HomeREquity Valuation in R

# Equity Valuation in R

Learn the fundamentals of valuing stocks.

4 Hours16 Videos58 Exercises
7,584 LearnersStatement of Accomplishment

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## Course Description

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.

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1. 1

### Present Value Approaches

Free

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.

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Course Intro and Fundamental Valuation
50 xp
Time Value of Money
100 xp
Difference Between Valuing Enterprise and Equity Cash Flows
50 xp
The Free Cash Flow to Equity Model
50 xp
Calculating Operating Profit
50 xp
Calculate Free Cash Flow to Equity
100 xp
Calculating Terminal Value
100 xp
Calculating Equity Value
50 xp
Calculating Present Value of Free Cash Flow to Equity
100 xp
Calculate Present Value of Terminal Value
100 xp
Calculate Equity Value
100 xp
2. 2

### 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.

3. 3

### 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.

4. 4

### Relative Valuation

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.

5. 5

### Comprehensive Exercise

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.

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### In the following Tracks

#### Applied Finance in R

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Datasets

Historical returnsUS Treasury dataS&P 400 Midcap IndexMylan prices

Collaborators

Clifford Ang

Vice President at Compass Lexecon

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