Strategic financial
management
Topic: Valuation
Meaning of Valuation
• Valuation is the quantitative process of determining the fair value of
an asset, firm or an object.
• Various valuation methods are used to calculate.
• Value of a firm shall be determined on the basis of the method used
and the objective used.
When do we go to valuate a company?
• Liquidation
• Merges and Acquisition
• Raising funds
• Voluntarily
Equity valuation vs Enterprise valuation
Equity valuation
• Represents the value of the equity portion of the company only.
• Market valuation = Market value of the share price/no of o/s shares
in the market
• Net asset model
Enterprise valuation
• Represents the value of the company taking into consideration value
of different stakeholders.
• which can also be called firm value or asset value
• DCF model
• EV = (share price x # of shares) + total debt – cash
Fundamental vs Relative Valuation
• Fundamental parameters like Financial statement, sector analysis,
qualitative analysis and future growth
• Company is valued by comparing the it to similar company from the
same industry, similar size and financials.
Efficient Market Hypothesis
• Elton, Gruber and Erugne Fama supported
• Stock market fully reflects all the information
• New information can move the prices
• Stock price (Technical analysis)
• Public information (Fundamental analysis)
• Private information