Market Based Valuation

Market Based Valuation - Valuation: Market-Based...

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Valuation: Market-Based (Comparables)
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Market-Based Valuation Used as a shortcut valuation method Popular due to simplicity Does not rely on subjective forecasts of future performance Also referred to as the method of comparables
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Using This Method Select a relevant summary performance measure from financial statements 3 Step 1 Identify companies that are comparable to the target company on relevant dimensions Step 3 Compute the market multiple using the average of the market value ratio to the performance measure for each company compared Step 2 Step 4 Divide by shares outstanding Step 5 Multiply the summary measure by the market multiple to get the target company’s value
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Weaknesses of Market-Based Valuation No ‘right’ measure to use Because company value depends on future performance No ‘right’ companies to use for comparison Could be over or undervalued No ‘right’ way to combine comparable company data to produce a multiple Median, equal-weighted average, value- weighted average, or other average
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Valuation Using a Book Value Multiple Yields the intrinsic value for equity 5 This data will be used to estimate the intrinsic value of CVS’s equity. CVS Walgreens Longs Equity assumed value ??? $43,604 $1,870 Book value of equity $11,104 $816 Common shares outstanding 826 991 37.4
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First Calculate BV Multiple for Comparable Firms
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Market Based Valuation - Valuation: Market-Based...

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