Introduction to asset valuation Flashcards
what are the types of value
- Going concern value = value of assets working together
2. Liquidation Value = sum of each asset
If conditions are same which is better liquidation or going concern
Going concern because they can have synergys
What is valuation
the estimation of the asset value (intrinsic value) based either on variables (absolute valuation methods) perceived to be related to future investment returns or on comparisons with similar assets (relative valuation methods)
comment on the statement
A valuation is an objective search for intrinsic value
all valuations are bias
comment on the statement
a good valuation provides a precise estimate of value
false
How can you select a valuation model
- Characteristics of the company being valued
- Availability and quality of the data
- Purpose of valuation
how does selection of valuation model change when the characteristics of the company being valued
if a company has no similar comparable assets. Can we use a relative valuation model?
how does selection of valuation model change when the availability and quality of data changes
- a company has never paid dividends and no other information exists to assess its future dividend policy
- a company has highly volatile or persistently negative earnings. Can we use P/E
how does selection of valuation model change when the purpose of the valuation changes
- an investor is seeking a controlling equity position in a company DCF or DDM? DCF
- An investor would like to hold for a single period DCF or P/E? P/E
What is an absolute valuation model
an estimate of an assets intrinsic value that can be compared with its market price
e.g DCF
What information is needed for DCF
- life of the asset
- cashflow
- discount rate
What is a relative valuation model
an assets multiples compared with another similar asset Ie market price of A and market price of B
What multiples are there
- Earnings multiple
- Book value (of equity)
- sales
- cashflow
earnings multiple formula
Price/earnings
Book value multiple formula
Price/book value