Equity Valuation Flashcards
Alpha
An excess risk adjusted return
Fair Market Value
The price at which an asset would change hands when neither has a compulsion to buy/sell. Both participants are informed.
Investment Value
Value of an asset specific to an individual investor
Absolute Valuation Model
Model that tries to specify an asset’s intrinsic value
Asset Based Valuation
A type of absolute valuation model that values a cpmpany on the basis of the assets or resources it controls.
Relative Valuation Model
Values assets in realtion to other assets
Pairs Trading Strategy
Investing in a pair of similar stocks, shorting the overvalued and buying the undervalued one.
Conglomerate Discount
The idea that companies that operate in multiple, unrelated industries have are priced at a discount to businesses with a narrower focus.
Blockage Factor
Price that could be realized if shares of a large bloack were sold in smaller blocks that do not have a liquidity discount.
Present Value Model
Single Period Dividend Discount Model (DDM)
Mulitple Period Dividend Dicount Model (DDM)
Gordon Growth Model
Perpetuity
Value as a function of a No-Growth Company + PVGO
P/E Formula as a function of No-Growth Company + PVGO
Justified (Fundamental) P/E
P/E that is justifed from a fundamental analysis (like Gordon Growth Model)
Leading P/E
Trailing P/E
Two Stage DDM
H-Model
Sustainable Growth Rate
ROE Formula (Basic)
(Three way) Dupont Analysis of ROE
PRAT Model
(Sustainable Growth Formula)
(P) Profit Margin
(R) Retention Rate
(A) Asset Turnover
(T) Financial Leverage
Discounted FFCF Valuation
Subtract Debt from Firm Value to get Value of Equity
Weighted Avergae Cost of Capital (WACC) Formula
Discounted FCFE Valuation
Constant Growth FCFF Model
Subtract Value of Debt from Firm Value to get Equity Value
FCFF
Computed from Net Income
FCFF
Computed from Cash Flow From Operations (CFO)
FCFE
Computed from FCFF
FCFE
Computed From Net Income
FCFE
Computed from CFO
FCFF
Computed from EBIT
FCFF
Computed from EBITDA
Trailing P/E
Current Price divided by last 12 month’s EPS
Forward P/E
Leading P/E or Prospective P/E
Current price divided by expected next 12 month’s EPS
Basic EPS VS. Diluted EPS
Diluted EPS takes into account the additional number of shares that would be created in the exercise of stock options, grants, conversions, etc.
Underlying Earnings
Earnings excluding non-recurring items
Also called Persistent, Continuing or Core Earnings
Molodovsky Effect
High P/E in the bottom of a cycle and low PE at the top of a cycle
Normalized EPS
EPS based on Mid-Cycle conditions
Earnings Yield
E/P
Inverse of P/E
Justified Forward P/E
Based off of GGM
Justified Trailing P/E
Based off of GGM
PEG Ratio
P/E divided by the expected earnings growth
Book Value of Equity
The common shareholders value of equity (Total Assets - Total Liabilities - Preffered Stock)
Tangible Book Value per Share
Book value of equity minus intangible assets, divided by number of shares
Goodwill
Excess of purhcase price to fair market value of tangible & identifiable intangible assets
Justified P/B
Based of GGM
Justified P/B
Based off of Residual Income Model
Forward P/S
Based off of GGM
Trailing P/S
Based off of GGM
Enterprise Value
Total Market Value of Firm (Debt + Preffered Equity + Common Equity) minus cash & Short Term investments
Return on Invested Capital (ROIC)
Operating Profit after Tax divided by invested capital
Scaled Earnings Surprise
Unexpected earnings divided by standard deviation of analyst’s earnings forecasts
Standardized Unexpected Earnings (SUE)
Harmonic Mean
Weighted Harmonic Mean
