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Equity Valuation

This is a research report on Equity Valuation uploaded by Udaykiran Suragani in category: All Documents »  Finance »  Financial Analysis section of our research repository.
2339 views, 6 comments, Last Update: Sep 13, 2011.
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Equity valuation is the method of calculating theoretical values of companies and their stocks. An equity valuation takes several financial indicators into account; these include both tangible and intangible assets, and are provided to prospective investors, creditors or shareholders.
The most used theoretical equity valuation method, called income valuation or the discounted cash flow (DCF) method, involves discounting of the profits (dividends, earnings, or cash flows) the stock will bring to the stockholder in the foreseeable future.
Stocks have two types of valuations. One is a value created using some type of cash flow. The other value is created by how much an investor is willing to pay for a particular share of stock and by how much other investors is willing to sell a stock for. Both of these values change over time as investors change the way they analyze stocks and as they become more or less confident in the future of stocks.
The most common example of valuation methodology is P/E ratio, which stands for Price to Earnings Ratio. This form of valuation is based on historic ratios and statistics and aims to assign value to a stock.
The other way stocks are valued is based on supply and demand. The more people that want to buy the stock, the higher its price will be. And conversely, the more people that want to sell the stock, the lower the price will be. This form of valuation is very hard to understand or predict, and it often drives the short-term stock market trends.



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