Glossary: M08 — Equity Valuation: Concepts and Basic Tools
| Term | Definition |
|---|---|
| Asset-Based Valuation | Valuing a company by estimating the market value of assets minus liabilities |
| Book Value per Share (BVPS) | (Total Equity - Preferred Equity) / Common Shares Outstanding |
| Capital Gains Yield | The portion of total return from price appreciation: in the GGM |
| Constant Growth DDM | A DDM assuming dividends grow at a constant rate forever (Gordon Growth Model) |
| Discounted Cash Flow (DCF) | A valuation method that estimates value as the present value of expected future cash flows |
| Dividend Discount Model (DDM) | A model valuing a stock as the present value of all expected future dividends |
| Dividend Payout Ratio | Dividends per share divided by earnings per share: |
| Dividend Yield | Annual dividend per share divided by price per share: |
| Enterprise Value (EV) | Market Cap + Total Debt - Cash; measures total firm value to all capital providers |
| EV/EBITDA | Enterprise value divided by EBITDA; a capital-structure-neutral valuation multiple |
| Fairly Valued | A security whose market price approximately equals its estimated intrinsic value |
| Forward (Leading) P/E | Price divided by expected next-year earnings per share |
| Free Cash Flow to Equity (FCFE) | Cash flow available to equity holders after all expenses, reinvestment, and debt payments |
| Free Cash Flow to Firm (FCFF) | Cash flow available to all capital providers (equity + debt) |
| Gordon Growth Model (GGM) | ; values a stock with constant dividend growth |
| Intrinsic Value | The true underlying value of a security based on complete analysis of its fundamentals |
| Justified Multiple | A valuation multiple derived from a fundamental model (e.g., justified P/E from GGM) |
| Margin of Safety | The difference between intrinsic value and market price; provides a buffer against errors |
| Market Multiple | A valuation multiple observed from comparable companies or the market |
| Multi-Period DDM | A DDM that discounts dividends over multiple periods plus a terminal value |
| Multiplier Model | A valuation approach using ratios like P/E, P/B, P/S to compare securities |
| Net Asset Value (NAV) | Market value of assets minus market value of liabilities |
| One-Period DDM | ; the simplest form of the DDM |
| Overvalued | A security whose market price exceeds its estimated intrinsic value |
| P/B (Price-to-Book) | Market price per share divided by book value per share |
| P/CF (Price-to-Cash Flow) | Market price per share divided by cash flow per share |
| P/E (Price-to-Earnings) | Market price per share divided by earnings per share |
| P/S (Price-to-Sales) | Market price per share divided by sales per share |
| Present Value Model | A valuation model that discounts expected future cash flows to the present |
| Required Rate of Return | The minimum return an investor requires to compensate for risk: in valuation models |
| Retention Ratio | The proportion of earnings retained by the company: |
| Sustainable Growth Rate | ; the growth rate achievable without external financing |
| Terminal Value | The estimated value of a company beyond the explicit forecast period |
| Trailing P/E | Price divided by the most recent 12 months of earnings per share |
| Undervalued | A security whose market price is below its estimated intrinsic value |
Related: M08 Module Page | Equity Formulas