Learning Outcome Statements

1. Estimated Value and Market Price

a. evaluate whether a security, given its current market price and a value estimate, is overvalued, fairly valued, or undervalued by the market;

b. describe major categories of equity valuation models;

2. Present Value Models: The Dividend Discount Model

c. explain the rationale for using present value models to value equity and describe the dividend discount and free-cash-flow-to-equity models;

e. calculate and interpret the intrinsic value of an equity security based on the Gordon (constant) growth dividend discount model or a two-stage dividend discount model, as appropriate;

f. identify characteristics of companies for which the constant growth or a multistage dividend discount model is appropriate;

3. Preferred Stock Valuation

d. calculate the intrinsic value of a non-callable, non-convertible preferred stock;

4. Multiplier Models

g. explain the rationale for using price multiples to value equity, how the price to earnings multiple relates to fundamentals, and the use of multiples based on comparables;

h. calculate and interpret the following multiples: price to earnings, price to an estimate of operating cash flow, price to sales, and price to book value;

5. Enterprise Value

i. describe enterprise value multiples and their use in estimating equity value;

6. Asset-Based Valuation

j. describe asset-based valuation models and their use in estimating equity value;

k. explain advantages and disadvantages of each category of valuation model.