StudentShare solutions
Triangle menu

Financial Analysis:Estimation of the equity value of the company - Essay Example

Not dowloaded yet

Extract of sample
Financial Analysis:Estimation of the equity value of the company

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. ...
Based on these company specific figures, the earnings and profit of the company is forecasted. The most important step in equity valuation process is the selection of an appropriate valuation model. The following table presents certain valuation methods for this purpose Equity valuation Firm valuation (equity plus debt) Cash flow based valuation approaches 1. Dividend valuation model (DVM) 2. Free cash flow valuation model (FCFVM) Profit based valuation approaches 3. Abnormal earnings valuation model (AEVM) 4. Abnormal operating profit valuation model (AOPVM) Based on the above valuation models, an analyst predicts the equity value of the company by selecting any one of the above mentioned models which appears to be apt in the circumstances. Finally the investor must make an investment decision based on the calculated value of equity in the above step. This decision involves investment recommendation to the investor whether it is financially feasible to invest in the stock of the company being valued or not. If the analyst concludes that the equity value of the company is as such which is significantly greater than the current book value of the company, then it represents that the company will reap benefits in the future for the investors, thus the investment decision would be financially viable. Answer to Question 2 Ratio analysis is a very accurate and reliable tool when it comes to analyzing the financial outlook of an entity. The primary reason to conduct a ratio analysis is to quantify the results of the operations of a company and compare them with that of the prior year(s) in order to assess different aspects of ...Show more

Summary

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…
Author : vhoeger
Financial Analysis:Estimation of the equity value of the company essay example
Read Text Preview
Save Your Time for More Important Things
Let us write or edit the essay on your topic
"Financial Analysis:Estimation of the equity value of the company"
with a personal 20% discount.
Grab the best paper

Related Essays

Financial Modeling Of Value At Risk Portfolio
The paper uses probability measures to determine how frequent we anticipate various results to take place should we repeat a provided experiment repeatedly. The stakeholders of the four companies choose investment as a probability approach. The following data analysis is to present a standard report on the development of an event study of a statistical model of shares market data.
20 pages (5000 words) Essay
Managing Value for Competitive Advantage Company Analysis
The business environment has undergone tremendous transformation over the last few years. There has been a fundamental shift from just concentrating on economic profitability to a business mode. The key to competitive advantage is through value creation and addition to the offerings to the stakeholders.
12 pages (3000 words) Essay
Equity
It is recommended that an investor should purchase a stock if the market price of the stock is below its fair price. If the market price of the stock is above its fair price, then it is recommended that the stock is sold to obtain profits. The firm whose stock potential is being analyzed is Owens & Minor Inc.
4 pages (1000 words) Essay
Do financial management decisions influence firm value
BP formulated the main financial management decisions that devoted to a wise use of capital and a careful selection of sources of the capital in order to enable the company to expand in the direction of reaching its goals. The main financial management decisions are grouped into three broad categories that include; Investment, financial and dividend decisions that influence the effectiveness of the BP in the Community.
4 pages (1000 words) Essay
Company Report: Dominos and Value
state. Value in a business refers to a casual term that takes in every form of value, which establishes the health and security of the company in the end. Company value expands perception of value of the company past economic value to take in additional forms of value, for example, worker value, consumer value, supplier value, control partner value, association partner value, administrative value, as well as societal value.
6 pages (1500 words) Essay
Debate about the true market value of Telstra shares and about the financial management of the company
ranges from the provision of basic access services which involves installing, renting, and maintaining connections between customer premises and public switched telephone network to local and long distance telephone call services, mobile telecommunication services, and data and
6 pages (1500 words) Essay
Financial Statement Analysis. Financial Statements reformulation and equity valuation
The following paragraphs have explained in detail the comments on the CRUF group’s petition to change some of the provisions of the two Boards’ rules and principles on how
8 pages (2000 words) Essay
Financial Report- Halliburton Company
able company since operating and net income growth from $3,009 to $ 4,737 and $ 1,842 to $ 2844 from the year 2010 and 2012 respectively although there was a slight change in the year 2012. The three years trend revenue is favorable since all figure s are positive 4. Companies
5 pages (1250 words) Essay
Protecting the Bank's Income and the Value of Equity
Each company will borrow in the market where it has a comparative advantage and they will service each other’s’ loans. HCR will borrow at LIBOR + 3% and charge LCR a variable rate, LIBOR + X%, and LCR will borrow at 8% and
2 pages (500 words) Essay
Value chain for carrefour company
d logistics deal with the movement of materials into the company from suppliers while outbound logistics refers to movement of materials from the company to customers. Carrefour provides customers with a variety of products mostly from local suppliers. Carrefour supplies its
1 pages (250 words) Essay
Get a custom paper written
by a pro under your requirements!
Win a special DISCOUNT!
Put in your e-mail and click the button with your lucky finger
Your email
YOUR PRIZE:
Apply my DISCOUNT
Comments (0)
Rate this paper:
Thank you! Your comment has been sent and will be posted after moderation