

“price at which a hypothetical willing/informed seller would trade an asset to a willing/informed buyer”

Question 4

Define investment value

Answer 4

value of stock to a particular buyer

Question 5

What are Porter’s 5 forces?

Answer 5

1. threat of new entrants 2. threat of substitutes 3. bargaining power of buyers 4. bargaining power of suppliers 5. rivalry among existing competitors

Question 6

What are the 3 generic stages a comp employs to generate profits?

Answer 6

1. cost leadership (being lowest cost provider) 2. product differentiation 3. focus (gain comptetitive advantage)

Question 7

Define absolute value model

Answer 7

estimates an assets intrinsic value without regard to the vlaue of other firms

Question 8

types of absolute value models

Answer 8

Dividend discount models, asset-based models

Question 9

Define relative valuation models

Answer 9

determine value of asset in relation to values of other assets

Question 10

types of relative valuation models

Answer 10

EPS, P/E, etc

Question 11

Qualify of earnings issues such as expense recognition and losses, reclassification of gains/non op income may be found where in financial statements?

Answer 11

may be found in footnotes and disclosures

Question 12

DEFINE: sum-of-parts valuations

Answer 12

valuing individual components of a company and adding together

Question 13

DEFINE: conglomerate discount

Answer 13

“refers to amt by which mkt price is lower than sum-of-the-parts value…[it’s] an apparent price reduction applied to firms in multiple industries”