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Financial Analysis:Estimation of the equity value of the company
Finance & Accounting
Pages 13 (3263 words)
PART A Answer to Question 1 Equity valuation can be defined as the process of identifying the current market value of the company which is also regarded as the current market capitalization of the company. There are several step of equity valuation process and it requires an adequate understanding of financial management techniques and acumen.
During this particular process, the analyst should consider the competitive environment as well which will be of great source in identifying which aspects of the company’s business presents the greatest challenges and opportunities. The analyst must have an understanding of the industry structure as well and basic economic factors such as demand and supply and what are its deriving factors. After obtaining an adequate understanding of the entity and its industry, the next step is to forecast the financial performance of the company in the foreseeable future. This can be define as forecasting sales, dividends, variable and fixed production costs, marketing cost and other related administrative costs. The main purpose of this step is to identify how much profit is the company going to make in near future, because in general terms, today a company can be valued by its investors based on how much money it is going to make in the coming years. There are two approaches through which this analysis can be made. The first approach is regarded as the top down forecasting approach which is based on the average industry performance to which that particular corporation belongs. ...
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