Selecting Peer Groups for Multiples-Based Equity Valuation
The credibility of any relative valuation analysis hinges on one critical question: “Compared to whom?” The choice of comparator companies-the peer group-is as consequential as the selection of the valuation multiple itself. While the mathematics of calculating a P/E or…
Price and Enterprise Value Multiples and Their Uses
Having established the overarching relative valuation framework—encompassing both the method of comparables and the method of forecasted fundamentals—we now turn to the practical application of the most common valuation multiples. These ratios compare a company’s market value (either equity value…
Equity Valuation Using Multiples: Comparables and Forecasted Fundamentals
Relative Value Equity Valuation Approaches Relative valuation anchors a company’s worth against the market’s pricing of comparable assets. While the core concept—that similar assets should trade at similar prices—is intuitively simple, effective execution requires a disciplined, multi-layered approach. The methodology…
Valuation of Non-Callable, Non-Convertible Preferred Stock
Preferred Stock Preferred stock shares characteristics with both debt and common equity. As preferred stock pays fixed dividends, it is valued using a Dividend Discount Model (DDM) with a few modifications. Additionally, Preferred stock carries less risk than common stock;…
Equity Valuation Models: Categories, Advantages, and Disadvantages
The primary objective of every equity valuation model is to estimate a company’s intrinsic value as objectively as possible. The choice of model depends on: The two main valuation approaches are: Master CFA Level I equity valuation models with a…
Book Value, Market Capitalization, and Enterprise Value as Indicators of Intrinsic Value
Intrinsic value cannot be observed directly. Therefore, analysts often use observable measures of company value (obtained from financial statements or market data) as reference points when estimating a firm’s intrinsic value. The three observable measures introduced in this learning module…
Price vs. Value for an Equity Security
Equity valuation is the process of determining whether a company’s current market price accurately reflects its economic worth. A financial analyst compares the current market price of a stock with an estimate of its intrinsic value. If the two differ…
How Analyst Assumptions Affect Equity Valuation Estimates
“Hard-to-Value” Companies and Dispersion of Opinion Even when multiple analysts apply the identical valuation framework to the same company, their conclusions can diverge sharply. Stocks with highly uncertain prospects — often fast-growing, disruptive, or early-stage businesses — are described as…
Elements of an Equity Research Report
Purpose and Context of a Research Report An equity research report is a persuasive document. Its job is not to recite facts about a company neutrally — it exists to convince the reader that a coherent chain of qualitative and…
Sell-Side vs. Buy-Side Equity Analyst Reports
Core Distinction Sell-side analysts are typically employed by investment banks and brokerages. Their reports are built for external distribution to clients — institutional investors, retail clients, and traders. Buy-side analysts work inside asset managers, hedge funds, and other institutional investors….
