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Lecture 7- Valuation methods

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1Standard valuation techniques include: [blank_start]book value[blank_end], [blank_start]dividend growth model[blank_end], [blank_start]earnings multiple[blank_end] & [blank_start]discounted cash flow[blank_end]
1. Abook value
2. Bdividend growth model
3. Cearnings multiple
4. Ddiscounted cash flow
2Book value assumes [blank_start]firm[blank_end] value is equal to [blank_start]book[blank_end] value of [blank_start]assets[blank_end]. It's [blank_start]widely[blank_end] used & accepted method due to certification by [blank_start]accountants[blank_end], while also being perhaps most [blank_start]flawed[blank_end]
1. Afirm
2. Bbook
3. Cassets
4. Dwidely
5. Eaccountants
6. Fflawed
3One advantage of using book value as valuation method is it’s [blank_start]easy method[blank_end] to use
1. Aeasy method
4One disadvantage of using book value as valuation method is it's based on [blank_start]historic numbers[blank_end], ignores [blank_start]future[blank_end]
1. Ahistoric numbers
2. Bfuture
5Another disadvantage of using book value as valuation method is it's based on [blank_start]accounting numbers[blank_end] that are potentially [blank_start]flawed[blank_end] & subject to [blank_start]manipulation[blank_end]
1. Aaccounting numbers
2. Bflawed
3. Cmanipulation
6Third disadvantage of using book value as valuation method is it [blank_start]ignores risk[blank_end]
1. Aignores risk
7Fourth disadvantage of using book value as valuation method is it ignores [blank_start]intangibles[blank_end] which are difficult to [blank_start]measure[blank_end] & therefore not all [blank_start]included[blank_end] in balance sheet
1. Aintangibles
2. Bmeasure
3. Cincluded
8Dividend growth model assumes [blank_start]equity[blank_end] value is equal to [blank_start]present[blank_end] value of [blank_start]dividend payments[blank_end]
1. Aequity
2. Bpresent
3. Cdividend payments
9One advantage of using dividend growth model as valuation method is it’s [blank_start]simple method[blank_end] to apply, especially if [blank_start]constant dividend growth[blank_end] model is assumed
1. Asimple method
2. Bconstant dividend growth
10One disadvantage of using dividend growth model as valuation method is [blank_start]dividends[blank_end] are based on [blank_start]accounting calculations[blank_end]
1. Adividends
2. Baccounting calculations

11Another disadvantage of using dividend growth model as valuation method is it assumes [blank_start]dividends[blank_end] grow at [blank_start]constant rate[blank_end] which may not [blank_start]always[blank_end] be case
1. Adividends
2. Bconstant rate
3. Calways
12Third disadvantage of using dividend growth model as valuation method is it does not [blank_start]work[blank_end] for companies that do not [blank_start]pay dividends[blank_end]
1. Awork
2. Bpay dividends
13Multiples method is very [blank_start]common method[blank_end] for valuing [blank_start]assets[blank_end]. It uses [blank_start]multiples[blank_end] from another [blank_start]comparable[blank_end] company (or average of group of companies) in [blank_start]conjunction[blank_end] with an [blank_start]earnings[blank_end] measure (or other return measures) of company for which [blank_start]value[blank_end] calculation is required
1. Acommon method
2. Bassets
3. Cmultiples
4. Dcomparable
5. Econjunction
6. Fearnings
7. Gvalue
14One advantage of using multiples method as valuation method is it’s [blank_start]easy method[blank_end] to use
1. Aeasy method
15Another advantage of using multiples method as valuation method is it makes [blank_start]intuitive sense[blank_end]
1. Aintuitive sense
16Third advantage of using multiples method as valuation method is if [blank_start]comparables[blank_end] are really [blank_start]comparable[blank_end] then it would work
1. Acomparables
2. Bcomparable
17One disadvantage of using multiples method as valuation method is [blank_start]earnings[blank_end] used in most methods are [blank_start]accounting figures[blank_end]
1. Aearnings
2. Baccounting figures
18Another disadvantage of using multiples method as valuation method is [blank_start]earnings[blank_end] are subject to [blank_start]short-term fluctuations[blank_end]
1. Aearnings
2. Bshort-term fluctuations
19Third disadvantage of using multiples method as valuation method is it often ignores [blank_start]growth potential[blank_end]
1. Agrowth potential
20One widely used multiple is [blank_start]price-to-earnings[blank_end]. It is calculated as [blank_start]market price per share[blank_end] divided by [blank_start]earnings per share[blank_end]
1. Aprice-to-earnings
2. Bmarket price per share
3. Cearnings per share
21Another widely used multiple is [blank_start]total asset value-to-EBIT[blank_end]. It is calculated as [blank_start]total asset value[blank_end] divided by [blank_start]EBIT[blank_end]
1. Atotal asset value-to-EBIT
2. Btotal asset value
3. CEBIT
22Third widely used multiple is [blank_start]market value[blank_end] of [blank_start]company[blank_end] to [blank_start]EBIT[blank_end]. It is calculated as [blank_start]market value of company[blank_end] divided by [blank_start]EBIT[blank_end]
1. Amarket value
2. Bcompany
3. CEBIT
4. Dmarket value of company
5. EEBIT
23Fourth widely used multiple is [blank_start]price-to-sales[blank_end]. It is calculated as [blank_start]current stock price[blank_end] divided by [blank_start]annual revenue per share[blank_end]
1. Aprice-to-sales
2. Bcurrent stock price
3. Cannual revenue per share
24Fifth widely used multiple is [blank_start]price-to-book value[blank_end]. It is calculated as [blank_start]market value per share[blank_end] divided by [blank_start]book value per share of equity[blank_end]
1. Aprice-to-book value
2. Bmarket value per share
3. Cbook value per share of equity
25First step of discounted cash flow valuation is forecast [blank_start]free cash flows[blank_end] up to some [blank_start]terminal date[blank_end]. Second step is to estimate [blank_start]terminal value[blank_end] (i.e. continuing [blank_start]value[blank_end]) which equals value after [blank_start]terminal date[blank_end]. Third step is to estimate [blank_start]cost of capital[blank_end] (i.e. [blank_start]discount[blank_end] rate). Fourth step is to [blank_start]discount[blank_end] to [blank_start]present[blank_end]
1. Afree cash flows
2. Bterminal date
3. Cterminal value
4. Dvalue
5. Eterminal date
6. Fcost of capital
7. Gdiscount
8. Hdiscount
9. Ipresent
26EBITDA = [blank_start]Revenue - Operating expenses[blank_end]
1. ARevenue - Operating expenses
27EBIT = [blank_start]EBITDA - Depreciation & amortisation[blank_end]
1. AEBITDA - Depreciation & amortisation
28EBT = [blank_start]EBIT - Interest expenses[blank_end]
1. AEBIT - Interest expenses
29Net income or net earnings = [blank_start]EBT - Taxes[blank_end]
1. AEBT - Taxes
30CFO or OCF = [blank_start]Net income + Depreciation & amortisation[blank_end]
1. ANet income + Depreciation & amortisation
31Free cash flow to firm (FCFF)- Cash flow to [blank_start]common shareholders[blank_end], [blank_start]preferred shareholders[blank_end] & debtholders. If FCFF is used that belongs to both shareholders & bondholders use [blank_start]WACC[blank_end] as discount rate. Discounting FCFF at cost of equity will yield [blank_start]downward[blank_end] biased estimate of [blank_start]value[blank_end] of firm
1. Acommon shareholders
2. Bpreferred shareholders
3. CWACC
4. Ddownward
5. Evalue
32Free cash flow to equity (FCFE)- FCFE is used that belong to shareholders use cost of equity only which can be [blank_start]measured[blank_end] using [blank_start]dividend[blank_end] model, [blank_start]risk & return[blank_end] model (such as [blank_start]capital asset pricing[blank_end] model & [blank_start]arbitrage pricing[blank_end] theory) & [blank_start]industry average[blank_end] model. Discounting FCFE using WACC will lead to an [blank_start]upwardly[blank_end] biased estimate of [blank_start]value[blank_end] of equity
1. Ameasured
2. Bdividend
3. Crisk & return
4. Dcapital asset pricing
5. Earbitrage pricing
6. Findustry average
7. Gupwardly
8. Hvalue
33When estimating firm’s terminal value, assume [blank_start]free cash flows[blank_end] grow at [blank_start]constant rate[blank_end] after [blank_start]forecast horizon[blank_end]
1. Afree cash flows
2. Bconstant rate
3. Cforecast horizon
34Ways of estimating earnings growth are: to look at [blank_start]past[blank_end] ([blank_start]historical[blank_end] growth in [blank_start]earnings per share[blank_end] is typical starting point), to look at what [blank_start]others[blank_end] are [blank_start]projecting[blank_end] (other [blank_start]analysts[blank_end] may be using [blank_start]information[blank_end] you do not have & it is often useful to know what their [blank_start]estimates[blank_end] are) & to look at [blank_start]fundamentals[blank_end] (how much are they [blank_start]investing[blank_end]? what is [blank_start]return[blank_end] on their [blank_start]investment[blank_end]?)
1. Apast
2. Bhistorical
3. Cearnings per share
4. Dothers
5. Eprojecting
6. Fanalysts
7. Ginformation
8. Hestimates
9. Ifundamentals
10. Jinvesting
11. Kreturn
12. Linvestment
35One advantage of using discounted cash flows as valuation method is it should be [blank_start]less exposed[blank_end] to market moods & perceptions if done [blank_start]right[blank_end] by being based upon an [blank_start]asset’s fundamentals[blank_end]
1. Aless exposed
2. Bright
3. Casset’s fundamentals
36Another advantage of using discounted cash flows as valuation method is if investors buy [blank_start]businesses[blank_end], rather than [blank_start]stocks[blank_end], DCF valuation is [blank_start]right[blank_end] way to think about what you are getting when you buy an [blank_start]asset[blank_end]
1. Abusinesses
2. Bstocks
3. Cright
4. Dasset
37Third advantage of using discounted cash flows as valuation method is DCF valuation forces you to think about [blank_start]underlying characteristics[blank_end] of firm & understand its [blank_start]business[blank_end]. It helps you [blank_start]question assumptions[blank_end] you have made
1. Aunderlying characteristics
2. Bbusiness
3. Cquestion assumptions
38One disadvantage of using discounted cash flows as valuation method is it requires far more [blank_start]inputs[blank_end] & [blank_start]information[blank_end] than other valuation approaches as it attempts to [blank_start]estimate intrinsic value[blank_end] (perceived or calculated value)
1. Ainputs
2. Binformation
3. Cestimate intrinsic value
39Another disadvantage of using discounted cash flows as valuation method is [blank_start]inputs[blank_end] & [blank_start]information[blank_end] are difficult to [blank_start]estimate[blank_end] & can be [blank_start]manipulated[blank_end] by analyst to provide [blank_start]conclusion[blank_end] he or she wants
1. Ainputs
2. Binformation
3. Cestimate
4. Dmanipulated
5. Econclusion
40DCF valuation is easiest to use for assets (firms) whose cashflows are [blank_start]currently positive[blank_end], can be [blank_start]estimated[blank_end] with some [blank_start]reliability[blank_end] for [blank_start]future[blank_end] periods & where proxy for [blank_start]risk[blank_end] that can be used to obtain [blank_start]discount rates[blank_end] is available
1. Acurrently positive
2. Bestimated
3. Creliability
4. Dfuture
5. Erisk
6. Fdiscount rates

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Descripción: El usuario ha eliminado su información de asignaturas Test sobre Lecture 7- Valuation methods, creado por Usuario eliminado el 12/07/2021.
Autor: Usuario eliminado
Idioma: English
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Historial: Creado el 12 jul 2021 · actualizado el 12 jul 2021
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Lecture 7- Valuation methods

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