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Equity Valuation: Applications and Processes

Equity Valuation: Applications and Processes. Presenter Venue Date. Valuation. Intrinsic Value. Asset Mispricing. Going Concern vs. Liquidation Value. Going concern value: Firm will continue in its business activities Firm will continue to sell its goods and services

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Equity Valuation: Applications and Processes

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  1. Equity Valuation:Applications and Processes Presenter Venue Date

  2. Valuation

  3. Intrinsic Value

  4. Asset Mispricing

  5. Going Concern vs. Liquidation Value • Going concern value: Firm will continue in its business activities • Firm will continue to sell its goods and services • Firm will use its assets for value maximization • Firm will access its optimal sources of financing • Liquidation value: Firm will be dissolved • Firm assets will be sold separately • Going concern value > Liquidation value • Value added from asset synergy • Value added by managerial skills

  6. Other Definitions of Value

  7. Uses of Equity Valuation

  8. Uses of Equity Valuation

  9. The Valuation Process

  10. The Valuation Process

  11. Understanding the Business:Industry Analysis (Porter’s Competitive Advantage)

  12. Understanding the Business:Competitive Analysis Differentiation Low Cost Broad Target Market Narrow Target Market

  13. Issues in Financial Statement Analysis

  14. Quality of Earnings Examples

  15. Quality of Earnings Risk Factors • Poor quality of accounting disclosures • Related-party transactions • Frequent management or director turnover • Pressure to make earnings targets • Auditor conflicts of interest or frequent turnover • Incentive compensation tied to stock price • External or internal pressures on profitability • Debt covenant pressures • Previous regulatory/reporting issues

  16. Valuation Models

  17. Choosing a Valuation Model

  18. Other Valuation Model Issues

  19. Analyst Roles

  20. Analyst Responsibilities The CFA Institute Code of Ethics: Members of CFA Institute must … use reasonable care and exercise independent professional judgment when conducting investment analysis, making investment recommendations, taking investment actions, and engaging in other professional activities.

  21. Research Reports Effective research reports include: • Timely information • Clear, incisive language • Objective and well-researched information • Clearlydistinguished facts and opinions • Consistent analysis, forecasts, valuation, and recommendations • Sufficient disclosure of information • Key risk factors • Disclosures of conflicts of interest

  22. Summary

  23. Summary

  24. Summary

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