|
Relative Valuation
Relative valuation also called valuation using multiples is the notion of comparing the price of an asset to the market value of similar assets. In the field of securities investment, the idea has led to important practical tools, which could presumably spot pricing anomalies. These tools have subsequently become instrumental in enabling analysts and investors to make vital decisions on asset allocation. Equities In equities, the concept separates into two areas—one pertaining to individual equities and the other to indices. Individual equities The most common method for individual equities is based on comparing certain financial ratios or multiples, such as the P/B ratio, price to book value, P/E ratio, price to earnings, EV/EBITDA, etc., of the equity in question to those of its peers. This type of approach, which is popular as a strategic tool in the financial industry, is mainly statistical and based on historical data. Equity indexes For an equity index the above fai ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Valuation Using Multiples
In economics, valuation using multiples, or "relative valuation", is a process that consists of: * identifying comparable assets (the peer group) and obtaining market values for these assets. * converting these market values into standardized values relative to a key statistic, since the absolute prices cannot be compared. This process of standardizing creates valuation multiples. * applying the valuation multiple to the key statistic of the asset being valued, controlling for any differences between asset and the peer group that might affect the multiple. Multiples analysis is one of the oldest methods of analysis. It was well understood in the 1800s and widely used by U.S. courts during the 20th century, although it has recently declined as Discounted Cash Flow and more direct market-based methods have become more popular. "Comparable company analysis", closely related, was introduced by economists at Harvard Business School in the 1930s. Valuation multiples A valuation mult ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Equities
Stocks (also capital stock, or sometimes interchangeably, shares) consist of all the shares by which ownership of a corporation or company is divided. A single share of the stock means fractional ownership of the corporation in proportion to the total number of shares. This typically entitles the shareholder (stockholder) to that fraction of the company's earnings, proceeds from liquidation of assets (after discharge of all senior claims such as secured and unsecured debt), or voting power, often dividing these up in proportion to the number of like shares each stockholder owns. Not all stock is necessarily equal, as certain classes of stock may be issued, for example, without voting rights, with enhanced voting rights, or with a certain priority to receive profits or liquidation proceeds before or after other classes of shareholders. Stock can be bought and sold privately or on stock exchanges. Transactions of the former are closely overseen by governments and regulatory ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Financial Ratio
A financial ratio or accounting ratio states the relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm's creditors. Financial analysts use financial ratios to compare the strengths and weaknesses in various companies. If shares in a company are publicly listed, the market price of the shares is used in certain financial ratios. Ratios can be expressed as a decimal value, such as 0.10, or given as an equivalent percentage value, such as 10%. Some ratios are usually quoted as percentages, especially ratios that are usually or always less than 1, such as earnings yield, while others are usually quoted as decimal numbers, especially ratios that are usually mor ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
P/B Ratio
The price-to-book ratio, or P/B ratio, (also PBR) is a financial ratio used to compare a company's current market value to its book value (where ''book value'' is the value of all assets minus liabilities owned by a company). The calculation can be performed in two ways, but the result should be the same. In the first way, the company's market capitalization can be divided by the company's total book value from its balance sheet. The second way, using per-share values, is to divide the company's current share price by the book value per share (i.e. its book value divided by the number of outstanding shares). It is also known as the market-to-book ratio and the price-to-equity ratio (which should not be confused with the price-to-earnings ratio), and its inverse is called the book-to-market ratio. As with most ratios, it varies a fair amount by industry. Industries that require more infrastructure capital (for each dollar of profit) will usually trade at P/B ratios much lower than, ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
EV/EBITDA
Enterprise value/ EBITDA (more commonly referred to by the acronym EV/EBITDA) is a popular valuation multiple used to determine the fair market value of a company. By contrast to the more widely available P/E ratio (price-earnings ratio) it includes debt as part of the value of the company in the numerator and excludes costs such as the need to replace depreciating plant, interest on debt, and taxes owed from the earnings or denominator. It is the most widely used valuation multiple based on enterprise value and is often used as an alternative to the P/E ratio when valuing companies believed to be in a high-growth phase, and thus credits enterprises with higher startup costs, high debt relative to equity, and lower realised earnings. Use A key advantage of EV/EBITDA is that it is independent of the capital structure (i.e. the mixture of debt and equity). Therefore this multiple can be used to compare companies with different levels of debt. It also avoids the significant shortc ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Bond Valuation
Bond valuation is the process by which an investor arrives at an estimate of the theoretical fair value, or intrinsic worth, of a bond. As with any security or capital investment, the theoretical fair value of a bond is the present value of the stream of cash flows it is expected to generate. Hence, the value of a bond is obtained by discounting the bond's expected cash flows to the present using an appropriate discount rate. In practice, this discount rate is often determined by reference to similar instruments, provided that such instruments exist. Various related yield-measures are then calculated for the given price. Where the market price of bond is less than its par value, the bond is selling at a discount. Conversely, if the market price of bond is greater than its par value, the bond is selling at a premium. For this and other relationships between price and yield, see below. If the bond includes embedded options, the valuation is more difficult and combines option pri ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Bond (finance)
In finance, a bond is a type of Security (finance), security under which the issuer (debtor) owes the holder (creditor) a debt, and is obliged – depending on the terms – to provide cash flow to the creditor (e.g. repay the principal (i.e. amount borrowed) of the bond at the Maturity (finance), maturity date and interest (called the coupon (bond), coupon) over a specified amount of time.) The timing and the amount of cash flow provided varies, depending on the economic value that is emphasized upon, thus giving rise to different types of bonds. The interest is usually payable at fixed intervals: semiannual, annual, and less often at other periods. Thus, a bond is a form of loan or IOU. Bonds provide the borrower with external funds to finance long-term investments or, in the case of government bonds, to finance current expenditure. Bonds and Share capital, stocks are both Security (finance), securities, but the major difference between the two is that (capital) stockholders h ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Government Bond
A government bond or sovereign bond is a form of Bond (finance), bond issued by a government to support government spending, public spending. It generally includes a commitment to pay periodic interest, called Coupon (finance), coupon payments'','' and to repay the face value on the Maturity (finance), maturity date. For example, a bondholder invests $20,000, called face value or principal, into a 10-year government bond with a 10% annual coupon; the government would pay the bondholder 10% interest ($2000 in this case) each year and repay the $20,000 original face value at the date of maturity (i.e. after 10 years). Government bonds can be denominated in a foreign currency or the government's domestic currency. Countries with less stable economies tend to denominate their bonds in the currency of a country with a more stable economy (i.e. a hard currency). All government bonds carry Default (finance), default risk; that is, the possibility that the government will be unable to ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Yield To Maturity
The yield to maturity (YTM), book yield or redemption yield of a fixed-interest security is an estimate of the total rate of return anticipated to be earned by an investor who buys it at a given market price, holds it to maturity, and receives all interest payments and the capital redemption on schedule. It is the theoretical internal rate of return, or the overall interest rate, of a bond — the discount rate at which the present value of all future cash flows from the bond is equal to the current price of the bond. The YTM is often given in terms of annual percentage rate (APR), but more often market convention is followed. In a number of major markets, the convention is to quote annualized yields with semi-annual compounding. Main assumptions The YTM calculation formulates certain stability conditions of the security, its owner, and the market going forward: * The owner holds the security to maturity. * The issuer makes all interest and principal payments on time and in ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Credit Rating
A credit rating is an evaluation of the credit risk of a prospective debtor (an individual, a business, company or a government). It is the practice of predicting or forecasting the ability of a supposed debtor to pay back the debt or default. The credit rating represents an evaluation from a credit rating agency of the qualitative and quantitative information for the prospective debtor, including information provided by the prospective debtor and other non-public information obtained by the credit rating agency's analysts. Credit reporting (or credit score) is a subset of credit rating. It is a numeric evaluation of an ''individual's'' credit worthiness, which is done by a credit bureau or consumer credit reporting agency. Sovereign credit ratings A sovereign credit rating is the credit rating of a sovereign entity, such as a national government. The sovereign credit rating indicates the risk level of the investing environment of a country and is used by investors when looki ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Bond Valuation
Bond valuation is the process by which an investor arrives at an estimate of the theoretical fair value, or intrinsic worth, of a bond. As with any security or capital investment, the theoretical fair value of a bond is the present value of the stream of cash flows it is expected to generate. Hence, the value of a bond is obtained by discounting the bond's expected cash flows to the present using an appropriate discount rate. In practice, this discount rate is often determined by reference to similar instruments, provided that such instruments exist. Various related yield-measures are then calculated for the given price. Where the market price of bond is less than its par value, the bond is selling at a discount. Conversely, if the market price of bond is greater than its par value, the bond is selling at a premium. For this and other relationships between price and yield, see below. If the bond includes embedded options, the valuation is more difficult and combines option pri ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
