Equity Shares Valuation

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Slide 1:

Chapter 10 Equity Shares Valuation and Analysis

Slide 2:

Equity valuations could be classified into the following categories: 1. Earnings valuation 2. Revenues valuation 3. Cash flow valuation 4. Asset valuation 5. Yield valuation 6. Member valuation

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Dividend Valuation Model A difficult problem in using the dividend valuation model is the timing of cash flows from dividends. Since equity shares have no finite measure, the investor must forecast all future dividends. This might imply a forecast of intently long stream of dividends. Clearly, this would be almost impossible. And therefore, in order to manage the problem, assumptions are made with regard to the future growth of the dividend of the immediately previous period available at the time the investor wants to determine the intrinsic value of his/her equity shares. The assumptions can be: Dividends do not grow in future i.e., the constant or zero growth assumption. Dividends grow at a constant rate in future, i.e., the constant assumption. Dividends grow at varying rates in the future time period i.e., multiple growth assumption.