Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )
As withthe earningsmultiples,thereisa largenumber of firms with very high price-to-book ratios (exceeding 10). FIGURE8.4PricetoB ...
Arevenue multiple measuresthe value ofthe equityor a businessrelativeto therevenuesthat itgenerates.As with othermultiples,other ...
themultiple cannotbe computed and thus lessbias in the comparison process. 6 Theonlyfirmsthatweloseinthiscomputationarethose whe ...
Themodelscanbestatedintermsofeitheractualdividends (payoutratio)orpotentialdividends(FCFE/Earnings).Allof theequitymultiples,oth ...
where EPS 0 = Earnings per share in year 0 (current year) Payout ratio = Payout ratio in the firstnyears g= Growth rate in the f ...
firm, and the expected growth rate in earnings. The only practicaldifferenceisthatwehavetoestimatetheseinputs twiceforahigh-grow ...
Whilealloftheequationsarebasedonatwo-stagedividend discountmodel,theycanbegeneralizedtotheFCFEmodel byreplacingthepayoutratiowit ...
The firm is expected to maintain these values in perpetuity. Thefirmpaidout10%ofitsearningsasdividends, resultinginaretentionra ...
Theprice-to-bookratioforthisfirmcanbeestimatedusing the return on equity of 20% as an input: This stock trades atwellabove book ...
willchangeasgrowth changes.In thissection,we usethe fundamentalequations fromthepreceding sectionto tryto address this question. ...
All oftheequitymultiples,otherthanthePEG ratio,ofa high-growth firm increase with the expected extraordinary growthrate—thehighe ...
isadirectresultoftheassumptionoflinearitymadeinthe PEGratio;afterall,iflinearityheld,thePEGratioforafirm with an expectedgrowth ...
TheP/Eratioismuchmoresensitivetochangesinexpected growthrateswheninterestratesarelowthanwhentheyare high.Thereisapossiblelinkbet ...
foronlythreeyears?Whatifitcouldkeephighgrowthgoing for eight years? Table 8.7 summarizes the impact of lengthening the growth pe ...
constant,increasingtheriskofequitywilldecreaseallequity multiples.InTable8.8,weexaminetheeffectofchangingthe beta(andthroughitth ...
risk mayincrease equityvalue muchmorethanincreasing expected growth. Quality of Investments Effect Thefocusonexpectedearningsgro ...
Asthereturnonequityincreases,theequitymultiplesallgo up.Atverylowreturnsonequity,thefirmwillhavetoissue substantialnewequitytosu ...
When the excess returns are negative, thestock trades at below book equity. In fact, when the return on equity is expectedtobeeq ...
InIllustration8.1,weassume thatthefirmmaintainsanet marginof 10 percentandhasasales-to-bookequityratioof2, thusallowingustohavea ...
Whencomparing companieson aprice-to-salesratio basis, wehavetobringintheeffectofnetmargins.Companiesthat havelownetmargins,eithe ...
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