question archive A business can be valued by capitalizing its earnings stream (see example 6
A business can be valued by capitalizing its earnings stream (see example 6
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A business can be valued by capitalizing its earnings stream (see example 6.15 in your textbook).
- How might you use the same idea to value securities, especially the stock of large publicly held companies?
- Is there a way to calculate a value that could be compared to the stock's market price that would tell an investor whether it's a good buy? (If the market price is lower than the calculated value, the stock is a bargain.)
- What financial figures associated with shares of stock might be used in the calculation. Consider the per share figures and ratios discussed in chapter 3 including EPS, dividends, book value per share etc.
- Does one measure make more sense than the others?
- What factors would make a stock worth more or less than your calculated value?
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