Which is the best approach to common stock valuation and why?
Key concepts relating to
Approaches to Business/Stock valuation:
Free cash flow or WACC approach gives the firm's value of assets or stock.
Value of stock = Value of firm - Value of Debt
(For various valuation models see excel file (Valuation theory- attached.)
It is a better method because:
Capitalization of expected income as the intrinsic value based on the discounted value of the expected stream of cash flows. But other methods should also be used such as dividend discount model AND PE ratio as it will act as complimentary model.
P/E multiplier remains popular for its ease in use and the objections to the dividend discount model because investor tend to focus on the capital gain.
P/E ratios are a useful indicator and tool when performing valuation and comparing firms. List three factors that should be considered or adjusted for when comparing P/E ratios among different ...
Common Stock Valuation is explored.