Reading 19: Equity Application and Process

Page No. I9 DG 2022 SundayDate / /EquityReadingLavityHoplicationAnd ProcessEquity valuationW. VV Idlandbns 6/02 910Intrensic Value (IV) : True undervalue of thesec givenCompleteunderstandingFampsonsmokeEst value (VE) : InvestorestofintrinsicvalueMarket Prile (P) : Current PricedrivertowildboogrillianMispricingDiff bet" MP &Diff bet" the analysts est ofIntrensic valueIntrensic value & actual Wayn12207conjectionsswinv signatulVE - P = CVE - IV) +CVE it P)wlov trantegualValuation errorActual misspricing Concern > LiquidationPage No.GoingDate/*Other Valuation ConceptGoing Concern Value :Relevent IV for publicly traded 6.assumedassetremaininplaceandContinuetoproducefreeCashflowintothefutureviaContinuing OperationLiquidity ValueThe value if the firm ceases to operate all assetare sold, e and the firm is dissolved.Orderly Liquidation ValueAssumeadequettimetorealize liquidation valueFare Market ValuePrice at whichanaim'slengthtransactionbetwillingand informedbuyofand sellerusuallymarket priceisequaltofairmarketvelInvestment Value$9M"tsdValue specifictobuyer including the DV value ofpreceivedsynergines-UsefulforvaluationinacqIntrensic value :- Public CompanyInvestment value :- Acquistion decision - JVD=9- 3Page No.Date / /StepsinequitityValuationiUnderstand the bizpitcobal2willSForecast Company performance3Select theappropicatevaluationmodelstatitedez4Convert forecasts to a valuation5Apply thevaluationconclusionsrequerUseIMPofEquityValuationIStock selection I-2Reading malket expectationIn ferring market expectations5/20235Evaluating Corporate eventsRenderingfairnessopinionssupportproopninicasaboutfuinessof price5Evaluatingbizstictegies&models6Communicatingwithanalyst&share holdersittilooT7 Valuation8ofprivatebizstringurgpenShare . basedpay"ddIndustry & Competitive analysispointsPoter's Element for Competative strategy)Cost leadership - lowest cost producer2Differentiation -uniqueproductsorservicesftiloup100somestain3Focus - target Segmentsofindustryusingeitheroftheabovestrategies Page No. SDate//Poters5elementforindustryanalysis1Intra - Industry rivarly2Newentrants3SubstituteGSupplier power+19Vag)5Buyer powerImportance of evaluatingthe qualityoffinancialStatement informationIRev Recognition & GainsNoteEarly revenuerecognitionfairusMis classificationofnunone-operatingincomeunitedularpainso2Exp and lossesDoubtfulDebtvyToo littleortoomuch reserveInappropriate CapitalizationofexpBISVsbrood210doff Bls financing-understatedliabilityoperating leaseOperating CF-MaybeartificiallyinflatedFactor thatmaysignalpossiblefuturenegativeSurpriset20)Poor qualityofExistanceaccountingdisclourseofrelated -partytransactionExistinceofexpecsiveemployeeloanHighmanagementturnover Page No.SDate / /ExcessivepressureonCompanytomakesevorearnings targetsMaterial and nonaduitservicesperformed by quit firmChanges in auditorManagementcompensationtiedtomarket sharestore mulgerprofitabilityIN(cLoss ofManagementpressuretomeetdebtcoveantsA historyofreportingviolationsprintingAbsoluteVsRelative.ValuationNExact amtnistorscoAbsolutevaluation models:2Intrinsic value basedonfundamentalcharactersticsTo:EPS asset turnsandleverage t returnonequity,agrowth (g)SODMFCF,ResidualincomelotiopLonistal:2020982009298Relativevaluation models :Valuederived fromrelativecomparisontosimilarassets,basedonlawofonepiecePLE , tPIBICF1tPlsmodeltreatmentfrogingBathincorporategoingconcernassumptionbapt272ballNobasedMac2Inisituardong3/8 Page No.6Date//SumofthepartValuation(SOTP)ValueeachdivisionsepietelyandaddtheComponenvalueobtancewholeCovalueAka Break upvalueprivatemarket valueUse for ComplomerateConglometateDis(CD)Investorapplydisctoain diffcompanyoperatingindustry (urielated) . ComparedtoCo.thatoperate inthatindustryonlySOTPMarket priceCD200 ftings17030?lack focusto hide poor operatingPenReason :Internalresearchmeasurement error.capital inefficiency :endegenousfactorsandIncorrectmeassurement :estAppropriateValuation ApprocuchConsistant219Understandwith the Characteristics of CompanyCompanyandhowitsassetscreateVBased on quality and availability of data.DDM problamatic when noPIEproblematicwithhighlyvdatileint Page No. 7Date / /Consistantwithpurpose ofanaylsisFCF Vs.Ldiv for controllingIntfor Cointiollingfut