Equity Asset Valuation, Second Edition

GLOSSARY

Abnormal earnings Earnings for a given time period, minus a deduction for common shareholders’ opportunity cost in generating the earnings.

Abnormal return or alpha The return on an asset in excess of the asset’s required rate of return; the excess risk-adjusted return.

Absolute valuation model A valuation model that specifies an asset’s intrinsic value.

Accounting estimates Estimates of items such as the useful lives of assets, warranty costs, and the amount of uncollectible receivables.

Acquisition A combination of two companies, with one of the companies identified as the acquirer and the other identified as the acquired.

Adjusted present value As an approach to valuing a company, the sum of the value of the company assuming no use of debt and the net present value of any effects of debt on company value.

Agency issues Issues arising from the sometimes conflicting interests of owners (principals) and managers (agents).

American Depositary Receipt (ADR) A negotiable certificate issued by a depositary bank that represents ownership in a non-U.S. company’s deposited equity (i.e., equity held in custody by the depositary bank in the company’s home market).

Asset-based approach or cost approach Approach that values the equity of a private company based on the values of the underlying assets of the company less the value of any related liabilities.

Asset-based valuation A type of absolute valuation that values a company on the basis of the market value of the assets ...