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Equity valuation

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  1. Introduction
  2. Security analysis and portfolio management
    1. Concept of portfolio
    2. Objectives of portfolio management
  3. Equity valuation
  4. Fundamental analysis
    1. Macro economic analysis
  5. Industry analysis
    1. Industry life cycle
    2. Company analysis
  6. Technical analysis
  7. Models in equity valuation
    1. Dividend discount model
    2. H model
  8. Earnings multiplier approach
    1. Determinants of the P/E ratio
  9. Multiperiod valuation
    1. Zero growth model
    2. Constant growth model (Gordon Model):
  10. Points to be considered (conclusion)

Equity shares can be described more easily than fixed income securities. However, they are more difficult to analyze. Fixed income securities typically have a limited life and a well-defined cash flow stream. Equity shares have neither. While the basic principles of valuation are the same for fixed income securities as well as equity shares, the factors of growth and risk create greater complexity in the case of equity shares. As our discussion of market efficiency suggested, identifying miss-priced securities is not easy. Yet there are enough chinks in the efficient market hypothesis and hence the search for miss-priced securities cannot be dismissed out of hand. Moreover, remember that is the ongoing search for miss-priced securities by any army of equity analysts that contributes to a high degree of market efficiency. Fundamental analysts assess the fair market value of equity shares by examining the assets, earnings prospects, cash flow projections, and dividend potential. Fundamental analysts differ from technical analysts who essentially rely on price and volume trends and other market indicators to identify trading opportunities.

[...] Expected Return , And Growth introduction TO SECURITY ANALYSIS AND PORT FOLIO MANAGEMENT Security : Equity Shares, bonds, debentures or any other marketable instruments are popularly termed as securities. There are various sources by which corporate raises funds from public. Security Analysis : For making proper investment involving both risk and return the investor has to make study of the alternative avenues of the investment their risk and return characteristics make a proper projection or expectation of the risk an return of alternative investment under consideration. [...]


[...] MODELS IN EQUITY VALUATION: BALANCE SHEET VALUATION: The balance sheet of the firm to get a handle on some valuation measures. Three measures derived from the balance sheet are: 1. Book Value 2. Liquidation Value 3. Replacement Cost 1. Book Value: The book value per share is simply the net worth of the company (which is equal to paid up equity plus reserves and surplus divided by the number of outstanding equity shares. Balance sheet figures rarely reflect earning power and hence the book value per share cannot be regarded as a good proxy for true investment value Liquidation Value: The liquidation value per share is equal to : Value realized from liquidating _ Amount to be paid to all the creditors and all the assets for the firm preference shareholders Number of outstanding equity shares 3. [...]


[...] The investor has to decide about his bought whether they are equity (common stock) or bonds or real estates. With the common stock is chosen by the investor, he has to decide which companies stock he has to by. The stocks are selected on the basis of their return and risk. The analysis of risk and return of holding a particular common stock is known as equity valuation. FUNDAMENTAL ANALYSIS Fundamental analysis is an approach to determine ?what ought to be price' otherwise known as ?intrinsic' or ?true' value of a security. [...]

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