Equity Valuation in R
Learn the fundamentals of valuing stocks.Start Course for Free
4 Hours16 Videos58 Exercises7,064 Learners4750 XPApplied Finance in R Track
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How do we know when a stock is cheap or expensive? To do this, we need to compare the stock's price with its value. The price of the stock can be obtained by looking at various public sources, such as Yahoo Finance or Google Finance. The value of the stock though is much harder to identify. Every investor has to form his or her valuation of the stock. In this course, you will learn the fundamentals of valuing stocks using present value approaches, such as free cash flow to equity and dividend discount models, and valuation multiples. By the end of this course, you will be able to build your own valuation models.
Present Value ApproachesFree
Many individuals and institutions invest in equities. To do so effectively, the investor must have a solid understanding of how the value of the equity compares to the stock price. In this course, we focus on fundamental concepts of equity valuation. We begin with a discussion of time value of money and then move on to the first of two discounted cash flow methods we will discuss - the free cash flow to equity valuation model.Course Intro and Fundamental Valuation50 xpTime Value of Money100 xpDifference Between Valuing Enterprise and Equity Cash Flows50 xpThe Free Cash Flow to Equity Model50 xpCalculating Operating Profit50 xpCalculate Free Cash Flow to Equity100 xpCalculating Terminal Value100 xpCalculating Equity Value50 xpCalculating Present Value of Free Cash Flow to Equity100 xpCalculate Present Value of Terminal Value100 xpCalculate Equity Value100 xp
Perpetuity Growth Rate, Analyzing Projections, and Using a Dividend Discount Model
One of the critical components of free cash flow to equity valuation is using reliable projections. In the first part of this chapter, we will discuss ways to analyze the projections to help us identify the right questions to ask. In the second part of this chapter, we will go through the second of our discounted cash flow models - the dividend discount model. In this approach, we discount expected dividends instead of free cash flows.Analyzing the Projections50 xpAnalyze Revenue Trends - Bar Chart100 xpAnalyze Revenue Trends - Regression100 xpPerpetuity Growth Rate50 xpCalculate Retention Ratio100 xpPerpetuity Growth Rate Calculation100 xpDividend Discount Model50 xpValuing Preferred Stock100 xpValuation Assuming No Dividends For First Few Years100 xpValuation Assuming 2-Stages of Dividends100 xp
Discount Rate / Cost of Capital Estimation
To be able to discount cash flows, we need a discount rate. For the free cash flow to equity and dividend discount model, the cost of equity is the appropriate discount rate. In this chapter, we will discuss how each of the components of the cost of equity are calculated.What is a discount rate?50 xpRisk and Return50 xpCalculating Returns100 xpEstimating Beta100 xpUnlevering Betas50 xpHamada vs. Fernandez Formula50 xpBeta Unlevering Exercise100 xpBeta Relevering Exercise100 xpRisk-Free Rate and Equity Risk Premium50 xpObtain Risk-Free Rate Data100 xpCalculate Historical Equity Risk Premium100 xpCalculate the Cost of Equity100 xp
Relative valuation allows us to use the valuation of comparable companies to infer the value of our subject firm. In this chapter, we discuss how to identify comparable companies and how to calculate valuation multiples. We also show how to analyze the determinants of multiples.Relative Valuation50 xpIdentifying Comparable Firms100 xpValuation Multiples50 xpCalculating Valuation Multiples100 xpCalculating the Relevant Multiple100 xpImplied Price100 xpAnalyzing Determinants of Multiples50 xpCalculate ROE and P/B100 xpPlot P/B vs. ROE100 xpStrength of Relationship100 xpImplied Price Using Regression100 xpDifference in Implied Values50 xp
This chapter combines the lessons from Chapters 1 to 4 in a series of exercises. You will be asked to inspect the data and to value the firm using discounted cash flow and relative valuation approaches. At the end, you will combine the results in a summary table.Fundamental Valuation: Analyzing Projections50 xpVisually Inspecting the Data100 xpUsing Regression to Test the Projections100 xpFundamental Valuation: Implementation50 xpCost of Equity100 xpCalculate Value During Projection Period100 xpCalculate the Terminal Value100 xpEquity Value Per Free Cash Flow to Equity Model100 xpEquity Value per Dividend Discount Model100 xpRelative Valuation50 xpEquity Value Per Price-to-Earnings Multiples100 xpCombine valuation into a summary table100 xpCongratulations!50 xp
In the following tracksApplied Finance in R
PrerequisitesImporting and Managing Financial Data in R
Vice President at Compass Lexecon
Clifford S. Ang, CFA is a Vice President at Compass Lexecon. He specializes in valuation, corporate finance, and damages, and has worked on hundreds of engagements involving companies across a broad spectrum of industries. He is the author of Analyzing Financial Data and Implementing Financial Models Using R.
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