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CH. 7 PROSPECTIVE ANALYSIS: VALUATION THEORY AND CONCEPTS

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Presentation on theme: "CH. 7 PROSPECTIVE ANALYSIS: VALUATION THEORY AND CONCEPTS"— Presentation transcript:

1 CH. 7 PROSPECTIVE ANALYSIS: VALUATION THEORY AND CONCEPTS

2 Methods of Valuation Discounted dividend model
The value of equity is the present value of future dividends Discounted abnormal earnings model Equity value = BV of equity + PV of expected future abnormal earnings

3 Methods of Valuation (Cont’d)
Price multiples Estimate price multiples for comparable firms Comparable firms: similar operating and financial characteristics Exclude transitory shock Adjusting multiples for leverage

4 Methods of Valuation (Cont’d)
The discounted cash flow model Equity value is the PV of free cash flows to equity claim holders

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