chp 10 Business Finance - Stocks Valuation

These flashcards cover key concepts related to stock valuation and finance, focusing on methods, calculations, and investor behavior.

Discounted Free Cash Flow Model

A method that focuses on the cash flows to the firm’s investors, including debt and equity holders.

Enterprise Value (EV)

The total value of a firm's outstanding shares and debt, minus its cash.

Weighted Average Cost of Capital (WACC)

The average rate of return a company is expected to pay its security holders to finance its assets.

Terminal Value

The estimated value of a business at the end of a specific period, based on its cash flow growth rate.

Price-Earnings Ratio (P/E Ratio)

A ratio calculated by dividing the current share price by the earnings per share, used to value a company.

Comparable Firms

Companies in the same industry that are used as benchmarks to assess the value of another firm.

Free Cash Flow (FCF)

Cash generated by a company that can be used for expansion, dividends, or debt reduction.

Sensitivity Analysis

An analysis used to determine how different values of an independent variable affect a particular dependent variable.

Behavioral Biases

Psychological factors that influence investors' decisions, often leading to irrational behavior.

Efficient Market Hypothesis (EMH)

A theory that asserts that financial markets are 'informationally efficient,' making it difficult to outperform the market consistently.