Valuation of Corporate Stock

Question 0

Earnings Yield

Answer 0

1 / (P/E) = EPS / Share Price

Question 1

Normalized P/E

Answer 1

Avg P/E over economic cycle

Question 2

Earnings Growth Rate

Answer 2

[1 - Div Payout Ratio] x ROE

Question 3

CAGR

Answer 3

[(Ending Value / Begining Value) ^ (1/#years)] - 1

Question 4

CAGR Proxy

Answer 4

Average of y/y growth during the period

Question 5

Traditional Book Value

Answer 5

Shareholders Equity / # Shares Outstanding

Question 6

Price-to-Book Value

Answer 6

Share Price / Book Value Per Share

Question 7

Enterprise Value

Answer 7

Equity Value + Preferred Stock + Debt + Capital Leases + MI - Cash - Cash Equiv

Question 8

Value of the Firm

Answer 8

Cash Flow to the Firm / (1+WACC)

Question 9

Value of the Equity

Answer 9

Cash Flow to Equity / (1 + Cost of Equity)

Question 10

Cost of Debt

Answer 10

Interest / Principal

Question 11

Cost of Preferred

Answer 11

Preferred Dividend / Price of Preferred

Question 12

PreTax Cost of Preferred

Answer 12

Cost of Preferred / (1 - Tax Rate)

Question 13

After-Tax Cost of Debt

Answer 13

Pretax Cost x (1 - Tax Rate)

Question 14

Capital Asset Pricing Model

Answer 14

Cost of Equity = Risk Free Rate + [(Expected Market Return - Risk Free Rate) x Beta]

Question 15

Dividend Growth Model

Answer 15

k = (D1 / P0) + g

Question 16

COE by New Issue

Answer 16

k = [D1 / (P0x(1 - F))] + g

Question 17

Free Cash Flow to Firm

Answer 17

EBIT x (1 - Tax Rate)
+ Depreciation & Amortization
- Capital Expenditures
+ Changes in Working Capital

Question 18

Free Cash Flow to Equity

Answer 18

Net Income
+ Depreciation & Amortization
- Capital Expenditures
+ Changes in Working Capital

Question 19

Terminal Value

Answer 19

Expected Cash Flow / (Discount Rate - Terminal Growth Rate)

Question 20

Dividend Discount Model

Answer 20

P0 = [d1/(1+k)^1] + [d2/(1+k)^2] +…+ [dn/(1+k)^n]

Question 21

Earnings Retention Rate

Answer 21

(1 - Dividend Payout Ratio)

Question 22

Dividend Discount Model (Constant Growth)

Answer 22

P0 = d1 / (k-g)

Question 23

Marginal Revenue (MR)

Answer 23

(TR1 - TR0) / (P1 - P0)

TR = Total Revenue
P = Units of Production

Question 24

Marginal Cost (MC)

Answer 24

(TC1 - TC0) / (P1 - P0)

TC = Total Cost
P = Units of Production

Question 25

Economic Value is _____ when MR < MC

Answer 25

destroyed

Question 26

Intuitive Approach Multiple(s) - Cyclical

Answer 26

Relative P/E; Use with normalized earnings

Question 27

Intuitive Approach Multiple(s) - High Tech, High Growth

Answer 27

PEG; Where there are big differences across firms

Question 29

Intuitive Approach Multiple(s) - High Tech / No earnings

Answer 29

Price/Sales or EV/Sales; Assume future margins will be good

Question 30

Intuitive Approach Multiple(s) - Heavy Infrastructure

Answer 30

EV/EBITDA; Firms in sector have losses in early years and reported earnings can vary depending on deprecation method

Question 31

Intuitive Approach Multiple(s) - REIT

Answer 31

Price/Cash Flow, Price/Funds from Operations; Generally no CAPEX Investments come from equity earnings

Question 32

Intuitive Approach Multiple(s) - Financial Services

Answer 32

Price/BV, EV to Book Value, Price/Net Tangible Book Value; Book Value often marketed to market

Question 33

Intuitive Approach Multiple(s) - Retailing

Answer 33

Price / Sales; If leverage is similar across firms

Question 33

Intuitive Approach Multiple(s) - Retailing

Answer 33

EV / Sales: If leverage is different across firms

Question 34

Exchange Ratio

Answer 34

Offer Price of Target Company / Market Price of Acquiring Company

Question 35

Transaction Value

Answer 35

Offer Value + Net Debt

Question 36

Goodwill after M&A

Answer 36

Offer Value - [Total Assets - Liabilities - Existing Goodwill - Intangibles]