-a. Define valuation and intrinsic value and explain sources of perceived mispricing;<\/a><\/em><\/p>\r\n -b. Explain the going concern assumption and contrast a going concern value to a <\/em>liquidation value;<\/a><\/em><\/p>\r\n -c. Describe definitions of value and justify which definition of value is most relevant to public company valuation;<\/em><\/a><\/em><\/p>\r\n -d. Describe applications of equity valuation;<\/a><\/em><\/p>\r\n -e. Describe questions that should be addressed in conducting industry and competitive analysis;<\/em><\/a><\/em><\/p>\r\n -f. Contrast absolute and relative valuation models and describe examples of each type of model;<\/em><\/a><\/em><\/p>\r\n -g. Describe sum-of-the-parts valuation and conglomerate discounts;<\/a><\/em><\/p>\r\n -h. Explain broad criteria for choosing an appropriate approach for valuing a given company;<\/a><\/em><\/p>\r\n -a. Compare dividends, free cash flow, and residual income as inputs to discounted cash flow models and identify investment situations for which each measure is suitable;<\/a><\/em><\/p>\r\n -b. Calculate and interpret the value of a common stock using the dividend discount model (DDM) for single and multiple holding periods;<\/a><\/em><\/p>\r\n -c. Calculate the value of a common stock using the Gordon growth model and explain the model\u2019s underlying assumptions;<\/a><\/em><\/p>\r\n -d. Calculate the value of noncallable fixed-rate perpetual preferred stock;<\/a><\/em><\/p>\r\n -e. Calculate and interpret the implied growth rate of dividends using the Gordon growth model and current stock price; <\/a><\/em><\/p>\r\n -f. Calculate and interpret the present value of growth opportunities (PVGO) and the component of the leading price-to-earnings ratio (P\/E) related to PVGO; <\/a><\/em><\/p>\r\n -g. Calculate and interpret the justified leading and trailing P\/Es using the Gordon growth model;<\/a><\/em><\/p>\r\n -h. Describe strengths and limitations of the Gordon growth model and justify its selection to value a company\u2019s common shares;<\/a><\/em><\/p>\r\n -i. Explain the growth phase, transition phase, and maturity phase of a business;<\/a><\/em><\/p>\r\n -j. Explain the assumptions and justify the selection of the two-stage DDM, the H-model, the three-stage DDM, or spreadsheet modeling to value a company\u2019s common shares;<\/a><\/em><\/p>\r\n -k. Describe terminal value and explain alternative approaches to determining the terminal value in a DDM;<\/a><\/em><\/p>\r\n -l. Calculate and interpret the value of common shares using the two-stage DDM, the H-model, and the three-stage DDM;<\/a><\/em><\/p>\r\n -m. Explain the use of spreadsheet modeling to forecast dividends and to value common shares;<\/a><\/em><\/p>\r\n -n. Estimate a required return based on any DDM, including the Gordon growth model and the H-model;<\/a><\/em><\/p>\r\n -o. Calculate and interpret the sustainable growth rate of a company and demonstrate the use of DuPont analysis to estimate a company\u2019s sustainable growth rate;<\/a><\/em><\/p>\r\n -p. Evaluate whether a stock is overvalued, fairly valued, or undervalued by the market based on a DDM estimate of value;<\/a><\/em><\/p>\r\n -a. Compare the free cash flow to the firm (FCFF) and free cash flow to equity <\/em>(FCFE) approaches to valuation;<\/a><\/em><\/p>\r\n -b. Explain the ownership perspective implicit in the FCFE approach; <\/a><\/em><\/p>\r\n -c. Explain the appropriate adjustments to net income, earnings before interest and taxes (EBIT), earnings before interest, taxes, depreciation, and amortization <\/em>(EBITDA), and cash flow from operations (CFO) to calculate FCFF and FCFE;<\/a><\/em><\/p>\r\n -d. Calculate FCFF and FCFE; <\/a><\/em><\/p>\r\n -e. Describe approaches for forecasting FCFF and FCFE;<\/a><\/em><\/p>\r\n -f. Compare the FCFE model and dividend discount models; <\/a><\/em><\/p>\r\n -g. Explain how dividends, share repurchases, share issues, and changes in leverage <\/em>may affect future FCFF and FCFE; <\/a><\/em><\/p>\r\n -h. Evaluate the use of net income and EBITDA as proxies for cash flow in valuation; <\/a><\/em><\/p>\r\n -i. Explain the single-stage (stable-growth), two-stage, and three-stage FCFF and FCFE models and select and justify the appropriate model given a company\u2019s characteristics; <\/a><\/em><\/p>\r\n -j. Estimate a company\u2019s value using the appropriate free cash flow model(s); <\/a><\/em><\/p>\r\n -k. Explain the use of sensitivity analysis in FCFF and FCFE valuations; <\/a><\/em><\/p>\r\n -l. Describe approaches for calculating the terminal value in a multistage valuation model; <\/a><\/em><\/p>\r\n -m. Evaluate whether a stock is overvalued, fairly valued, or undervalued based on a free cash flow valuation model;<\/a><\/em><\/p>\r\n -a. Contrast the method of comparables and the method based on forecasted fundamentals as approaches to using price multiples in valuation, and explain economic rationales for each approach;<\/em><\/a><\/p>\r\n -b. Calculate and interpret a justified price multiple;<\/em><\/a><\/p>\r\n -c. Describe rationales for and possible drawbacks to using alternative price multiples and dividend yield in valuation;<\/em><\/a><\/p>\r\n -d. Calculate and interpret alternative price multiples and dividend yield;<\/em><\/a><\/p>\r\n -e. Calculate and interpret underlying earnings, explain methods of normalizing earnings per share (EPS), and calculate normalized EPS;<\/em><\/a><\/p>\r\n -f. Explain and justify the use of earnings yield (E\/P);<\/em><\/a><\/p>\r\n -g. Describe fundamental factors that influence alternative price multiples and dividend yield;<\/em><\/a><\/p>\r\n -h. Calculate and interpret the justified price-to-earnings ratio (P\/E), price-to-book ratio (P\/B), and price-to-sales ratio (P\/S) for a stock, based on forecasted fundamentals;<\/em><\/a><\/p>\r\n -i. Calculate and interpret a predicted P\/E, given a cross-sectional regression on fundamentals, and explain limitations to the cross-sectional regression methodology;<\/em><\/a><\/p>\r\n -j. Evaluate a stock by the method of comparables and explain the importance of fundamentals in using the method of comparables;<\/em><\/a><\/p>\r\n -k. Calculate and interpret the P\/E-to-growth ratio (PEG) and explain its use in relative valuation;<\/em><\/a><\/p>\r\n -l. Calculate and explain the use of price multiples in determining terminal value in a multistage discounted cash flow (DCF) model; <\/em><\/a><\/p>\r\n -m. Explain alternative definitions of cash flow used in price and enterprise value (EV) multiples and describe limitations of each definition; <\/em><\/a><\/p>\r\n -n. Calculate and interpret EV multiples and evaluate the use of EV\/EBITDA; <\/em><\/a><\/p>\r\n -o. Explain sources of differences in cross-border valuation comparisons; <\/em><\/a><\/p>\r\n -p. Describe momentum indicators and their use in valuation; <\/em><\/a><\/p>\r\n -q. Explain the use of the arithmetic mean, the harmonic mean, the weighted harmonic mean, and the median to describe the central tendency of a group of multiples; <\/em><\/a><\/p>\r\n r. Evaluate whether a stock is overvalued, fairly valued, or undervalued based on comparisons of multiples;<\/em><\/a><\/p>\r\n -a. Calculate and interpret residual income, economic value-added, and market value-added;<\/em><\/a><\/p>\r\n -b. Describe the uses of residual income models; <\/em><\/a><\/p>\r\n -c. Calculate the intrinsic value of a common stock using the residual income model and compare value recognition in residual income and other present value models;<\/em><\/a><\/p>\r\n -d. Explain fundamental determinants of residual income;<\/em><\/a><\/p>\r\n -e. Explain the relation between residual income valuation and the justified price-to-book ratio based on forecasted fundamentals;<\/em><\/a><\/p>\r\n -f. Calculate and interpret the intrinsic value of a common stock using single-stage (constant-growth) and multistage residual income models;<\/em><\/a><\/p>\r\n -g. Calculate the implied growth rate in residual income, given the market price-to-book ratio and an estimate of the required rate of return on equity;<\/em><\/a><\/p>\r\n -h. Explain continuing residual income and justify an estimate of continuing residual income at the forecast horizon, given company and industry prospects;<\/a><\/em><\/p>\r\n -i. Compare residual income models to dividend discount and free cash flow models; <\/em><\/a><\/p>\r\n -j. Explain strengths and weaknesses of residual income models and justify the selection of a residual income model to value a company\u2019s common stock; <\/em><\/a><\/p>\r\n -k. Describe accounting issues in applying residual income models; <\/em><\/a><\/p>\r\n -l. Evaluate whether a stock is overvalued, fairly valued, or undervalued based on a residual income model;<\/em><\/a><\/p>\r\n -a. Contrast important public and private company features for valuation purposes<\/a><\/em><\/p>\r\n -b. Describe uses of private business valuation and explain applications of greatest concern to financial analysts<\/a><\/em><\/p>\r\n -c. Explain cash flow estimation issues related to private companies and adjustments required to estimate normalized earnings<\/a><\/em><\/p>\r\n -d. Explain factors that require adjustment when estimating the discount rate for private companies<\/a><\/em><\/p>\r\n -e. Compare models used to estimate the required rate of return to private company equity (for example, the CAPM, the expanded CAPM, and the build-up approach)<\/a><\/em><\/p>\r\n -f. Explain and evaluate the effects on private company valuations of discounts and premiums based on control and marketability<\/a><\/em><\/p>\r\n -g. Explain the income, market, and asset-based approaches to a private company valuation and factors relevant to the selection of each approach<\/a><\/em><\/p>\r\n -h. Calculate the value of a private company income-based methods<\/a><\/em><\/p>\r\nReading 23: Discounted Dividend Valuation<\/h2>\r\n
Reading 24: Free Cash Flow Valuation<\/h2>\r\n
Reading 25: Market-Based Valuation, Price and Enterprise Value Multiples<\/span><\/h2>\r\n
Reading 26: Residual Income Valuation<\/span><\/h2>\r\n
Reading 27: Private Company Valuation (2024)<\/h2>\r\n