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L2 37 Market-Based Valuation: Price and Enterprise Value Multiples > b calculate and interpret a justified price multiple; > Flashcards

b calculate and interpret a justified price multiple; Flashcards

L2 37 Market-Based Valuation: Price and Enterprise Value Multiples (18 decks)

a distinguish between the method of comparables and the method based on forecasted fundamentals as approaches to using price multiples in valuation, and explain economic rationales for each approach;

b calculate and interpret a justified price multiple;

c describe rationales for and possible drawbacks to using alternative price multiples and dividend yield in valuation;

d calculate and interpret alternative price multiples and dividend yield;

e calculate and interpret underlying earnings, explain methods of normalizing earnings per share (EPS), and calculate normalized EPS;

f explain and justify the use of earnings yield (E/P);

g describe fundamental factors that influence alternative price multiples and dividend yield;

h calculate and interpret the justified price-to- earnings ratio (P/E), price-to- book ratio (P/B), and price-to- sales ratio (P/S) for a stock, based on forecasted fundamentals;

i calculate and interpret a predicted P/E, given a cross-sectional regression on fundamentals, and explain limitations to the cross-sectional regression methodology;

j evaluate a stock by the method of comparables, and explain the importance of fundamentals in using the method of comparables;

k calculate and interpret the P/E-to- growth ratio (PEG), and explain its use in relative valuation;

l calculate and explain the use of price multiples in determining terminal value in a multistage discounted cash flow (DCF) model;

m explain alternative definitions of cash flow used in price and enterprise value (EV) multiples, and describe limitations of each definition;

n calculate and interpret EV multiples, and evaluate the use of EV/EBITDA;

o explain sources of differences in cross-border valuation comparisons;

p describe momentum indicators and their use in valuation;

q explain the use of the arithmetic mean, the harmonic mean, the weighted harmonic mean, and the median to describe the central tendency of a group of multiples;

r evaluate whether a stock is overvalued, fairly valued, or undervalued based on comparisons of multiples.

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