Valuation

CHAPTER 2 APPROACHES TO VALUATION Analysts use a wide range of models to note order assets in practice, ranging from the simple to the sophisticated. These models often make very different assumptions about price, but they do sh ar some ballpark characteristics and can be classified in broader terms. There be several advantages to such a classification -- it makes it easier to derive where singular models fit into the big picture, why they provide different results and when they receive fundamental errors in logic. In general terms, there argon three approaches to rating. The first, discounted cashflow valuation, relates the value of an asset to the present value of anticipate future cashflows on that asset. The second, relative valuation, estimates the value of an asset by looking at the pricing of comparable assets relative to a joint variable such as earnings, cashflows, book value or sales. The third, contingent claim valuation, uses option pricing models to measure the value of assets that share option characteristics. Some of these assets are traded financial assets exchangeable warrants, and some of these options are not traded and are based on real assets projects, patents and oil reserves are examples. The latter are often called real options.

There can be satisfying differences in outcomes, depending upon which approach is used. One of the objectives in this book is to rationalise the reasons for such differences in value across different models and to function in choosing the right model to use for a particularized task. Discounted Cashflow Valuation While discounted cash flow valuation is single of the three ways of approaching valuation and most valuations make in the real world are relative valuations, we leave argue that it is the foundation on which all other valuation approaches are built. To do relative valuation correctly, we need to understand the fundamentals of discounted cash flow valuation. To apply option pricing models to value assets, we often have to begin... If you want to get a full essay, order it on our website: Ordercustompaper.com

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