Principles of business valuation
11 important questions on Principles of business valuation
What are the three principles of business valuation?
- Principle of business reproduction
- Principle of business anticipation
- Principle of business substitutes
What kind of valuation methods are linked to business reproduction?
- Price / book value
- Price / net tangible assets
What kind of valuation methods are linked to business anticipation?
- DCF
- Divided discount
- Discounted future earnings multiples
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What kind of valuation methods are linked to business substitution?
- Price / sales (P/S)
- Price / earnings (P/E)
- EV/EBITDA
When is price/book value (asset-based valuation method) applicable?
When is DCF (earnings and cash flow-based valuation methods) applicable?
When is price / sales (P/S) (multiple-based valuation methods) applicable?
When is price / earnings (P/E) (multiple-based valuation methods) applicable?
When an Apple EPS 2020E earnings are $13.17 and its share price $267.25, what is its P/E ratio? And what is the risk premium compared to a 10-year US government bond of 1.85%?
267.25 / 13.17 = 20.29
13.17 / 267.25 = 4.92 - 1.85 = 3.08 risk premium.
When is EV / EBITDA (multiple-based valuation methods) applicable?
A vanilla industry has a EV/EBITDA multiple of what?
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