- CFA Exams
- Dec. 2020 Level 1
- Study Session 13. Equity Investments II
- Reading 41. Equity Valuation: Concepts and Basic Tools
Reading 41. Equity Valuation: Concepts and Basic Tools
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Learning Outcome Statements
Reading 41. Equity Valuation: Concepts and Basic Tools | |
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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. |