eli5 How do most stock analysts go about valuing a company?
In: 19
There’s two way to look at it:
* What would anyone pay for it right now ? So you look at multiples of comparable companies (the trick here is to define “comparable”) and go with that.
* How much cash flow this company will produce in the future (ultimatly ending up in vlaue for shareholders)?
* You need a detailed business plans, a lot of assumptions
* You actualize them with their cost of capital: that’s how much it ‘s worth under that specific scenario
* you remove the debt that is owed to the banks, and what’s left is the value of Equity.
THe seconc case show how important assumptions are. If everyone thinks the company will grow 10% and you think they’ll grow 5%, you won’t have the same value…
Latest Answers