Module 4 Equity Valuation, Comparable Analysis 466c73e420e147cf8e3b3d6632583bd2

Module 4: Equity Valuation, Comparable Analysis 1 Module 4: Equity Valuation, Comparable Analysis lecture 3 review of tutorial after module app 3 methods of valuing a firms equity CCA (comparable company analysis) valuing assets base on... values of similar biz in the indsutry (in geographical location, finances, industry) what company can not use this model to value themselves? why? space x → no similar competitors dividend discount model similar to what approach? how we value bonds, which is present value of all future cash flows instead of coupon pmts, we have? dividend pmts works well for what kind of biz? pays consistent, stable dividends mature company.. based on growth potential for ...? dividends discounted cash flow how is this technique different in terms of weight in valuation? usually most weight present value of company's ... forecased, unlevered, free cash flows
Module 4: Equity Valuation, Comparable Analysis 2 what is the upside and downside? up: applied universally to all companies down: highly sensitive to assumptions made during forecasting firms which generate similar cash flow often have the same __? value → law of one price what is the caveat in terms of having the same cash flows and comparable firms? no firms have the same cash flow... so what does the analyst look for? 1. Comparison firms that have similar future prospects 2. No fundamental differences between firms (same industry, same supply chain, same customers) 3. Same growth rates 4. Same cost of capital (discount rate) 5. Industry (or comparison set) is correctly valued whats the law of one price? firms with the same assets with have the same value regardless where they are sold using this theory, could you compare companies w same assets and same growth prospects in diff industries? yes what a diluted shares? Sure, let's simplify it: Diluted shares are like imaginary extra shares that might exist if certain financial promises were turned into real shares. These promises, like stock options or convertible bonds, have the power to create more shares and make existing shares worth a bit less. Imagine you and your friend own a pizza. But you have a deal that says if your friend wants, they can take a slice and turn it into a mini-pizza. When they do that, there are suddenly more slices of pizza, and each original slice you had is worth a bit less. The original pizza represents the basic shares, and the extra slices are like the diluted shares when your friend uses their special deal. In business, when companies have these kinds of deals (like stock options for employees), they have to think about how it might change things for their owners (shareholders). So, they calculate both basic and diluted shares to see how much each share is worth and how much money the company is making for its owners. In summary, diluted shares are like extra shares that might exist if certain financial deals are used, and they are important because they show how these deals could affect the value of each share and the company's earnings.
Module 4: Equity Valuation, Comparable Analysis 3 Comparable Company Analysis 1. selecting similar companies what are you looking for? 2p similar growth rates same future prospects why is location very important? give house example w diff locations Consider the difference in price in a two-bedroom detached house in the Beaches neighborhood in Toronto relative to an identical house in Thunder Bay. The same differences apply to companies in different regions with very different supply and demand characteristics. what is Global Industry Identification Standard (GICS) and what do they do? classify companies at 4 levels 1. sector 2. industry groups 3. industry/sub industry significance of sub industry for cca? comparable companies for valuation are usually found here types of company reports that would help identify competitors annual report 10-k why cant you analyze more and more companies, only 4-8 around? everytime you add another company, the analysis is a little less representative of the initial company were trying to value 2. collecting data 3. select and calculate approvate valuation metrics why is p/e commonly used for valuing stock? p/e and stock price and very correlated
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