- CFA Exams
- 2022 Level I
- Study Session 12. Equity Investments (2)
- Reading 38. Equity Valuation: Concepts and Basic Tools
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Learning Outcome Statements PDF Download
| 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. Background for the Dividend Discount Model c. describe regular cash dividends, extra dividends, stock dividends, stock split, reverse stock splits, and share repurchases; d. describe dividend payment chronology; | |
| 3. Present Value Models: The Dividend Discount Model e. explain the rationale for using present value models to value equity and describe the dividend discount and free-cash-flow-to-equity models; g. 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; h. identify characteristics of companies for which the constant growth or a multistage dividend discount model is appropriate; m. explain advantages and disadvantages of each category of valuation model. | |
| 4. Preferred Stock Valuation f. calculate the intrinsic value of a non-callable, non-convertible preferred stock; m. explain advantages and disadvantages of each category of valuation model. | |
| 5. Multiplier Models i. 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; j. 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; m. explain advantages and disadvantages of each category of valuation model. | |
| 6. Enterprise Value k. describe enterprise value multiples and their use in estimating equity value; m. explain advantages and disadvantages of each category of valuation model. | |
| 7. Asset-Based Valuation l. describe asset-based valuation models and their use in estimating equity value; m. explain advantages and disadvantages of each category of valuation model. |
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