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Equity Valuation:: Applications and Processes

The document discusses equity valuation, including the valuation process and applications. It covers intrinsic value, asset mispricing, going concern value versus liquidation value, uses of valuation, industry and competitive analysis, financial statement analysis, quality of earnings, choosing a valuation model, analyst roles and responsibilities, and effective research reports. The key stages in the valuation process involve understanding the business and industry, analyzing financial statements and earnings quality, and selecting an appropriate valuation model.

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Houssa Iberain
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0% found this document useful (0 votes)
127 views12 pages

Equity Valuation:: Applications and Processes

The document discusses equity valuation, including the valuation process and applications. It covers intrinsic value, asset mispricing, going concern value versus liquidation value, uses of valuation, industry and competitive analysis, financial statement analysis, quality of earnings, choosing a valuation model, analyst roles and responsibilities, and effective research reports. The key stages in the valuation process involve understanding the business and industry, analyzing financial statements and earnings quality, and selecting an appropriate valuation model.

Uploaded by

Houssa Iberain
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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VALUATION

EQUITY VALUATION:
APPLICATIONS AND PROCESSES

Prof : Hassan BASSIDI


INTRINSIC VALUE
ASSET MISPRICING

Prof : Hassan BASSIDI Prof : Hassan BASSIDI


GOING CONCERN VS. LIQUIDATION VALUE OTHER DEFINITIONS OF VALUE

• Going concern value: Firm will continue in its business activities


- Firm will continue to sell its goods and services
- Firm will use its assets for value maximization
- Firm will access its optimal sources of financing

• Liquidation value: Firm will be dissolved


- Firm assets will be sold separately

• Going concern value > Liquidation value


- Value added from asset synergy
- Value added by managerial skills

Prof : Hassan BASSIDI Prof : Hassan BASSIDI


USES OF EQUITY VALUATION USES OF EQUITY VALUATION

Prof : Hassan BASSIDI Prof : Hassan BASSIDI


THE VALUATION PROCESS
THE VALUATION PROCESS

Prof : Hassan BASSIDI Prof : Hassan BASSIDI


UNDERSTANDING THE BUSINESS:
INDUSTRY ANALYSIS UNDERSTANDING THE BUSINESS:
(PORTER’S COMPETITIVE ADVANTAGE) COMPETITIVE ANALYSIS
Low Cost Differentiation

Broad
Target
Market

Narrow
Target
Market

Prof : Hassan BASSIDI Prof : Hassan BASSIDI


ISSUES IN FINANCIAL STATEMENT ANALYSIS QUALITY OF EARNINGS EXAMPLES

Prof : Hassan BASSIDI Prof : Hassan BASSIDI


QUALITY OF EARNINGS RISK FACTORS

• Poor quality of accounting disclosures


• Related-party transactions
• Frequent management or director turnover
• Pressure to make earnings targets
• Auditor conflicts of interest or frequent turnover
• Incentive compensation tied to stock price
• External or internal pressures on profitability
• Debt covenant pressures
• Previous regulatory/reporting issues

Prof : Hassan BASSIDI


CHOOSING A VALUATION MODEL OTHER VALUATION MODEL ISSUES

Prof : Hassan BASSIDI Prof : Hassan BASSIDI


ANALYST ROLES ANALYST RESPONSIBILITIES

The CFA Institute Code of Ethics:

Members of CFA Institute must … use reasonable care


and exercise independent professional judgment when
conducting investment analysis, making investment
recommendations, taking investment actions, and
engaging in other professional activities.

Prof : Hassan BASSIDI Prof : Hassan BASSIDI


RESEARCH REPORTS SUMMARY
Effective research reports include:
Timely information
Clear, incisive language
Objective and well-researched information
Clearly distinguished facts and opinions
Consistent analysis, forecasts, valuation, and
recommendations
Sufficient disclosure of information
Key risk factors
Disclosures of conflicts of interest

Prof : Hassan BASSIDI Prof : Hassan BASSIDI


SUMMARY SUMMARY

Prof : Hassan BASSIDI Prof : Hassan BASSIDI

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