- CFA Exams
- 2023 Level I
- Topic 5. Equity Investments
- Learning Module 41. Equity Valuation: Concepts and Basic Tools
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Learning Outcome Statements PDF Download
|1. Estimated Value and Market Price|
evaluate whether a security, given its current market price and a value estimate, is overvalued, fairly valued, or undervalued by the market;
describe major categories of equity valuation models;
|2. Background for the Dividend Discount Model|
describe regular cash dividends, extra dividends, stock dividends, stock split, reverse stock splits, and share repurchases;
describe dividend payment chronology;
|3. Present Value Models: The Dividend Discount Model|
explain the rationale for using present value models to value equity and describe the dividend discount and free-cash-flow-to-equity models;
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;
identify characteristics of companies for which the constant growth or a multistage dividend discount model is appropriate;
explain advantages and disadvantages of each category of valuation model.
|4. Preferred Stock Valuation|
calculate the intrinsic value of a non-callable, non-convertible preferred stock;
|5. Multiplier Models|
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;
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;
|6. Enterprise Value|
describe enterprise value multiples and their use in estimating equity value;
|7. Asset-Based Valuation|
describe asset-based valuation models and their use in estimating equity value.
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