equity valuation Flashcards
residual claimants
stockholders - the value of equity after using the assets to pay off all other claimants (liabilities)
how to value asset and liability
through book values
book value
the sum of the amounts of all the line items in the shareholders’ equity section on a company’s balance sheet
market value
the value of a firm as a going concern - seldom = to book values - based on observed share prices and number of outstanding shares, reflects a consensus of the market (all market participants) regarding dividend estimates , future prices, discount and growth rates
liquidation value
the net value of a company’s physical assets if it were to go out of business and the assets sold - better measure of market value
replacement cost
the value the business converges to - referring to the amount of money a business must currently spend to replace an essential asset like a real estate property, an investment security, a lien, or another item, with one of the same or higher value
Tobin’s Q
market price/replacement cost
intrinsic value
value from the perspective of specific investors depending on the information they have, reflects the outcome on fundamental analysis. V = PV(Div) + PV(selling price) @ risk adjusted ratee
value investing
finding business for which intrinsic value > market price
discounted free cash flow model - DCF
shareholders own a share of equity of the firm - value of equity is teh expected PV of all future cash earnings less all incurred liabilities
dividend discount model
value of a share of equity is equal to rpesent value of all future dividends
dividend payout ratio
d = expected portion of earnings that will be paid out as dividend, D = d x earnings
plowback/retention/reinvestment ratio
b = expected portion of earnings that are retained and reinvested,
Investment Inv = b x earnings
b+d = 1
ROE
return on reinvested earnings, cna be different frmo the required cost of caiptal
market capitalisation rate
market consensus of required rate of return - can be presented as the sum of dividend yield and capital gains rate