inefficiency of internal capital markets;endogenous factors

understand the business

forecasting company performance

select model

converting forecasts to a valuation

make the investment decision

HPR (holding period return)

realized return

expected return

It needs to be annualized, and the calculation is the same as HPR (Div/p➕delt p/p)

Alpha (abnormal return)

trend investment

relative strength(RSTR)indicators

A new product that threatens to cannibalize demand for an existing product

return on invested capital(ROIC)

return on capital employed

I/S: R (3), COGS (historical average gross profit margin), SGA (historical expense rate), Net int exp (debt level * market interest rate) tax rate (use effective tax rate

B/S: Working capital item (turnover), long-term assets and liabilities (according to plan or budget)

In the short term, use a separate forecast of the income statement and the balance sheet to forecast the next year. Long term use of model g

summary

required rate of return

=Rm-Rf Risk premium of the broad market index

calculate

CAPM

multifactor model

build-up method

Understand the risk consideration model when it comes to overseas investments

Gordon growth(maturity);two stage(growth transition company);three stage(initial growth)

spreadsheet modeling

The intrinsic value of preferred shares is equivalent to a perpetual annuity, g=0 (capitalization rate=r-g=r)

g=b*ROE=（1-pay out ratio）ROE

Determined by the discount rate corresponding to the time period

Assumption:div will grow at a constant rate,g,forever;r>g

calculate

two/three stage;H model

calculate

NCC

WCinv

FCinv

N.B.

FCFF

FCFE

Consider preferred stock

single stage

two-stage

three-stage

shareholders' residual income

equity value=RI PV0 B0

company residual income

Firm value=EVA PV0 capital0

V0=RI1/(r-g) B0=BO(ROE-r)/(r-g) B0

Justified P/B

Asking for implied g

stage1

stage2

BO is displayed as BV. If BV is not equal to FV, B0 is inaccurate.

0<w<1, the larger the value, the slower the decay, the smaller the value, the faster the decay.

RI<0 is also acceptable, BO large part

Assuming the premise is clean surplus relation, the only factor affecting the change of equity is R/E, eg: OCI changes greatly, that is, the model is unavailable.

calculate

Drawback

EPS normalize (remove the impact of economic cyclicality)

PEG ratio

B:BVPS

Advantages and Disadvantages

justified P/B

Advantages and Disadvantages

justified P/B

enterprise value=MV common stock MV preferred stock MV of debt-cash-short term investment

EBITDA Advantages

trailing div yield

justified div yield=(r-g)/(1 g)

The bigger the better

Harmonic mean, weighted harmonic mean (most accurate) Count both

normalized earnings

synergy

estimate cash flow

income approach

market approach methods

Asset-based approach