Equity valuations Flashcards
What is the goal of valuation and explain the difference between price and value
Assumptions of valuations: mispricing and what is the GS paradox?
Explain the assumption of convergence
Explain going concern and liquidation value (immediate vs orderly)
Explain what intrinsic, fair and market value is?
What are the applications of valuations?
What are the steps in the valuation process?
What are the three aspects in understanding a business?
Explain the difference between relative and absolute valuation models?
What is a sum of the parts valuation?
What is a conglomerate discount and why may it be applied?
Explain the valuation approach and steps
What are the properties of dividends as a cashflow?
When is a DDM suitable?
Explain Free cash flow and residual income and when each are appropriate?
Explain the single and multi-period DDM?
What is the general form of a DDM and the two usual approaches?
What does the gordon growth model assume, what should r and g reflect and what companies is it most suitable for?
How to solve for the implied growth rate?
Explain the PVGO method?
What is the equation for justified P/E ratio?
Preferred stock valuation
What are the three stages of growth and their properties?
What are the two methods of estimating g for the terminal value?
What is the H-model and equation?
When should FCF be used and what is the formula for FCFF and FCFE?
When would FCFE and FCFF be preferred?
How to get FCFE and FCFF from net income?
How are dividends and interest treated under GAAP and IFRS?
How to get FCFE and FCFF from EBIT and EBITDA
forecast FCF when can a constant growth rate be assumed?
What are the differences between FCF and dividends?
What can be EBITDA and NI be used as proxies for?
How to adjust FCFE, FCFF and NI for preferred share dividends?
What are the GGM and multiples based FCFE and FCFF models?
Explain the three stage model?
Terminal value under GGM and multiples based?
Comparables vs forecasted fundamentals?
What is the forward and trailing justified multiple?
What is the rational and drawbacks of the P/E ratio?
What are the alternative definitions of P/E and what other things must be considered?
How does potential dilution and transitory company specific-components impact P/E
How do transitory business cycle components influence P/E
How to assess P/E of comparable companies?
What is the PEG ratio and how to intepret?
What are the properties of Index P/Es and what is the fed model and how to intepret?
What is the Yardeni model?
Justified forward P/E with inflation, pass through and real required rate of return?
What is the key conditions of TV’s and what are the two methods of calculating?
What are the rationales behind using P/B ratio?
Also for companies not expected to continue on going concern
What are the drawbacks of P/B?
How is BV determined and what adj might need to be made?
Whats is the justified P/B ratio and what must consider when looking at comparables?
What are the rationales and drawbacks of the P/S ratio?
relationship between P/E and P/S?
P/S written as a function of net profit margin, g, r and RR? (Justified P/S ratio) How to tell if over/under valued?
Rationales and drawbacks of P/CF?
Alternatives of determining cash flow?
Forecasted fundamentals P/CF and the justified P/CF
Comparables method for P/CF
Rationale and drawback for D/P and P/D?
Valuation using fundamentals and comparables
EV/EBITDA, rationale, drawbacks and determining EV and EBITDA
Justified EV/EBITDA?
What are the other EV multiples ?
What are the three momentum valuation indicators?
RI from net income
RI from NOPAT
What will shares sell at when RI> or <0 and what is EVA?
What is market value added?
What are the four uses of RI models?
V0 using RI
DDM with RI
What are the fundamental determinants
What is the single stage RI model and what are the drawbacks
Drawback = assumes (ROE - r) > 0 persists
* more likely LT - ROE ~ r and RI = 0
What is the multi-stage RI model and the assumptions about RI
What are the strengths and weaknesses of RI models?
When are RI models most and least appropriate?
What is the clean surplus relationship?
How can the clean surplus relationship be violated?
Explain the accounting issues with RI around BS adjustments for FV, Intangible assets, Nonrecurring items, other aggressive acct practices and international considerations?
Describe the comany specific factors of lifecycle stage, size and overlap of shareholders and management?
Describe the company specific factors of quality of management, quality of financial information and tax concerns?
What are the stock specific factors?
What are the transaction related uses of valuations?
What are the compliance and litigation related uses?
What defines fair market value?
What defines fair value and market value?
What defines intrinsic and investment value?
What are the three valuation approaches?
What are the problems with earnings and hence why they need normalisation?
What are the issues with CF estimation?
Income approach: how to assess discount rate?
Explain the FCF and capitalized CF method?
Explain the excess earnings method?
F) Value intangible assets -
a EEM = WC + FA + Intangibles
What are market based methods the reasons its used the challenges and the key multiple?
Explain the guideline public company method?
Explain the guideline transactions method?
Explain the prior transactions method?
What is the asset-based approach?
What are control premiums and discounts and formula for DLOC?
When is a DLOC used and what is a DLOM?
What are the international valuation standards?
What is Tobins Q
How can g be expressed in terms of MV, BV, ROE and r
