Value of Company equity = Value of operating assets + Cash - Debt - Management options

Divide the value by the number of shares outstanding = Value per share

Allow degree of error by 10 percent. If the value per share is more than 110% of the current share price... consider buying after comparison with its industry competitor.

Long time horizon is almost a prerequisite for using intrinsic valuation models. Give the market more time to fix its mistakes to provide better odds than hoping that it will happen in the next quarter or the next six months.

Formula for inflation = Present value/(1+ Discount rate)^Numberof year e.g. $1000 in 10 years with an inflation of 8 percent per annum $1000/(1.08)^10 = $463.19

Take into account the inflation and rate of growth by the company

Relative valuation three steps 1.) Find comparable assets that are priced by the market. 2.) Scale the market prices to a common variable to generate standardized prices that are comparable across assets. 3.) Adjust for differences across assets when comparing their standardized values.

*A higher growth company should trade at a higher price than a lower growth company in the same sector.

Relative valuation can be done with less information and more quickly than intrinsic valuation and is more likely to reflect the martket mood of the moment. Not surprisingly, most valuations that you see are relative.

Value of equity = Expected dividends next year/(Cost of equity Expected growth rate) Value of equity/Net income = PE