Equity Valuation

These flashcards cover key concepts related to equity valuation, including methods of valuation, models used, and financial formulas relevant to understanding stock prices and value.

Valuation by Comparables

Valuation models that analyze the relationship between price and various determinants of value for similar firms.

Intrinsic Value

Present value of a firm’s expected future net cash flows discounted by the required rate of return (RoR).

Market Capitalization Rate

Market-consensus estimate of the appropriate discount rate for the firm's cash flows.

Dividend Discount Model (DDM)

Formula for intrinsic value of a firm based on the present value of all expected future dividends.

No Growth Case

A situation where stocks have earnings and dividends expected to remain constant.

Constant-Growth DDM

A DDM that assumes dividends will grow at a constant rate.

Price-Earnings Ratio (P/E Ratio)

A ratio that indicates the relationship between a company's share price and its earnings per share.

FCFF

Free Cash Flow for the Firm, calculated as EBIT (1 − tc) + Depreciation - Capital expenditures - Increase in NWC.

Terminal Value

The estimated value of a firm at the end of a specific forecast period, calculated using a growth model.

WACC

Weighted Average Cost of Capital, a calculation of a firm's cost of capital in which each category of capital is proportionately weighted.