Principles of Finance · free preview
Approaches to Stock Valuation
Valuation approaches divide into multiplier methods, which price a stock relative to comparable firms, and discounted cash flow methods, which price it from its own expected cash flows, and each answers a different question with different evidence.
1. Two great approaches
Two great approaches
2. The leading multiples
The leading multiples
3. When multiples mislead
When multiples mislead
4. Connecting to discounted cash flow
Connecting to discounted cash flow
5. The two approaches
Which pairing correctly describes the two great stock valuation approaches?
6. What the price-earnings multiple prices
What does a price-earnings ratio of 15 mean for a stock?
7. Choosing the peer set
Why do disciplined analysts insist on peer similarity when applying valuation multiples?
8. When the P/E breaks
In which situation does the price-earnings multiple fail to work at all?
9. The importation problem
What is the deepest limitation of valuing a stock with comparable multiples?
10. When the two approaches disagree
A discounted cash flow value sits well above the multiple-implied range for the same stock. What is the professional response?
11. The peer-pricing ratio
What two-letter ratio of price to earnings per share is the flagship valuation multiple? Write the letters.
12. The whole-firm numerator
What two-word term names the market value of a firm's equity plus its net debt, the numerator of whole-firm multiples? Answer in lowercase.
13. The no-anchor critique
What one-word term describes valuation that has no reference outside the market's own current pricing? Answer in lowercase.
14. The forward variant's base
Forward multiples divide price by which kind of earnings, expected future or realized past? Answer with one word.
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