Company Analysis: Applied Valuation

Introduction:

In previous chapter we analyzed three traditional approach to forecasting earnings. Here, this chapter is attempt to also measure risk associated in forecasting with help of following three methods:

Regression Analysis Trend Analysis Decision Tree

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Also, stock valuation done with following approach:

P/E ratio model and Dividend discount model

Regression and Correlation Analysis

Linear Regression Multiple Regression

Trend Analysis

Trend analysis of time series utilization regression analysis. Best fitted line used to understand trend or pattern of any variable. Straight line trend is simple linear regression model.

Decision Trees

Traditional methods not contains probability of occurrences. Decision Tree contains different alternative with different probability, which helps in taking decision. Example Generating necessary inputs.

Management in Company Analysis

Active Equity Management

Growth Stock Approach Undervalued Stock Approach (Out of favor stocks) Small Capitalization Approach Market Timer Approach Index Fund Passive stocks

Passive Equity Management

Determining P/E Ratio

Actual and Normal P/E Ratio Statistical Analysis of P/E Ratio

Projecting Dividend

One- year holding period Multiple year holding period