stock and bond valuation ........................................


  • market approach 
  • valuation by market comparison approach 
  • identical items must be the same price - law of one price 
  • firms with the same attributes should have the same value 
  • objective and observable transactions 
  • valuation by cash flow ( NPV) approach
  • P/E=1/(k-g) 
  • E/P= earnings yield .......................................................
  • why P/E ratio are higher for more growth firms 
  • pv go ( present value of growth oppurtunities) 
  • PO=el/k+PVGO
  • Valuation - market approach 
  • P/E-Ratio- the 1/x domain problem 
  • selection of comparable companies ( Hard to find suitable comps) 
  • the p/e is an accounting number whereas the "p" is a market number 
  • " non agregation" of comparable ratios 
  • honest work when earnings are negative 
  • other techniques to handlwe the 1/x domain problem 
  • use median p/e instead of mean p/e ( the outliers issue)
  • ignore non positive earnings of firms 
  • average the e/p
  •  yeilds and the invert 
  • work with sums instead of just ratios 
  • other than p/e ratios for valuation 
  • price/EBITDA - excludes capital expenditure 
  • price/cash-cash flows can be lumpy 
  • PEG-P/E divided by growth- warning! especialy very low "g"
  • price/bookequity-tends to high number for older firms ( may be poor comp)
  • price/sales-can use for newer firms where earnings are negative 
  • price/employee ratios- could be difficult to use for various reasons
  • employee ratio - people who have a high value to the company 
  • P/E ratio - adjustments to consider 
  • trailing 12 months 
  • valuation market approach 
  • caveat 
  • during economic boom p/e tends to be overly high 
  • non-valuation ratios 
  • leverage 
  • liabilities/equity,finanicial debt/equity, times interest earned, fixed charge 


















































































































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