投资学英文版课件：Chap018 Equity Valuation Models

1、CHAPTER 18Equity Valuation Models18-1Valuation: Fundamental AnalysisFundamental analysis models a companys value by assessing its current and future profitability.The purpose of fundamental analysis is to identify mispriced stocks relative to some measure of “true” value derived from financial data.

2、18-2Balance Sheet ModelsDividend Discount Models (DDM)Price/Earnings RatiosFree Cash Flow ModelsModels of Equity Valuation18-3Valuation by ComparablesCompare valuation ratios of firm to industry averages.Ratios like price/sales are useful for valuing start-ups that have yet to generate positive earn

3、ings.18-4Limitations of Book ValueBook values are based on historical cost, not actual market values.It is possible, but uncommon, for market value to be less than book value.“Floor” or minimum value is the liquidation value per share.Tobins q is the ratio of market price to replacement cost.18-5Int

4、rinsic Value vs. Market PriceThe return on a stock is composed of dividends and capital gains or losses.The expected HPR may be more or less than the required rate of return, based on the stocks risk.18-6Required ReturnCAPM gives the required return, k:If the stock is priced correctly, k should equa

5、l expected return.k is the market capitalization rate.18-7The intrinsic value (IV) is the “true” value, according to a model.The market value (MV) is the consensus value of all market participantsTrading Signal: IV MV BuyIV k18-25Table 18.3 Effect of ROE and Plowback on Growth and the P/E Ratio18-26

6、P/E and Growth RateWall Street rule of thumb: The growth rate is roughly equal to the P/E ratio.“If the P/E ratio of Coca Cola is 15, youd expect the company to be growing at about 15% per year, etc. But if the P/E ratio is less than the growth rate, you may have found yourself a bargain.”Quote from

7、 Peter Lynch in One Up on Wall Street.18-27P/E Ratios and Stock RiskWhen risk is higher, k is higher; therefore, P/E is lower.18-28Pitfalls in P/E AnalysisUse of accounting earningsEarnings ManagementChoices on GAAPInflationReported earnings fluctuate around the business cycle18-29Figure 18.3 P/E Ra

8、tios of the S&P 500 Index and Inflation18-30Figure 18.4 Earnings Growth for Two Companies 18-31Figure 18.6 P/E Ratios for Different Industries, 200718-32Other Comparative Value ApproachesPrice-to-book ratioPrice-to-cash-flow ratioPrice-to-sales ratio18-33Figure 18.7 Market Valuation Statistics 18-34

9、Free Cash Flow ApproachValue the firm by discounting free cash flow at WACC.Free cash flow to the firm, FCFF, equals:After tax EBITPlus depreciationMinus capital expendituresMinus increase in net working capital18-35Comparing the Valuation ModelsIn practiceValues from these models may differAnalysts are always forced to make simplifying assumptions18-36T