Page 176 - DMGT553_RETAIL_STORE_MANAGEMENT

Unit 9: Store Finance and Controls

9.4 Summary Notes

In the view of fundamental analysis, stock valuation based on fundamentals aims to give
an estimate of their intrinsic value of the stock, based on predictions of the future cash
flows and profitability of the business.

Fundamental analysis may be replaced or augmented by market criteria – what the market
will pay for the stock, without any necessary notion of intrinsic value.

Stocks have two types of valuations.
One is a value created using some type of cash flow, sales or fundamental earnings
analysis.

The other value is dictated by how much an investor is willing to pay for a particular
share of stock and by how much other investors are willing to sell a stock for (in
other words, by supply and demand).
Both of these values change over time as investors change the way they analyze stocks and
as they become more or less confident in the future of stocks.
The fundamental valuation is the valuation that people use to justify stock prices.
The most common example of this type of valuation methodology is P/E ratio, which
stands for Price to Earnings Ratio.
Stock verification is a process of physically counting and checking inventory in the unit,
against its book balance at least once in a year.
On a public company’s balance sheet, accounts receivable is often recorded as an asset
because this represents a legal obligation for the customer to remit cash for its short-term
debts.

9.5 Keywords

Earnings per Share (EPS): EPS is the net income available to common shareholders of the
company divided by the number of shares outstanding.

EBITDA: EBITDA stands for earnings before interest, taxes, depreciation and amortization. It is
one of the best measures of a company’s cash flow and is used for valuing both public and
private companies.
Enterprise Value (EV): Enterprise Value is equal to the total value of the company, as it is trading
for on the stock market.
EV to Sales: This ratio measures the total company value as compared to its annual sales.
Fundamental valuation: The fundamental valuation is the valuation that people use to justify
stock prices.
Market Cap: Market Cap, which is short for Market Capitalization, is the value of all of the
company’s stock.
P/E ratio: It stands for Price to Earnings Ratio.
Price Earnings to Growth (PEG) Ratio: This valuation technique has really become popular
over the past decade or so.

LOVELY PROFESSIONAL UNIVERSITY 171