VALUATION or indirectly makes use of equity valuation

- Refers to the process of determining the value while making investment decisions. The users
of a company or an asset. It can be done using of equity valuation are the small individual
a number of techniques. Analysts that want to investors who make up the vast majority of
value on a company normally look at the stock market investors, the government and
management if the business, the prospective institutional investors and entities that hedge
future earnings, the market value of the funds.
company’s assets, and its capital structure
Maximizing Shareholder Value
composition.
- Shareholder value increases when a company
Valuation Used in Securities earns a higher return in its invested capital
- Valuation may also be used in determining a than the capital’s cost creating profit.
security’s fair value, which depends on the
amount that a buyer is ready to pay a seller,
with the assumption that both parties will
enter the transaction. During the trade of a
security on an exchange, sellers and buyers will
dictate the market value of a bond or stock.
However, intrinsic value on the basis of future
earnings or other attributes of the entity that
are not related to a security’s market value.
Therefore, the work of analysts when doing
valuation is to know if an asset or a company is
undervalued or overvalued by the market.

Uses of Valuation
- Valuation can be performed on assets or on
liabilities such as company bonds. They are
Earnings Per Share (EPS)
required for a number of reasons including
- Demonstrate how profitable a company is by
merger and acquisition transactions, capital
measuring the net income for each
budgeting, investment analysis, litigation, and
outstanding share of the company. For
financial reporting.
shareholders, EPS is an indication of how well
Asset Valuation a company is performing as it represents the
- Pertains to the value assigned to a specific bottom line of a company on a per-share basis.
property when a company or asset is to be sold The EPS figure does not reflect the cash that
insured, or taken over. The assets may be shareholders receive. However, it is only an
categorized into tangible and intangible assets. accounting figure.
Asset valuation is the process of determining
the fair market or present value of assets using
book values, absolute valuation models or
comparables. The assets may include
investments in marketable securities like
stocks and bonds; tangible assets like buildings
and equipment; or intangible assets like
brands, trademarks or patents.

Equity Valuation
- Is a general term which is used to refer to all
tools and techniques used by investors to find
out the true value of a company’s equity. It is
often seen as the most crucial element of a
successful investment decision. Every
participant in the stock market either directly
Valuation Methods
- When valuing a company as a going concern,
there are three main valuation methods used
by industry practitioners:
1. DFC Analysis
 2. Comparable company analysis
3. Precedent transactions

Discounted Cash Flow Analysis

- Discounted Cash Flow (DCF) analysis is an
intrinsic value approach where one forecasts
the value future business free cash flow and
discounts it back at present day. It is the most
detailed of the three approaches, requires the
most assumptions, and often procedures the
highest value which also often result in the
most accurate valuation.

Comparable Company Analysis

- Also called Trading Multiples or Public Market
Multiples, is a relative valuation method in
which you compare the current value of a
business to other similar businesses by looking
at trading multiples like P/E, EV/EBITDA, or
other ratios. Multiples of EBITDA are the most
common valuation method. This is the most
widely used approach, as they are easy to
calculate and always current.

Precedent Transactions
- Precedent transaction analysis is where you
compare the subject company to other
businesses that have recently been sold or
acquired in the same industry. These
transaction values include in the price for
which they were acquired.

Leverage Buyout
- A leveraged buyout model, or an LBO, is a type
of company acquisition where total acquisition
proceeds are financed with a substantial
portion of borrowed funds. There are two
parties involved in a leveraged buyout – the
buyer company & the target company. In LBO,
the acquiring company finance the acquisition
with a mix of equity (usually the down
payment) and debt (for the remaining
balance). The target company’s assets serve as
security or collateral for the debt.