Valuation of Corporate Stock Flashcards
Earnings Yield
1 / (P/E) = EPS / Share Price
Normalized P/E
Avg P/E over economic cycle
Earnings Growth Rate
[1 - Div Payout Ratio] x ROE
CAGR
[(Ending Value / Begining Value) ^ (1/#years)] - 1
CAGR Proxy
Average of y/y growth during the period
Traditional Book Value
Shareholders Equity / # Shares Outstanding
Price-to-Book Value
Share Price / Book Value Per Share
Enterprise Value
Equity Value + Preferred Stock + Debt + Capital Leases + MI - Cash - Cash Equiv
Value of the Firm
Cash Flow to the Firm / (1+WACC)
Value of the Equity
Cash Flow to Equity / (1 + Cost of Equity)
Cost of Debt
Interest / Principal
Cost of Preferred
Preferred Dividend / Price of Preferred
PreTax Cost of Preferred
Cost of Preferred / (1 - Tax Rate)
After-Tax Cost of Debt
Pretax Cost x (1 - Tax Rate)
Capital Asset Pricing Model
Cost of Equity = Risk Free Rate + [(Expected Market Return - Risk Free Rate) x Beta]
Dividend Growth Model
k = (D1 / P0) + g
COE by New Issue
k = [D1 / (P0x(1 - F))] + g
Free Cash Flow to Firm
EBIT x (1 - Tax Rate)
+ Depreciation & Amortization
- Capital Expenditures
+ Changes in Working Capital
Free Cash Flow to Equity
Net Income
+ Depreciation & Amortization
- Capital Expenditures
+ Changes in Working Capital
Terminal Value
Expected Cash Flow / (Discount Rate - Terminal Growth Rate)
Dividend Discount Model
P0 = [d1/(1+k)^1] + [d2/(1+k)^2] +…+ [dn/(1+k)^n]
Earnings Retention Rate
(1 - Dividend Payout Ratio)
Dividend Discount Model (Constant Growth)
P0 = d1 / (k-g)
Marginal Revenue (MR)
(TR1 - TR0) / (P1 - P0)
TR = Total Revenue P = Units of Production
