Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )
FIGURE 7.2 Distribution of a Multiple versus Normal Distribution Theconsequencesofasymmetric distributionsforinvestors and analy ...
infavorofonethatcomparesthestock’spricingto the median for the sector. Probabilisticstatements.Asaresultofthefocuson normal dis ...
price-earningsratiogreaterthan 500 willbeassumedtohave a price-earnings ratioof 500. Theconsequence is that the averages reporte ...
using the aggregated values. Figure 7.3 summarizes the average P/E ratio, themedian P/E ratio,and the P/E ratio based on aggrega ...
Thethirdchoiceistouseamultiplethatcanbecomputedfor allofthefirmsinthegroup.Theinverseoftheprice-earnings ratio,whichiscalledthee ...
keyroleintheriseofearningsmultiplesthroughthe1990s. Someofthechange,though,comesfromchangesinmarket perception of risk.As invest ...
Determinants In the introduction to discounted cash flow valuation, we observed that the value of a firm is a function of three ...
ThekeydeterminantsoftheP/Eratioaretheexpectedgrowth rateinearningspershare,thecostofequity,andthepayout ratio.Otherthingsremaini ...
We can do a similar analysis to derive the firm value multiples.Thevalueofafirminstablegrowthcanbewritten as: whereFCFF 1 isthee ...
1.5whenthetruereasonmaybethatthelatterhasamuch higher return on equity. Relationship Knowing the fundamentals that determine a m ...
Companion Variable Although the variables that determine a multiple can be extracted from a discounted cash flow model and the r ...
Acomparablefirmisonewithcashflows,growthpotential, andrisksimilartothefirmbeingvalued.Itwouldbeidealif wecouldvalueafirmbylookin ...
value of equityin a firmwith a beta of 1.2, an expected growthrateinearningspershareof 20 percent,andareturn on equity of 40 per ...
potential than the average firm in the industry. If, in the judgmentoftheanalyst,thedifferenceonthemultiplecannot beexplainedbyt ...
not increase proportional to growth, companies with high growth rates will look cheap on a PEG ratio basis. ILLUSTRATION 7.1: Co ...
thelastcolumn.BasedontheaveragePEGratioof2.00for thesectorandtheestimatedgrowthrateforAndresWines, we obtain the following value ...
1.Theoutputfromtheregressiongivesusameasureofhow strong the relationship is between the multiple and the variable being used. Th ...
theR-squared)and includinganyvariables thataccomplish this, the focus of regressions in relative valuations is narrower. Since o ...
Sincethesefirmsdifferonbothriskandexpectedgrowth,a regression of P/E ratios on both variables is presented. Thenumbersinbrackets ...
If the assumption that the relationship between P/E and growthisnotlinear,wecouldeitherrunnonlinearregressions or modify the var ...
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