Skip to main content

ANALYSIS OF COMMON STOCK VALUATION

COMMON STOCK VALUATION METHODS


Investor can use two methods for common stock valuation in which investor try to find out expected risk or return.

  • Dividend Discount Model
  • Dividend Growth Model


In these method first we find out the expected value and then compare with actual value and then take the decision we should buy the security or not. these are mostly risky investment.

Dividend Discount Model:


V = D1/(1 + ke)1 + D2/(1 + ke)2 + ........ Dn/(1 + ke)n

Discounting:
The present Value of future amount is called Discounting.

Example:
Suppose V=37 Expected Value or its also called Intrinsic value
MV= market value

Rules:
if Intrinsic Value  > MV   then buy the security            
         suppoes  IV=37             MV=  32

If Invrinscic (IV) < MV  then not buy the security
suppose   IV = 37     MV = 40
       
if IV=MV then break even
suppose   IV=37 and MV=37

Dividend Growth Model:

V = D1 /ke-g
V=Intrinsic value or Expected value

Rules:
if Intrinsic Value V > MV   then buy the security
If Invrinscic V < MV  then not buy the security
if V=MV then break even

Example:
V =46 and MV =42  now security will buy   because V>MV


INVESTMENT AND PORTFOLIO MANAGEMENT
INVESTMENT VS SPECULATION AND GAMBLING
TYPES OF INVESTOR
INVESTMENT COMPANIES
TYPES OF MUTUAL FUNDS
TYPES OF BONDS FUNDS
MONEY MARKET FUNDS
SECURITIES MARKET
TYPES OF INDEX
TYPES OF BROKERS
BROKER'S ACCOUNT
MARGINAL ACCOUNT
ORDER AND ITS TYPES
RISK AND ITS TYPES
RETURN PORTFOLIO ANALYSIS
RISK PORTFOLIO ANALYSIS
RISK AND RETURN OF AN INDIVIDUAL SECURITIES
ANALYSIS OF COMMON STOCK VALUATION
CAPM MODEL (CAPITAL ASSET PRICING MODEL)
MARKOWITZ MODEL




MBA NOTES INVESTMENT AND PORTFOLIO MANAGEMENT

Labels

Labels:

Comments

Post a Comment

Popular posts from this blog

MANAGEMENT

MANAGEMENT Definition: A set of activities planning, organizing, staffing, leading and controlling to achieve the organizational goals. or Management is the process of designing and maintaining an environment for efficiently accomplishing selected aims. or Set of activities (planning, organization, leading,controlling) directed at an organization resources (finance, human, physical and information) to achieve the organizational goals in an effecient and effective manner is called management. Efficient: The efficient mean do work be fore the due date. Effective: To complete the work in time. eg. if we say someone to complete task in 10 days and he complete the task in 10 days no more or no less that person called effective person. Manager: A person who perform all organization activities are called manager. Management Resoureces: There are four basic management resources. Finance Human Physical Information Finance: Finance mean the assets like as C...
1 comment
Read more

MBA NOTES:TYPES OF FINANCIAL ANALYSIS

TYPES OF FINANCIAL ANALYSIS Following are the various types of financial analysis. A. On the basis of material used. 1. External Analysis Analysis of financial statements may be carried out on the basis of published information. i.e.., information made available in the annual report of the enterprise. such analysis are usually carried out by those who do not have access to the detailed accounting records of the Co. i.e., Banks, Creditors etc. 2. Internal Analysis Analysis may also be based on detailed information available within the Co. which is not available to the outsiders. such analysis is called internal analysis. this type of analysis id of a detailed one and is carried out on behalf of the management for the purpose of providing necessary information for decision making, such analysis emphasizes on the performance appraisal and assessing the profitability of different activities. B. According to objectives ...
1 comment
Read more

TYPES OF FINANCIAL MARKETS

FINANCIAL MARKET DEFINATION: A market where securities are sold and purchased called financial market. Types of Financial Markets Primary Market: When a company issue its securities first time in the market that market is called primary market. Secondary Market: The market where issued securities are sold and purchased is called secondary market. Money Market: A market where securities who's maturity are less than or equal to one year are sold and purchased are called money market. a) T bill T bill are issued by Govt. when they need the money and Govt mostly issue T bill when thsre budget is going to budget is deficit or have. These securities maturity is less than one year and Govt. can issue in any country.Its a less risky investment. b) Commercial Paper Commercial paper are issued by companies. These types of securiteis issue mostly that company that have high credit worthiness in market and goodwill in the market. These types of investment are risky i...
2 comments
Read more