Valuing Stocks Flashcards
2 approaches to valuing stocks
Valuation by comparables or forecast and discount a businesses dividends or future cash flows
When is valuation by comparables most useful
When you are trying to figure out how much a private division or firm may be worth
What is the discounted dividend model
Where you find the present value of all expected future dividends to find the current stock price
DDM with constant growth rate of dividends
Po = Div1/r-g
How to calculate growth rate
Plowback ratio * ROE
Free cash flow definition
Free cash flow (FCF) equals the after-tax cash flow generated by the company’s operations after subtracting investment required for growth
PVGO defintion
PVGO is the present value of the expected NPV from all future projects, calculated as the difference between the share price with growth and the share price with no growth.
