Forecasting Growth and High Growth Company Valuation

These flashcards cover key concepts, terminology, and definitions related to forecasting growth and high growth company valuation, as discussed in the lecture.

Growth Forecast

The most important input in security valuation models that predicts future sales and earnings growth.

Discounted Cash Flow (DCF) Model

A financial model used to calculate the present value of future cash flows generated by a firm.

Terminal Value

The value of a company at the end of a forecast period, calculated using earnings multiples or cash flow projections.

Turning Points

Moments when growth rates shift direction, indicating potential declines in sales and cash flow.

Forecasting Growth

The act of estimating future growth rates based on various methods, including historical analysis and analyst estimates.

Pro forma Financial Statements

Projected financial statements created to represent a company's future financial performance.

Ordinary Least Squares (OLS)

A statistical method used in regression analysis to estimate the relationships between variables.

ARIMA Model

A statistical model used for forecasting time series data through autoregression, integration, and moving average.

Price-to-Earnings (P/E) Multiple

A valuation ratio calculated by dividing a company's current share price by its earnings per share.

Economic Profit

The profit a company makes over and above the required return on capital invested, indicating value creation.

Return on Incremental Invested Capital (ROIIC)

A measure of how efficiently a firm is using additional investments to generate profits.

Social Function

The role of firms in serving consumer needs and contributing to social goals, such as job creation and compliance.

Entrepreneurial Function

The exploration and exploitation of new business opportunities, driving long-term growth.

Managerial Function

The execution of strategies and allocation of resources to achieve company goals.

Vicious Cycle of Corporate Failure

A scenario where failures in key business functions lead to further failures and eventual collapse.

Positive Spillover Effects

Situations where success in one function enhances performance and funding in related areas.

Negative Spillover Effects

Situations where failures in one area hinder performance and funding in related areas.

M&M Model (Merton Miller and Franco Modigliani)

A theory explaining how firms create and capitalize value based on investment return and capital costs.

Value Trap

A situation where a company's stock appears undervalued but fails to generate satisfactory returns due to poor performance.

Steady-State Value

The value of a firm when its investments earn returns equal to the cost of capital, leading to no additional value creation.