F u ndamental Val u ation : Anal yz ing Projections E QU ITY VAL U - - PowerPoint PPT Presentation
F u ndamental Val u ation : Anal yz ing Projections E QU ITY VAL U ATION IN R Cli Ang Senior Vice President , Compass Le x econ Anal yz ing Projections Projections are critical inp u t in disco u nted cash o w anal y sis Garbage - In
E QU ITY VAL U ATION IN R
Cli Ang
Senior Vice President, Compass Lexecon
EQUITY VALUATION IN R
Projections are critical input in discounted cash ow analysis Garbage-In → Garbage-Out Approaches to Analyzing Projections Visual Inspection Regression Analysis
E QU ITY VAL U ATION IN R
E QU ITY VAL U ATION IN R
Cli Ang
Senior Vice President, Compass Lexecon
EQUITY VALUATION IN R
Free Cash Flow to Equity (FCFE) Dividend Discount Model (DDM)
EQUITY VALUATION IN R
Value of Firm's Equity equals Present Value of Free Cash Flows to Equity discounted at the Cost of Equity
V = FCFE /(1 + k ) + [(FCFE (1 + g)/(k − g)]/(1 + k )
Steps: FCFE during projection period Terminal Value Add the two together to get Equity Value
t=1
∑
T t e t T e e T
EQUITY VALUATION IN R
Value = PV of Projected Dividend Payments Shortcut for dividends growing at a constant rate:
V = (k − g)
e
div (1 + g)
t
E QU ITY VAL U ATION IN R
E QU ITY VAL U ATION IN R
Cli Ang
Senior Vice President, Compass Lexecon
EQUITY VALUATION IN R
Relative Valuation is based on the law of one price Identifying comparable companies is crucial P/E and P/B Ratios are two of the most common valuation multiples Resulting valuation is "implied"
E QU ITY VAL U ATION IN R
E QU ITY VAL U ATION IN R
Cli Ang
Ssenior Vice President, Compass Lexecon
EQUITY VALUATION IN R
E QU ITY VAL U ATION IN R