O'Reilly logo

Investments: Principles of Portfolio and Equity Analysis by Gerhard Van de Venter, CFA, Wendy L. Pirie, CFA, Jerald E. Pinto, CFA, Michael G. McMillan, CFA

Stay ahead with the world's most comprehensive technology and business learning platform.

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, tutorials, and more.

Start Free Trial

No credit card required

CHAPTER 10

EQUITY VALUATION: CONCEPTS AND BASIC TOOLS

John J.Nagorniak, CFA

Foxboro, MA, U.S.A.

Stephen E.Wilcox, CFA

Mankato, MN, U.S.A.

LEARNING OUTCOMES

After completing this chapter, you will be able to do the following:

  • Evaluate whether a security, given its current market price and a value estimate, is overvalued, fairly valued, or undervalued by the market.
  • Describe major categories of equity valuation models.
  • Explain the rationale for using present value of cash flow models to value equity and describe the dividend discount and free cash flow to equity models.
  • Calculate the intrinsic value of a noncallable, nonconvertible preferred stock.
  • Calculate and interpret the intrinsic value of an equity security based on the Gordon (constant) growth dividend discount model or a two-stage dividend discount model, as appropriate.
  • Identify companies for which the constant growth or a multistage dividend discount model is appropriate.
  • Explain the rationale for using price multiples to value equity and distinguish between multiples based on comparables versus multiples based on fundamentals.
  • Calculate and interpret the following multiples: price-to-earnings, price to an estimate of operating cash flow, price-to-sales, and price-to-book value.
  • Explain the use of enterprise value multiples in equity valuation and demonstrate the use of enterprise value multiples to estimate equity value.
  • Explain asset-based valuation models and demonstrate the use of asset-based models to calculate equity ...

With Safari, you learn the way you learn best. Get unlimited access to videos, live online training, learning paths, books, interactive tutorials, and more.

Start Free Trial

No credit card required