An Introduction to Valuation (Part 6) (Analyst Roles (Buy-Side Analysts (…
An Introduction to Valuation (Part 6)
Choosing a Valuation Model
What is the availability & quality of data?
A company with no dividend payout cannot be valued using Dividend discounted model
What is the purpose of
If the investor is going to buy a large stake in a firm and be able to control the firm, a free cash flow approach may be preferred to dividend discounted model
What are the characteristics of the company?
A company with few tangible assets would not be valued using an asset-based approach
Using Forecasts in a Valuation
Analysis to determine how changes to an assumed
(sales growth forecast,/changes in discount rates, /uncertainty about the company’s competitive power) would affect the
(other than those which are explicitly used in a model) call for different adjustments to the equity valuation.
Valuing a firm as the sum of its
individual operating segments
using different valuation models relevant to each segment
Works at an investment management firm, a bank trust department to report valuation judgments to a portfolio manager / investment committee
Help manage the firm’s pension plan / identify & value possible acquisition targets.Analysts at investment banks also assist in acquisitions.
Works at a brokerage firm where his or her research reports are disseminated to retail & institutional brokerage clients.
Works at independent vendors of information that provide firm valuations/ corporate data in publicly distributed reports
Effective research reports include:
Clear, incisive language
Objective and well-researched information
Clearly distinguished facts and opinions
Consistent analysis, forecasts, valuation & recommendations
Sufficient disclosure of information
Key risk factors
Disclosures of conflicts of interest