Mohit Sardana

CA | Finance Enthusiast

Stock Market Terms

Valuation Series : D,E,F
 D
Due Diligence
Due diligence is the comprehensive investigation and
analysis of a company's financial and operational
performance, management, and other relevant factors
before making investment decisions.

Debt-to-Equity Ratio
The debt-to-equity ratio is a financial metric that
compares a company's total debt to its total equity. It is
used to assess a company's leverage and risk profile,
influencing its valuation.

Discounted Cash Flow (DCF)

Discounted Cash Flow is a valuation method that
estimates the value of an investment based on its
expected future cash flows. It involves discounting
these cash flows to present value terms, providing a
net present value for the investment.
Duration
Duration is a measure of the sensitivity of a bond's price
to changes in interest rates. It helps investors and
analysts assess the interest rate risk associated with a
bond and is crucial in bond valuation.

Dilution
Dilution occurs when a company issues additional
shares, reducing the ownership percentage of existing
shareholders. Dilution can impact the earnings per
share (EPS) and is a consideration in the valuation of a
company.

Discount Rate
Average annual return is a measure used in finance to
The discount rate is the rate of return used to discount
future cash flows back to their present value in a
discounted cash flow (DCF) analysis.
 E
Enterprise Value (EV)
Enterprise Value is a comprehensive measure of a
company's total value, including its market
capitalization, debt, and minority interest, minus its
cash and cash equivalents. It provides a more holistic
view of a company's worth than market capitalization
alone and is commonly used in valuation.

Equity Risk Premium (ERP)

Equity Risk Premium is the additional return that
investors expect to receive for holding a risky asset
compared to a risk-free asset.Its calculated under
CAPM.

Economic Value Added (EVA)

Economic Value Added is a measure of a company's
financial performance that assesses its ability to
generate value for shareholders. It is calculated by
subtracting the company's cost of capital from its net
operating profit after taxes.
Ex-Dividend Date
The Ex-Dividend Date is the date on or after which a
security trades without a previously declared dividend.
Investors who purchase the stock on or after this date
are not entitled to the upcoming dividend, affecting the
stock's valuation.

Exit Strategy
An Exit Strategy is a plan outlining how investors or
entrepreneurs intend to sell or dispose of their
investments in a business. It is a crucial consideration
in business valuation, influencing investment decisions
and potential returns.

Efficiency Ratios
Efficiency Ratios are financial metrics that assess how
effectively a company utilizes its assets and liabilities to
generate revenue and profit. Ratios such as Return on
Assets (ROA) and Return on Equity (ROE) are important
in assessing a company's valuation.
 F
Financial Modeling
Financial modeling is the process of creating a
mathematical representation (model) of a financial
situation or system. It is a crucial tool in valuation,
allowing analysts to make informed decisions based on
projected financial outcomes.

Fundamental Analysis
Fundamental analysis involves evaluating a security's
intrinsic value by examining various financial and
economic factors, such as earnings, growth prospects,
and market conditions. It is a key approach in
determining the valuation of stocks and other financial
instruments.

Futures Contract
A futures contract is a standardized financial contract
that obligates the buyer to purchase, or the seller to
sell, an asset at a predetermined future date and price.
Financial Leverage
Financial leverage refers to the use of debt to amplify
returns and earnings for shareholders. It plays a
significant role in a company's capital structure and can
impact its valuation by influencing risk and return.

Free Cash Flow (FCF)

Free Cash Flow represents the cash generated by a
business's operations that is available for distribution
to investors, debt reduction, or reinvestment. FCF is a
critical metric in valuation models, indicating a
company's ability to generate cash and create value.

Firm Value
Firm value is the total value of a company, including
both equity and debt. It is often used interchangeably
with enterprise value in valuation analysis, providing a
comprehensive measure of a company's worth.
 DID YOU
FIND THIS
HELPFUL?
Feel free to drop your queries or thoughts
in the comments. Your Insights Matter!