Chapter 15 COMPANY ANALYSIS AND STOCK VALUATION Chapter 15 Questions Why is it important to differentiate between company analysis and stock analysis? What is the difference between a growth company and a growth stock? When valuing an asset, what are the required inputs?
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COMPANY ANALYSIS AND STOCK VALUATION
From of returns
Time period and growth rate of returns
We will consider the valuation of two important types of investments:
What are the cash flows?
Vj = SCFt/(1+k)t
Simplifying assumptions help in estimating present value of future dividends
Vj = SDt/(1+k)t
Alternative dividend assumptions
V = D1/(k-g)
where D1= D0(I+g)
VFj = SOCFt/(1+WACCj)t
VFj = OCFt/(WACCj – gOCF)
VSj = SFCFt/(1+kj)t
VSj = FCFt/(kj – gFCF)
These techniques assume that prices should have stable and consistent relationships to various firm variables across groups of firms
Several factors make it difficult for analysts to outperform the market