Valuation Model Of Value Valuation

1050 Words5 Pages
ABSTRACT: Various methods are used to value a stock. This paper aims at using a valuation model based on Discounted Cash Flow method, EV/EBITDA method and PE ratio method on various sectors. We have done an analysis on these three models of valuation to conclude which one of them is the best suited. The value of an asset is the future cash flow it can generate discounted at a rate that indicates the risks of the asset. Therefore the Discounted Cash Flow (DCF) method is widely used to gauge the true value of an asset. EBITDA/EV has historically been the best performing method and outperforms many investor favorites such as price-to-earnings, free-cash-flow to total enterprise value, and book-to-market. The price/earnings ratio (P/E) is the best…show more content…
The earnings of the company, the growth rate and the risks of the company have a direct impact on the share price. By understanding the various fundamentals of the economies, one will likely create a valuation model that can help to know the true value of securities that are traded in market. At the initial stage of valuation it is always a requisite to know the purpose and objectives of value determination which can influence the choice of the procedures and any decision to be taken. Valuation is an important area that is consistently growing in importance in context of expanding markets, mergers, acquisitions, or a transformation of property. Precise data processing is an assumption of correct valuation leading to correct estimates. The three valuation models which we have focused on are:- Discounted Cash Flow Model: It measures the intrinsic value of a firm and is based on the principle that the current value of an asset is equal to the present value of all expected future cash flows. It is based on the belief that every asset has an intrinsic value and it is possible to evaluate it by looking at asset´s fundamentals. The DCF method is discerned to be the best method for company valuations, only if the company is profitable. The shortcoming of the DCF method is its dependency on weighted average cost of capital and terminal value assumptions. Further, it demands a lot of information to determine a company‘s future cash flows, growth rates and discount

More about Valuation Model Of Value Valuation

Open Document