equity valuation models
Educational articles in this subcategory.
Glossary: Valuation Methodologies
This glossary defines 28 valuation terms with concise definitions focused on practical application. Terms are organized by category for reference duri...
Calibrating Target Prices with Risk/Reward
A target price is not a decision. You have calculated that a stock is worth $85, and it trades at $70. Is that a buy? It depends on your downside if y...
Common Pitfalls in DIY Valuation Models
Building your own valuation model is how you develop conviction. But DIY models are also where mistakes compound silently. A single formula error or a...
Documenting Valuation Assumptions Clearly
A valuation model is a story told in numbers. Without clear documentation of your assumptions, that story becomes fiction you cannot defend. CFA Insti...
Checking Results Against Market-Implied Expectations
You built a DCF. You have a price target. Now what? Before acting on that number, you need to understand what the market is already pricing in. Revers...
Using Comparable Transactions Data
**Intermediate** | Published: 2024-12-30 Comparable transactions analysis values a company by examining what acquirers actually paid for similar busi...
Adjusting for Share-Based Compensation and Dilution
Share-based compensation (SBC) is a **real economic cost** that many investors ignore in DCF models, leading to overvaluation of **15-30%** for tech c...
Selecting Discount Rates with CAPM and WACC
## Why It Matters Your DCF model is only as good as your discount rate. Use **8%** instead of **10%**, and a stock worth $50 suddenly looks like $70....
Incorporating Options and Warrants into Valuation
**Options and warrants represent claims on equity value that reduce what common shareholders actually own.** Tech companies with heavy stock-based com...
Valuing Negative Earnings or Early-Stage Companies
## Why Traditional P/E Fails (And What to Use Instead) When earnings are negative, the P/E ratio produces nonsense. A company losing $2 per share at ...
Monte Carlo Simulation for Equity Valuation
## Why Point Estimates Lie (The Distribution Problem) Traditional DCF models produce a single number. The stock is worth $50. But that precision mask...
Scenario and Sensitivity Analysis Techniques
## Why Single-Point Estimates Are Dangerous (The Range Problem) A DCF model produces a precise number. Your model says the stock is worth $47.32. But...
Economic Value Added and Value Drivers
## Why Accounting Profits Miss the Point (The EVA Insight) A company can report $100 million in net income and still destroy shareholder value. How? ...
Sum-of-the-Parts Valuation for Conglomerates
## Why Conglomerates Need a Different Approach (The Valuation Problem) A single P/E ratio cannot capture what a company is worth when it operates a s...
Revenue Multiples for High-Growth Firms
## Why Revenue Multiples Exist (When Earnings Do Not) When a company has no earnings, P/E ratios become useless. You cannot divide by zero or a negat...
EV/EBITDA and EV/EBIT: When to Use Each
## Why Enterprise Value Multiples Matter (The Core Logic) P/E looks at equity only. But companies have different capital structures—some carry heavy ...
P/E Multiple Selection: Trailing, Forward, and CAPE
## Why P/E Matters (The Core Question) How much are you willing to pay for each dollar of earnings? That is what P/E answers. **P/E = Current Stock ...
Residual Income and Excess Return Models
## The Core Insight (Why It Matters) Accounting profit ignores something fundamental: **capital has a cost.** A company that earns $10 million but re...
Dividend Discount Models for Mature Companies
## The Logic Behind DDM (Why It Matters) When you buy a stock and hold it forever, what do you actually receive? Dividends. That is the entire premis...
Discounted Cash Flow Valuation: A Practitioner's Guide
## The Core Logic (Why It Matters) Every investment you make involves trading dollars today for dollars tomorrow. DCF forces you to make that trade e...