Valuation Flashcards
Gordon’s formula
(Intrinsic value)
D (1+g)
——
r - g
Dividends
R = rate of market returns
G = expected dividends growth rate
How discover further dividends with initial dividends and growth rate?
Dn = D0 (1+g) ^ n
How to reach P4 with P0, g and r?
P4 = P0 (1+ g ) ^ 4
Payout Ratio
Dividend
—————-
EPS
OR
Dividends
—————-
Net income
“Justified” P/E
Payout Ratio x (1+ Growth Rate)
———————————————
Cost of equity - Growth Rate
“g”
Retation Rate x ROE
Retation Rate
Grow rate
“g”
(1-payout ratio) (ROE)
CAPM = estimate what input on DDM?
K = required return on Equity
K = Rf + beta ( Rm - Rf)
P/E with DDM
P/E = (D/E)
———
(k-g)
Calculation of Book Value.
Stable?
Not stable?
Stable = beginning Book Value
Not stable = avg. book value
What is the most risky type of stock from the investor perspective?
Callable common stocks
What is a puttable stock?
Stock that permits the shareholder exercises de put option and limit his potential loss
Book value of equity
Assets - Liabilities
Market value of equity
Shares outstanding x Price
(Using one or more valuation models)
Intrinsic Value
One or more
FCFE Model
Present value of FCFE
No further adjustments are riquired
FCFE = CFO - FCinv + Net Borrowing
What kind of model is best for each kind of company? Mature, young growth, young mature
Mature- Gordon
Young mature- 2 DDM
Young growth - 3 DDM
EV = …
Market Equity + Market Debt - Cash
What is an alternative for EBITDA on the EV multiple calculation?
OPERATING INCOME
What would be the most difficult information to get with EV method?
Market value of debt
Perpetual preferred stock
Dividend
—————-
Requires Rate of Return
EV / EBTIDA is the best approach for…
Companies with differences in capital structure
