im-13-4e - CHAPTER THIRTEEN EQUITY VALUATION CHAPTER...

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CHAPTER THIRTEEN EQUITY VALUATION CHAPTER OVERVIEW This chapter discusses the process of valuation of common stock. The relationships between intrinsic value and market and book values are presented. Various valuation techniques, and the strengths and weaknesses of these techniques are presented and discussed. LEARNING OBJECTIVES After studying this chapter, the student should be able to value a firm using the appropriate dividend discount model and the dividend discount-derived price/earnings ratio. The student should understand the limitations of each of these models. PRESENTATION OF CHAPTER MATERIAL 1. Overview of Fundamental Analysis Three major types of approaches are used in equity valuation. One approach is to tie value to an accounting value. An example of this approach would be to use Book Value to Market Value Relationships. A second major approach is the dividend discount model approach. The third method is to use price/earnings ratios. The most difficult component of valuation is the assessment of the firm’s growth rates and opportunities. T 13-2 Fundamental Stock Analysis: Models of Equity Valuation Underlying the process of fundamental analysis is the concept of intrinsic value. The intrinsic value is the value that the analyst places on a stock. It establishes the basis for a trading signal. An intrinsic value can be estimated using a variety of models or approaches. T 13-3 Intrinsic Value and Market Price
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This note was uploaded on 10/28/2009 for the course MBA MBA608 taught by Professor Martin during the Spring '09 term at Beirut Arab University.

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im-13-4e - CHAPTER THIRTEEN EQUITY VALUATION CHAPTER...

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