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Chapter
Outline
10.1
The
Discounted
Free
Cash
Flow
Model
10.2
ValuaLon
Based
on
Comparable
Firms
10.3
InformaLon,
CompeLLon,
and
Stock
Prices
10.4
Individual
Biases
and
Trading
Learning
ObjecLves
Value
a
stock
as
the
present
value
of
the
companys
free
cash
ows
Value
a
stock
by
applying
common
mulLples
based
on
the
values
of
comparable
rms
Understand
how
informaLon
is
incorporated
into
stock
prices
through
compeLLon
in
ecient
markets
Describe
some
of
the
behavioral
biases
that
inuence
the
way
individual
investors
trade
(Eq. 10.4)
The long-run growth rate gFCF is typically based on expected long-run growth rate of revenues
The
spreadsheet
below
presents
a
simplied
pro
forma
for
Nike
based
on
the
informaLon
we
have:
2009
2010
2011
2012
2013
V0 =
1, 264.7 1,372.5 1, 475.6 1,571.5 33,002.0 + + + + = $27,006.8million 2 3 4 4 1.10 1.10 1.10 1.10 1.10
We
can
now
esLmate
the
value
of
a
share
of
Nikes
stock
using
Eq.
10.4:
P0 = 27,006.8 + 2,300 32 = $60.24 486
Year FCF
2010
2011
2012
2013
The new esLmate for the value of the stock is P0=(23,769.8+2,300-32)/486=$53.58 per share, a dierence of about -11% compared to the result found in the previous example
Enterprise
value
mulLples
use
a
measure
of
earnings
before
interest
payments
are
made
EBIT
EBITDA
Free
cash
ow
Because
capital
expenditures
can
vary
between
years,
most
common
is
to
use
enterprise
value
to
EBITDA
mulLples
(Eq. 10.8)
Table 10.1 Stock Prices and MulLples for the Footwear Industry (excluding Nike), May 2010
Figure 10.4 Range of ValuaLons for Nike Stock Using Various ValuaLon Methods
10-74