Techniques for Conducting Company Analysis and Stock Valuation - Assignment Example

BUSINESS Question One There are a number of various techniques for conducting company analysis and stock valuation including asset-based methods (ABT) , using comparables techniques (UCT), free cash flow techniques (FCF), option-based evaluation (OBVT) and individual applications techniques (SAT). ABT commence with the “book” value of an organization’s equity. In this case, they calculate the values of all the organization less its outstanding debts. Among the equity include tangible items such as cash, all the current assets, the available working capital and the shareholder’s equity. Intangible capital is qualities such as management or brand name, in simple terms; equity refers to all the company will remain with if it decides to stop its operations and pay off its debts. Using comparables entails the use of an organization’s earnings in the process of valuing and organizations stock as well as analysis. Earnings also referred to as the net income or net profit, are the remaining amount after a firm settles all of its outstanding bills. In stock valuation and company analysis, there are earnings per share (EPS) which entails the measurement of earnings in coming up with an apples-to-apples comparison. To find the value of earnings per share, the expert analyzing the company divides the divides the dollar amount of the reported earnings of a corporation the currently outstanding number of shares in the enterprise. Free cash flow techniques are the most common measurement used by experts, among other investment bankers, for valuing stock as well as analyzing public and private companies. This is in contrary to the fact that the majority of individual investors lack the knowledge of cash flow. Cash flow is simply the amount of money flowing through a company during the business trading period or the company’s activities, usually a quarterly or a year, after doing away with fixed expenses. At times cash flows are referred to as earnings realized before interest, taxation, decreasing and accounting of an account as well as depreciation. Options-based techniques entail the analysis of the company as well as the valuation of its stock as an alternative approach since it takes full consideration of the risks associated with a venture. While considering these risks, they recognize the ability of firms to postpone a venture until a later time or rather engage in a partial investment. This technique got developed as a result of executives grappling continuingly with matters pertaining risks and uncertainties in the process of investment evaluations and acquisitions. Even though they apply net present value, among other valuation techniques, executives have no otherwise but to depend on instinct when concluding on decisions pertaining risky investments. There are some favorable outputs of a firm that form the part of a company selection and choice when it comes to investments. The first attribute is that the company’s product should not get faddish. By this attribute, it entails that the product and services produced by the company should remain in the market for a longer time. If possible, the product should stay in the market as long as it can for the purpose of providing room for the organization to come up with other new products. The firm should have long-run comparative advantage nearly all its competitors. In other words, this attributes the ability of a company to compete its rivals as well as eliminating some. The company’s industry or product should have market stability. This attributes the firm having a continuous flow of clients for continuous purchase of the products. Another attributes the organization benefiting from cost reductions. Cost reductions will have an effect of reducing the general productivity cost and increasing the profit levels. There are some tenets on how Warren Buffet values an organization, and this includes business, financial, management, and cost principles. Business principles entailed simplicity and understood able nature, consistent operating history, as well as long-term favorable prospects of a company. The management principles include the rationality of the management in business decision making, whether the management is candid to its stakeholders and the ability of the organization to resist industrial imperative. Financial tenets include the profitability of the firm, the levels of returns on equity and the amount of dollar value created by the firm in each retained dollar. Value tenets, on the other hand, entail the intrinsic value of the organization the ability of the shares to get purchased at a discount value of its intrinsic value. Question Two A top-down market investment process is a process whereby investors come up with systems that aid them in the process of achieving their set investment goals and targets. This particular type of investment permits investors to conduct a market analysis from a big picture as they approach individual stocks. Some good examples are when doing a micro analysis on whether investments suit the firm or not when analyzing trends as well as looking at the economy. A three-step market-industry-company investment process is an investment criterion aimed at securing an individual’s financial future. The first step entails investing basing on performances that are short-term. In this case, to get rid of the investment risks, the investors decide to analyze the performances of a particular venture over different time frames. This is because it gives the best indication of the investments financial health as a result of the review of the historical outlay and performance of the form. The second step entails a determination of whether the investment should get conducted on short term or long term basis and finally venturing into the decided business opportunity. Question Three Macro analysis of stock market entails conducting a study on the existing relationship between aggregate securities markets and the economy at large. Micro valuation of the stock market process requires the evaluation of some assessment approaches towards understanding the market (Reilly, 367). The microanalysis gets conducted as a result of the belief security markets give a reflection of the expectations on the economy since investment values get determined by their forecasted cash flows and rate of return. The valuation factors get influenced by the aggregate economic surrounding and have the objectivity of putting consideration on in the process of forecasting future market movements. Macroeconomy and the analysis of markets provide relevant and significant insights to enable industrial and company analysis. They provide approximated intrinsic value for a market indication as well as enabling the best decision-making process in matters of the stock exchange. It entails economic process and security markets, economic series and stock process and the cyclical indicator approach among others (Reilly, 369). Works Cited Reilly, Frank K. Investment Analysis And Portfolio Management. Chicago: Dryden Press, 1985. Print. Read More