国际金融ch11.ppt

11 Stock Valuation And Risk Chapter Objectives Explain the general steps necessary to value stocks and the commonly used valuation models Learn the factors that affect stock prices Explain methods of determining the required rate of return on stocks Learn how to measure the risk of stocks Learn how to measure performance of stock Explain the concept of stock market efficiency Stock Valuation Methods The price of a share of stock is the total value of the company divided by the number of shares outstanding Stock price by itself doesn’t represent firm value Number of shares outstanding Stock price is determined by the demand and supply for the shares Investors try to value stocks and purchase those that are perceived to be undervalued by the market New information creates re-evaluation Stock Valuation Methods Apply the mean PE ratio of publicly traded competitors Use expected earnings rather than historical Equation: Stock Valuation Methods Reasons for different valuations Different earnings forecasts Different PE multipliers Different comparison or benchmark firms Limitations of the PE method Errors in forecast or industry composite Based on PE, which some analysts question Stock Valuation Methods The price of a stock reflects the present value of the stocks future dividends t = period Dt = dividend in period t k = discount rate Stock Valuation Methods Relationship between DDM and PE Ratio for valuing firms PE multiple is influenced by required rate of return of competitors and their expected growth rate When using PE multiple method, the investor implicitly assumes that k and g will be similar to competitors Stock Valuation Methods Limitations of the Dividend Discount Model Potential errors in estimating dividends Potential errors in estimating growth rate Potential errors in estimating required return Not all firms pay dividends Technology firms Biomedical firms Stock Valuation Methods Adjusting the Dividend Discount Model Value of stock is determined