Page 153 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Security Analysis and Portfolio Management Mahesh Kumar Sarva, Lovely Professional University

Notes Unit 5: Equity Valuation Models

CONTENTS
Objectives
Introduction

5.1 Balance Sheet Valuation
5.2 Dividend Discount Model
5.3 Free Cash Flow Models

5.4 Earnings
5.5 Summary
5.6 Keywords
5.7 Self Assessment
5.8 Review Questions

5.9 Further Readings

Objectives

After studying this unit, you will be able to:
Discuss Concept of Equity Valuation

Know balance sheet valuation
Understand dividend discount model
Show free cash flow models
Explain earnings

Introduction

Determining the total value of a company involves more than reviewing assets and revenue
figures. An equity valuation takes several financial indicators into account; these include both
tangible and intangible assets, and provide prospective investors, creditors or shareholders
with an accurate perspective of the true value of a company at any given time.
Investors who are considering multiple investments or outlining an investment strategy may
request equity valuations of a company, to make the most informed investment decision.
Valuation methods based on the equity of a company typically include a thorough analysis of
cash accounts, as well as a forecast or projection of future dividends, future earnings (revenue)
and the distribution of dividends.

A thorough analysis of tangible and intangible assets allows prospective investors, shareholders
and financial managers of a company to obtain critical performance data about the company's
business operations. The equity valuation method takes several types of data into account, and
can be used as part of a prediction model to determine the economic future of the company. The
valuation also provides some indication of the level of risk involved in investing in the company.

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