1

1.
2.
3.
4.
5.

(financial assets)
(stock)


(intrinsic value)

ABC

ABC ABC

ABC 1-1
1-1

(TSI)


(input)
(process) (output) (intrinsic value)

1.1
1.1.1

(cash equivalent)
2

2 (intrinsic value)
(market price) (demand and supply)

1.1.2
(valuation) (intrinsic
value)

1.1.3
(assets valuation) (intrinsic value)

2
(net assets based valuation method)
(benefit based valuation method) 1-2
(TSI)

 1-2

(book value)

(sales)

(replacement value)

(net income)
(cash flow)

(liquidation value)

(net assets value: NAV)

(dividend)
(free cash flow)
(residual income)

1.1.3.1

4 (book value)
(replacement value) (liquidation value)
(net assets value NAV)
()
()
(1.1)
(TSI)


()

(1.1)

(static)

(book value per share)

(1.2)
=

(1.2)

(replacement value)
Replacement Value
Replacement Value

Replacement Value
Replacement Value
Replacement Value (book value)
Replacement Value
Replacement Cost

(TSI)

 (liquidation value)

Liquidation Value
Liquidation Value

(net assets value)

(assets)

(liabilities) + (equity)

(1.3)

Net Assets Value (NAV)

(NAV)

(1.4)

1-1 107 40
60 4

=
1
0
7

6
0
=
47

47
=
4
=
11.75

10

( 4 0 / 4 = 1 0 )

(TSI)

1.1.3.2

(flow)
(sales)
(net income) (cash flow)

(intrinsic value)


(intrinsic value)
Intrinsic Value


Intrinsic Value

1.2

(TSI)

1.2.1



(external factors)
(internal factors)
1-3

1-3

(TSI)

 1-3


(GDP) (CPI)

1-4

1-4

(TSI)

1.2.2

(valuation in portfolio management)

(active portfolio management)

(inefficient market)


(mispriced stock)
(overvalued or undervalued)

(beating the market)
(underpriced)
(overpriced)

1-5
1-5

1.3

(dividend)
(capital gain)
3 (discounted cash flow valuation)
(relative valuation) (residual income
valuation)
(TSI)


(discounted) (present value)
(dividend) (free cash flow)


(price/earnings ratio P/E)
(price/cash flow ratio P/CF) (price/book
value ratio P/BV) (price/sales P/S)
(
)
(common shareholders opportunity cost)

1.3.1


(earnings) (dividend) (cash flow)
(required rate of return expected rate of return)
(discount rate)

1. (dividend cash flow)
(dividend discounted model
DDM)
(constant growth)

2. (free cash flow

to equity FCFE)
(
)

1
(TSI)

10

 (time value of money)

(1.5)

CFt

1 r
i 1

(1.5)

CFt
r

=
=
return)

(required rate of

1.3.2



(value)

1

(price multiples) (benchmark)

(undervalued)
(overvalued) (1.6)
(price multiples) =

(TSI)

(1.6)

11

 Price Multiples
(intrinsic value)
( Price multiples)
(1.7)
= Price Multiples x

(1.7)

1.3.3
(residual income approach to valuation)

(shareholders opportunity cost)
(traditional accounting)
(equity capital)
(value added)
(equity capital)

-
(net income) (equity charge)

(1.8)

(cost of equity) (1.9)

B0 +

RIt
(1 + K e )t

V0

V0

(t = 0)

B0
Ke

=
=

RIt

(book value per share)

(expected residual income per

share) t

t 1

(TSI)

(1.9)

12

1.4

(intrinsic value)
(market price VS intrinsic value)

(undervalued)

1-6
1-6
(undervalued)

A (intrinsic value)

VI

VMP

(market price)

1-6
( )
( A) VMP A
(
) VI A VMP A

(TSI)

13

 1-2 35
/ 60 / (
)


()
1-1
:

(market price)

(intrinsic value)

35

60

25

71.43%

40

60

20

50.00%

45

60

15

33.33%

50

60

10

20.00%

55

60

9.09%

60

60

0.00%

(
)

()


( VMP A 1-6)

(overvalued)

(TSI)

14

 1-7
(overvalued)

VMP

(market price)

VI

(intrinsic value)

1-7
VMP A
1-3
1-3 1-2
85 /
60 / (
)






/

(TSI)

15

 1-2
:

(market price)

(intrinsic value)

85

60

25

- 29.41%

80

60

20

-25.00%

75

60

15

-20.00%

70

60

10

-14.29%

65

60

-7.69%

60

60

0.00%

(intrinsic value)





2
(net asset-base valuation method)
(benefit-based valuation method)

( ) /
(discount rate)
(discount)
(present value) (intrinsic value)

(overvalued stock)
(undervalued stock)

(TSI)

16

1.
2.

(zero growth model) (constant

growth model) (multiple growth model)
3. (free cash flow)
(free cash flow to firm)
(free cash flow to equity)

(common stock)

3.1

3.1.1

(TSI)

17



(cash flow)
(discount)

(3.1)
n

VE

CFt

(1 + k)
t=1

(3.1)

VE

CFt

t
(required rate of return)

(cash flow CF)

(dividend) (free cash flow)
2

(dividend)

(free cash flow to firm FCFF)

(
)

(TSI)

18


(free cash flow to equity FCFE)

3.1.2 Terminal Value

(stable
growth)


(going concern)
(3.2)
n

VE

CFt

(1 + k)
t=1

Terminal Value n
(1 + k) n

(3.2)

CFt

Terminal Value
n

1,,n
=

(3.2) 2
(stable growth rate) (
) Terminal Value ()
Terminal Value 3 Liquidation Value
Approach, Multiple Approach Stable Growth Model1
Terminal Value Stable Growth Model
Terminal Value
Terminal Value (asset)
(cash flow)
1

Damodaran (2002)
(TSI)

19

 Terminal Value
(3.3)
Terminal Valuet

Cash Flow t 1
k -g

(3.3)

(3.3) Terminal Value (

) Terminal Value (valuing equity)
(free cash flow to equity)
(dividend discounted model)
(free cash flow to equity: FCFE) (valuing firm)
(free cash flow to firm: FCFF)

3.1.3

(discount rate) (present
value)
(valuing equity)
(cost of equity: ke)

n

VE

FCFE t

(1 + k )
t=1

Ter minal Value

(1 + k e )n

(3.4)

VE
CFt

=
=

(equity value)
(free cash flow to equity)

ke

(cost of equity)
=

(TSI)

20

 (valuing firm)
(cost of capital: kc)
(3.5)
n
FCFFt Ter minal Value
VF
=
+

t
(1 + k c )n
t = 1 (1 + k c )
(3.5)

VF
CFt

=
=

kc

(firm value)
(free cash flow to firm)
=

(cost of capital)

3.2
(dividend discount model)

3.2.1
(3.6)
D1
D2
Dn
+
+ ... +
1
2
(1 +k e ) (1 +k e )
(1 +k e )n

V0

Dn

ke

(3.6)

(going concern)
(3.6)
(TSI)

21

V0

=
=

D1
D2
D
+
+
...
+
(1 +k e )1 (1 +k e ) 2
(1 +k e )

Dt

t
t=1 (1 + k e )

(3.7)

3.2.2

1


SET SMART

2

1

(required rate of return)

3-1 ()
25X9 5 50
31 .. 25X9 40
15% (25X8)
31 .. 25X9

5 x 50%

2.5 /

31 .. 25X8
V0

=
=

(TSI)

D1
P1
+
1
(1 + k e ) (1 + k e )1
2.5
40
+
(1 + 0.15)1 (1 + 0.15)1
22

2.17 + 34.78

36.95

31 .. 25X8 36.95 /
3-1
31 .. 25X8

31 .. 25X9

36.95

k e = 15%

2.50
P 1 = 40.00

36.95
36.95
36.95

3.2.3 1
1

3-2 3
15%

2549

5.0

2.50

2550

8.0

4.00

2551

10.0

5.00

(TSI)

23

 2551 55

V0

=
=

D2549
D
D
P
+ 2550 2 + 2551 3 + 2551 3
1
(1 + k e ) (1 + k e ) (1 + k e ) (1 + k e )
2.50
4.00
5.00
55.00
+
+
+
(1 + 0.15)1 (1 + 0.15) 2 (1 + 0.15)3 (1 + 0.15)3

2.17 + 3.02 + 3.29 + 36.16

44.64

2551 44.64

( )

3

(zero growth model)

(g = 0)

(3.7) D t

V0

Dt

(1 + k )
t=1

Dt
t=1

1
(1 + k e )t

ke 0
Dt
ke

V0

V0

Dt

ke

t ()

(3.8)

(TSI)

24

 3-3 () 5 /
15%
Dt
V0
=
ke
=
=

5
0.15
33.33

33.33 /

(constant growth Gordon growth model)

Gordon Shapiro (1956) Gordon
(1962)
( dividends grow
indefinitely at a constant rate) Gordon
(3.9)
Dt

Dt-1 (1 + g)

(3.9)

(3.9) (3.10)

V0

Dt

(1+k )
t=1

(3.10)

(3.10)
V0

D0 (1 + g) D1 (1 + g) D2 (1 + g)
D (1 + g)
+
+
+ ... + t-1
+...
2
3
(1 + k e ) (1 + k e )
(1 + k e )
(1 + k e )t
(3.11)

(TSI)

25

 (3.11) (geometric series)

(1 + g)

(1 + k e )
(3.11) (3.12)

V0

V0

D0 (1 + g)
(k e - g)
D1
(k e - g)

(3.12)

(3.12)
(required rate of return ke) (g)

(3.12) (-)
3-4 JCP 0.50 /
6% 8.8%
V0

=
=
=

D0 (1 + g)
(k e - g)
0.50(1 + 0.06)
(0.088 - 0.06)
18.93

JCP 18.93 /
3-5 3.7% 6.2%
0.83 / TW
Gordon 33.20 /
0.25% (25 basis points) TW
3-1
0.25%
g = 3.45%
(TSI)

g = 3.70%

g = 3.95%
26

ke = 5.95%

33.20

36.89

41.50

ke = 6.20%

30.18

33.20

36.89

ke = 6.45%

27.67

30.18

33.20

( 3.45% 6.45%)
TW (27.67 /)
( 3.95%
5.95%) (41.50 /)
Gordon


( long term
expectation)

(m u l t i p l e

g r o w t h

m o d e l)

(growth company)



Supernormal Growth Model
2
2 (2 stage growth model)
3 (3 stage growth model)

2 (2 s t a g e g r o w t h m o d e l)
2
2

(TSI)

27

 (constant dividend growth

rate) AAA 3
15% 12%

(H-Model) YYY 3
15% 10%

2

2
(g1) (g2)
3-2

3-2 2
0

2
D1

3 . . .
D2

T
D3

...

T + 1
DT

T + 2
DT+1

DT

+2

VT-

VT+

VT

3-2 V 0
V0

V T- + V T+

(3.13)
(TSI)

28


V T-

V T+

1 T = g1
T + 1 = g2

1 T (vT- ) g1
(3.14)
T

V T-

t=1

Dt
t
1 + k e

(3.14)

T + 1 T (V T)
g2 (3.15)
VT

DT+1
k e - g2

(3.15)

V T V T+ VT
(3.16)
VT
V T+
=
(1 + k e ) T
(3.16)

(3.15) VT (3.16)
V T+

DT+1
(k e - g 2 )(1 + k e ) T

(3.17)

2
V0

V TT

Dt

(1 + k )
t=1

V T+

DT+1
(k e - g 2 )(1 + k e ) T

(3.18)

(TSI)

29

 3-5 ( X0) 5
20% (g1) 3 ( X1 X3) 7% (g2)
( X4 ) (required rate of return) 15%
X0

g1
0

D1

g1

D2

g1

D3

g2

D4
4

X 1 X 3
3

V X0 (X1 X3)

V X0 (X1 X3)

D5

g2

= 20%

Dt

(1 + k )
t=1

.
.

D0 (1 + g1 )t

t
t=1 (1 + k e )

5(1 + 0.20) 5(1 + 0.20)2 5(1 + 0.20)3

+
+
(1 + 0.15)1 (1 + 0.15)2
(1 + 0.15)3

5.22

5.44

16.34

5.68

x4 g2= 7%
D4
V X0 ( X3 )
=
(k e - g 2 )(1 + k e ) 3
=
V X0 ( X3 )

5(1 + 0.20)3 (1 + 0.07)

(0.15 - 0.07)(1 + 0.15)3
75.98

X0
V

V X0 X1 X3 + V X0 ( X3 )

16.34 + 75.98

92.32

92.32 /
(TSI)

30

 H ( H M o d e l )
2 (2 stage growth model)
2 15% 3
10% 3
( 15% 10% )

(supernormal growth period) (normal
growth stage)
1984 Fuller Hsia
H Model

3-3
2 stage growth model H Model (2 - stage)
(%)
1

(%)
()

()

T1 T2

3-3 ()
(constant rate) 1 2 T1
() (decline linearly) 1 2
( T1 T2 )
H (H model) (3.19)
T1

V0

D0 (1 + gL ) D0H(g S - gL )
+
k e - gL
k e - gL

V0

D0 (1 + gL ) + D0H(g S - gL )
k e - gL

(3.19)

(3.20)
(TSI)

31


V0
D0
ke
H

( t0 )
=
=
= (half life)
=

Supernormal Growth
gS

gL

Supernormal Growth

(3.18)

D0 (1 + gL )
(present value)
k e - gL

( Supernormal Growth)
D0H(gS - gL )
Supernormal Growth
k e - gL
Supernormal Growth (gS)
(gL) gS > gL
Supernormal Growth ( gS gL )
3-6 AG 1.00 /
29.28%
(linearly declining) 16 7.26%
( 17) 12.63% AG
V0

=
=

D0 (1 + gL ) D0H(g S - gL )
+
k e - gL
k e - gL
(1.00)(1 + 0.0726) (1.00)(16/2)(0.2928 - 0.0726)
+
(0.1263 - 0.0726)
(0.1263 - 0.0726)

19.97 + 32.80

52.77

AG 52.77
3 (3 s t a g e g r o w t h m o d e l)
3
2
(TSI)

32

 (constant dividend growth

rate) ABCD
3 10% 15% 4
12%
1
2 (the growth rate is assumed to decline linearly)
XYZ 2 15% 3
10%
3-4

3-4
(constant growth rate)
(decline linearly)
(%)

(%)

1
3

T0

T1

T2

T0

T1

T2

()

()

()
( 1 3) ()
( 1, 3)
T1 T2
3-7 BMI 0.55 /
BMI 7.5% 2 13.5%
4 11.25%
12% BMI

(TSI)

33

 1 2 ( 7.5% (g1))
1:
D1
=
D0 (1 + g1)
2:

D2

0.55 x (1 + 0.075) =

D1 (1 + g1)

0.59 x (1 + 0.075) =

0.59

0.63

0.72

0.81

0.92

1.04

3 6 ( 13.5% (g2))
3:
D3
=
D2 (1 + g2)

4:
5:
6:

D4

D5

D6

0.63 x (1 + 0.135) =

D3 (1 + g2)

0.72 x (1 + 0.135) =

D4 (1 + g2)

0.81 x (1 + 0.135) =

D5 (1 + g2)

0.92 x (1 + 0.135) =

6 ( 11.25% (g3))
V6

D7
(k e - g 3 )

D6 (1 + g 3 )
(k e - g 3 )

1.04(1 + 0.1125)
(0.12 - 0.1125)

1.1570
0.0075

154.27

(discount)

6
V6
DT
V0
=
+

T
(1+k e ) 6
T=1 (1+k e )

0.59
0.63
0.72
0.81
0.92
+
+
+
+
1
2
3
4
(1+0.12) (1+0.12) (1+0.12) (1+0.12) (1+0.12)5
1.04
154.27
+
+
(1+0.12)6 (1+0.12)6

=
=

0.53 + 0.50 + 0.51 + 0.51 + 0.52 + 0.53 + 78.16

81.26
/

(TSI)

34

 BMI 81.26 /
3-8 HRL 0.39 /
HRL 11.30% 5 10
(linearly declining) 5.7%
8.72% HRL
5 ( 11.30% )
1 :
2 :
3 :
4 :
5 :

D1

D2
D3
D4
D5

D0 (1 + g1)

0.39 (1 + 0.113)

D1 (1 + g1)

0.43 (1 + 0.113)

0.43

0.48

D2 (1 + g1)

0.48 (1 + 0.113) =

0.53

D3 (1 + g1)

0.53 (1 + 0.113) =

0.59

D4 (1 + g1)

0.59 (1 + 0.113) =

0.66

5 (linearly declining)
10 5.7% 5
H-model

V5

D5 (1 + gL ) D5H(g S - gL )
+
k e - gL
k e - gL

0.66(1 + 0.057) 0.66(10/ 2)(0.113 - 0.057)

+
(0.0872 - 0.057)
(0.0872 - 0.057)

23.10 + 6.12

29.22

(discount) HRL (discount

rate) (required rate of return)

(TSI)

35

V5

0.43
0.48
0.53
0.59
+
+
+
1
2
3
(1+0.0872) (1+0.0872) (1+0.0872) (1+0.0872)4
0.66
29.22
+
+
5
(1+0.0872) (1+0.0872)5

0.40 + 0.41 + 0.41 + 0.42 + 0.43 + 19.24

21.31

HRL 21.31 /

(zero dividend in first

s
t
a
g
e)



(time value of
money)

3-9 DDD
5 ( 5) 1
5 5%

11%

D D D

D5
V4
=
(k e - g)
1.00
=
(0.11 - 0.05)
=

16.67

16.67 /

V4
V4
=
(1 + k e ) 4
16.67
=
(1.11)4
=
(TSI)

10.98

/
36

10.98

()


(free cash flow
to firm : FCFF)

(negative growth)

() 25X1 15 / 25X2
12 / 20.00% ( 25X2
25 X1 20.00 %) Gordon

3-10 SHI 25X6 20 /

25X7 15 / SHI 10%
SHI

(D25X7 - D25X6 )
(g)
=
D25X6
=
=

(15 - 20)
20

- 0.25 -25.00%

( 25X7)
D25X7 (1 + g)
V25X7
=
(k e - g)
15(1 + (-0.25))
=
(0.10 - (-0.25))
=
32.14 /

(TSI)

37

( )
(free cash flow)
2
(free cash flow to equity FCFE)

3.3
3.3.1

(free cash flow)

(not dividend paying)

(financial projection)


()

(TSI)

38

 2
(free cash flow to firm) (free
cash flow to equity)

(free cash flow)

2 (free cash flow to firm: FCFF)
(free cash flow to equity: FCFE)

(firm value)

FCFFt

(1 + WACC)
t 1

(3.21)

(3.21) (WACC)

(equity value)

(3.22)

(3.22)

FCFE t
(equity value)
=

t
t 1 (1 + k e )
(3.23)

3.23

(TSI)

39

(3.24)

WACC =

D
E
D + E k d (1 - T) + D + E k e

(3.24)

kd

ke

(market value)
(market value)
(cost of debt)
(cost of equity)
(tax rate)

D
(3.24)

D+E

E
()

D+E

3-11 03 CCA 1,150,000

15% 1,500,000
8% CCA 30%
D
E
WACC
=
D + E k d (1 - T) + D + E k e

(TSI)

40

(1,150,000)

0.15(1-0.30)

(1,150,000+1,500,000)

(1,500,000)

+
0.08
(1,150,000+1,500,000)

0.0456 + 0.0453

0.0909 9.09%

CCA 9.09%

(cost of debt)

2 2.2 3
Gordon Growth Model

(ke)

DPS 1
+g
P0

DPS1
P0

= 1 (expected dividends

= (growth rate in dividends)

yield)

Bond Yield Plus Risk Premium

(ke)

YTM + Risk

Premium

(TSI)

41

YTM
Risk Premium

= /
=

Capital Asset Pricing Model CAPM

(ke)

R f + (E(R m ) - R f )

Rf

E(R m )

(risk free rate)

(beta)

CAPM

3.3.2
(forcasting free cash flow)


1

(free cash flow to firm FCFF)

(working capital)
(investment in fixed capital)

2
(free cash flow to firm from net income)
(free cash flow to firm from statement of cash flow)

(3.25)
(TSI)

42

FCFF

Net income Available to Common Shareholder + Net Noncash

charges
+ Interest Expense x (1 Tax rate) - Investment in Fixed
Capital
- Investment in Working Capital
(3.25)

(3.26)
FCFF

NI + NCC + Int(1 Tax rate) - FCInv - WCInv

(3.26)

NI =
NCC =

Int =
Tax rate =
FCInv =
WCInv =

(depreciation)
(amortization)

(3.25) (3.26)
(bottom line)
(profit/loss statement)

(net non cash charges NCC)
(adjustment)

(TSI)

43



(cash flow statement) (investment activities)
( )
()

(balance sheet)
(cash)
(marketable securities)
(cash equivalents) (current portion
of long-term debt) (note payable)
(financing activity) (operating activity)
3-12 CCA ( 00) 03
224 ,000 336 ,000
500,000 450,000
10 (salvage value)
50,000 ( ) 60,000
01 03 CCA
CCA

31 .. 01 31 .. 03
:
01

02

03

200.00

220.00

242.00

45.00

49.50

54.45

(EBIT)

155.00

170.50

187.55

15.68

17.25

18.97

(EBT)

139.32

153.25

168.58

(30%)

41.80

45.97

50.58

(NI)

97.52

107.28

118.00

(EBITDA)

(TSI)

44

 CCA

31 .. 01 31 .. 03
:
00

01

02

03

0.00

108.92

228.74

360.54

0.00

100.00

110.00

121.00

60.00

66.00

72.60

79.86

60.00

274.92

411.34

561.40

()

500.00

500.00

550.00

605.00

0.00

45.00

94.50

148.95

560.00

729.92

866.84

1,017.45

0.00

50.00

55.00

60.50

0.00

50.00

55.00

60.50

224.00

246.40

271.04

298.14

336.00

336.00

336.00

336.00

0.00

97.52

204.80

322.80

560.00

729.92

866.84

1,017.45

:
00

01

02

03

0.00

100.00

110.00

121.00

60.00

66.00

72.60

79.86

() (1)

60.00

166.00

182.60

200.86

0.00

50.00

55.00

60.50

()

(2)
(TSI)

45

60.00

(1) - (2)
()

116.00

127.60

140.36

56.00

11.60

12.76

(FCFF)

CCA
31 .. 01 31 .. 03
:
01

02

03

97.52

107.28

118.00

(depreciation and amortization)

45.00

49.50

54.45

10.98

12.08

13.28

0.00

(50.00)

(55.00)

(56.00)

(11.60)

(12.76)

(FCFF)

97.50

107.26

117.97

(free cash flow to firm: FCFF) CCA

97,500 107,260 117,970 1, 2 3

(cash flows from operating)

(3.27)
FCFF

Cash flow from operation + Interest Expense x (1

Tax rate)

- Investment in Fixed Capital

(3.27)

(3.28)

(TSI)

46

FCFF

CFO + Int x (1 Tax rate) - FCInv

(3.28)

Int
=

Tax rate =

FCInv =

(3.27) FCFF
(WCInv) (3.26)
(CFO) (working capital)
CFO

3-13 3-12 01 03

CCA
31 .. 01 31 .. 03
:
01

02

03

97.52

107.28

118.00

45.00

49.50

54.45

(100.00)

(10.00)

(11.00)

(6.00)

(6.60)

(7.26)

50.00

5.00

5.50

86.52

145.18

159.69

0.00

(50.00)

(55.00)

22.40

24.64

27.10

108.92

119.82

131.80

0.00

108.92

228.74

108.92

228.74

360.54

(TSI)

47

 FCFF
:
01

02

03

86.52

145.18

159.69

10.98

12.08

13.28

0.00

(50.00)

(55.00)

(FCFF)

97.50

107.26

117.97

97,500
01 107,260 02 117,970 03

(discounted free cash flow to equity present value of free cash flow to equity)

( FCFF) / ( net
borrowing) (FCFE) (3.29)
FCFE

FCFF - Int. x (1 - Tax rate) + Net borrowing

FCFE

Int.

Tax Rate

Net borrowing

(new debt - debt repayment)

(3.29)

3-14 3-13
:
(TSI)

48

 01

02

03

(FCFF)

97.50

107.26

117.97

(10.98)

(12.08)

(13.28)

22.40

24.64

27.10

0.00

0.00

0.00

108.92

119.82

131.79

(FCFE)

CCA 01 03 108,920 119,820

131,790

3.3.3
(dividend
discount model)
(Gordon Growth Model)

g
t t-1
FCFFt

FCFFt-1(1 + g)

(firm value)

=
=

FCFF1
WACC - g
FCFF0 (1+g)
WACC - g

(3.30)

g
t t-1
(TSI)

49

FCFEt

(equity value)

FCFEt-1(1 + g)

FCFE 1
ke - g

FCFE 0 (1+g)
ke - g

(3.31)

3-15 () (WACC) 12%

(FCFF) 35
5%
25 10,000,000
(equity value per share)
(firm value)

=
=
=

FCFF0 (1+g)
WACC - g
35(1+0.05)
0.12 - 0.05
525

(equity value)

525 25

500

50

3.3.4 2

(growth rate: g) 2

(TSI)

50

 (growth is constant in stage 1 before

dropping to the long-run sustainable rate)2

(firm value)

FCFFt

(1 + WACC)

t=1

FCFFn+1
1
x
(WACC - g) (1 + WACC)n
(3.32)

FCFFt

t
t=1 (1 + WACC)
FCFFn+1
1
n

x
(WACC - g) (1 + WACC)n
(terminal value)

3-16 THC 2548 2550 20% 5% THC

15% 5,500,000 500 ,000 2547
1,000,000 TCH 2547
3

Firm value

t=1

FCFFt

(1 + WACC)

FCFF3+1
1
x
(WACC - g) (1 + WACC)3

1,000,000x(1+0.20) 1,200,000x(1+0.20)
+
(1+0.15)
(1+0.15)2
1,440,000x(1+0.20) 1,440,000x(1+0.05)
1
+
+
x
3
(1+0.15)
(0.15 - 0.05)
(1+0.15)3
1,043,478.26 + 1,088,846.88 + 1,136,188.05 +

9,941,645.43

1
2
Stowe, Robinson, Pinto and McLeavey (2002) 148 150
(TSI)
51

13,210,158.62

THC 13,210 ,158.62

Equity value

=
=

13,210,158.62 - 5,500,000
7,710,158.62

THC

=
=

7,710,158.62
500,000
15.42
/

THC 15.42 /

(3.32)
(ke) (3.33)
(equity value)

FCFE t

(1 + k )
t=1

FCFEn+1
1
x
(k e - g) (1 + k e )n

(3.33)

3-17 THC
2548 2550 15% 2551 5%
700,000 20% THC
2547
(TSI)

52

FCFE t

(1 + k )
t=1

FCFEn+1
1
x
(k e - g) (1 + k e )n

700,000x(1+0.15) 805,000x(1+0.15)
+
(1+0.20)
(1+0.20) 2
925,750x(1+0.15) 1,064,612.50(1+0.05)
1
+
+
x
3
(1+0.20)
(0.20-0.05)
(1+0.20)3

670,833.33+ 642,881.94 + 616,095.20 + 4,312,666.38

6,242,476.85

THC
=
=

6,242,476.85
500,000
12.49
/

THC 12.49 /



(relative
approach to valuation) 5

(dividend discount model) (free cash flow to
equity model) (free cash flow to firm model)


Terminal Value

(TSI)

53









(free cash flow to equity) (free cash flow to firm)


( intrinsic value)
(market price)
(undervalued)
(overvalued)

(TSI)

54

1. (relative value technique)

2.
(price/earning technique) (book
value per share technique) (price per cash flow technique)
(price per sales technique)

(relative valued technique)
(market price)




(price multiple) Price
Multiple Price Multiple 4

(price-earnings ratio earnings multiple)
(price-book value ratio book value multiple)
(price-sales ratio revenue multiple)
(price-cash flow ratio cash flow multiple)

5.1
Price Multiple

1 1

(TSI)

55

 A 100 10 B
120 6
Price-Earnings Earnings Multiple
A B

P/E ratio (Earnings Multiple)

10

12

A 10 B 12

1 A
A 10 10 1 B
B 12 12 ( 1 A 1 B)
Price Multiple Earnings Multiple
A B B A A B





Price Multiple
(
) A B ( )
A B A
( ) A
(undervalued) A
(overvalued) B
Undervalued Overvalued


(price
multiple) ( )
(method of comparables) Price Multiple
(TSI)

56

(comparison assets) Benchmark Value Price Multiple

(
) Price Multiple ( ) Price Multiple
Undervalued (Overvalued)
Benchmark Value Price Multiple
(a closely matched individual stock)
(company or industry peer group)
(all stocks in market)

(judgment)

Price Multiple Benchmark Value

(mean)
(median) Price Multiple

5.2
.. 1934
Security Analysis Benjamin Graham David L. Dodd (1934, p.351)
(P/E)
P/E Trailing P/E ( current P/E) Leading P/E (
forward P/E)

5.2.1
P/E (5.1)
P/E ratio

Market Price
EPS

(5.1)

Market Price =
EPS
=
Market Price Price Multiple

(TSI)

57

 EPS (earnings)

(reinvestment) (dividend) ()

5.2.2
Stowe, Robinson, Pinto Mcheavey (2002, p.183) P/E
1. (earnings)
(investment value) Blocks 1999 survey
(AIMR) 4
(earnings) (cash flow) (book value)
(dividend) 1
2. P/E ratio
3. P/E ratio (long-run average
returns)
P/E ratio
1. EPS P/E ratio
2. (volatile)
P/E
3.
(distortion) P/E

P/E

5.2.3
P/E P
(straightforward) (the current price for publicly traded companies)
E
1. Time horizon
2. Adjustment to accounting
(nonrecurring items)
(business-cycle effects)
(TSI)

58

 Time horizon Adjustment to

accounting
Analysis of Equity Investments: Valuation Stowe, rt. al AIMR (2002, p.185 - 189)
Time horizon P/E
P/E 2 Trailing P/E Leading P/E
Trailing P/E
E E 12 (trailing 12 month
TTM EPS )
Leading P/E
E E (next year expected
earnings)
Trailing P/E
Leading P/E First Call / Thomson Financial Reports Current P/E ( Trailing P/E)
(the last report annual
EPS) Value Line Reports P/E 2
2 (the sum of the preceding two quarter trailing
earnings and the next two quarters expected earnings)
P/E

Trailing P/E Leading P/E P/E

5.2.4 Trailing P/E

Trailing P/E 5-1
5-1 25X8

(TSI)

59

31 25X8
:
1,250
275
975
420
555
125
430
129
301

(30%)

:
31 25X8
100,000
25 /
Trailing P/E
E
P/E ratio

=
=
=
=

Mkt. Price 0
EPS 0
25
(301,000 / 100,000)
25
3.01
8.31

8.31
8.31 1
(negative earnings) P/E
E P
E/P Earnings Yield P
E/P E/P 1
(TSI)

60


E/P
(most costly) P/E ( Negative Earnings
) (cheapest)

5-1 P/E E/P 4

E/P P/E
5-1 P/E E/P A, B, C D
31 2547

(/)

Trailing EPS
(/)

Trailing P/E
()

E/P

26.00

0.49

53.06

1.88%

19.20

-0.11

N.M.

-0.57%

8.59

-0.40

N.M.

-4.66%

8.07

-3.15

N.M.

-39.03%

: N.M. Not Meaningful

5-1 3 4
EPS P/E A E/P
1 A ( )
B,C D

P/E

(earnings per share EPS)
12 1 (P/E ratio)

30 2547
(5.2) ( : (key statistics) 4 2548)
P/E ratio = x ( - )
(TSI)

(5.2)
61

(Trailing P/E)

12

2 2547
(5.3)
Trailing P/E ratio = x [(Common Share + Preferred Stock) - Repurchase Stock] (5.3)
12

Common Share
Preferred Stock
Repurchase Stock
12

=
=
=
= 12
12 1 25X8

12 = 2 25X7 + 3
25X7 + 4 25X7 +
1 25X8

12 = 1 25X8 + ( 25X7 1 25X7)
(5.3)
(EPS) 12
(5.3)
(market value) 12
12
(3
)
12 1 5-2
5-2 VANC 5 2548

VANC 5 2548 97.50

(TSI)

62

 VANC

13.94

VANC
2 25X7
5,043.96
3 25X7
5,269.10
4 25X7
4,914.98
1 25X8
5,368.92
1 25X8 2,946.15
Trailing P/E
P/E ratio = x [( + ) - ]
(Trailing P/E)
12
=
97.50 x (2,946.15)
(5,043.96 + 5,269.10 + 4,914.98 + 5,368.92)
=
13.94

5.2.5 Leading P/E

Leading P/E E (nextyearsexpected
earnings)
EPS 4 (expected EPS for the next four quarters)
EPS 1 (expected EPS for the next fiscal year)
1 2546 15
4 2545 ( 31 2545) 0.22
EPS
31 2546 0.15
30 2546 0.18
30 2546 0.18
31 2546 0.24
E 4 2546
( ) 0.15 + 0.18 + 0.18 + 0.24 = 0.75
Leading P/E 15 / 0.75 = 20.0
(TSI)

63

 (EPS of the fiscal year concept) EPS

EPS EPS t1
EPS2
5-3 XYZ 44.55 (
31 2547) 1 (fiscal year) XYZ (calendar year)
1 31 EPS 1 (31
2548) XYZ 3.87 Leading P/E
Leading P/E

=
=

44.55
3.87
11.5

5-3 (stable earnings)

E
(unstable earnings volatile earnings) Leading P/E 5-4
5-4 8 2544 MNG
25.72 MNG
()

31

30

30

31

2544

0.08

(0.34)

(0.27)

E(0.00)

2545

E(0.05)

E0.10

E0.15

E0.30

: E Expected earnings

1. Leading P/E MNG E The next four quarter of forecasted EPS

2. Leading P/E MNG E A current fiscal year (2544) forecast year
3. Leading P/E MNG E A next fiscal (2545) forecasted EPS
1. EPS
4Q : 2544 ()
1Q : 2545 ()
(TSI)

=
=

0.00 /
(0.05) /
64

2Q : 2545 ()
3Q : 2545 ()

Leading P/E

=
=
=
=

2. EPS
1Q : 2544 ()
2Q : 2544 ()
3Q : 2544 ()
4Q : 2544 ()

=
=
=
=

Leading P/E

=
=

3. EPS
1Q : 2545 ()
2Q : 2545 ()
3Q : 2545 ()
4Q : 2545 ()

Leading P/E

=
=
=
=
=
=

0.10 /
0.15 /
0.20 /
25.72
0.20
128.60

0.08 /
(0.34) /
(0.27) /
0.00 /
(0.53) /
25.72
0.53
(48.5) Not meaningful (NM)

(0.05)
0.10
0.15
0.30
0.50
25.72
0.50
51.44

/
/
/
/
/

5.2.6 Benchmark P/E

Benchmark P/E
Undervalued Overvalued
P/E (Trailing P/E Leading P/E ) Benchmark P/E
( P/E Benchmark P/E)
Benchmark P/E 5
1. P/E () (the most closely
matched individual stock)
(TSI)

65

2. (mean) (median) P/E

(thecompanyspeergroupofcompanieswithinanindustry)
3. P/E (the
companysindustryorsector)
4. P/E (a representative equity index)
5. P/E (an average past value of the P/E for the stock)
P/E ( 2, 3, 4 5) P/E
( 1) (valuation error)
Benchmark Value

Benchmark P/E (peer companies)

Peer companies
Stowe el.al (2002, P.196)
(financial ratio)

(liquidity ratio)
(asset turnover ratio)
(leverage ratio
coverage ratio)
(profitability ratio)
P/E Benchmark P/E
P/E
Undervalued Overvalued Intrinsic Value Benchmark
P/E EPS ( EPS0 Benchmark P/E Trailing P/E EPS1
Benchmark P/E Leading P/E)
5-5 LEN
LEN P/E ( LEN ) 8
Trailing P/E P/E Benchmark Value Trailing
P/E

(TSI)

66

Trailing P/E 9 2547

Trailing P/E ()

BZH

6.83

CTX

7.36

DHI

7.99

LEN

7.20

MDC

4.91

PHM

5.94

RYL

6.70

TOL

6.29

(mean)

6.65

( 6.70 6.83)

6.77

1. Benchmark P/E LEN

2. LEN Undervalued Overvalued
3. Peer companies Undervalued

1. Benchmark P/E () = 6.77

2. LEN Overvalued P/E LEN = 7.20 Benchmark P/E = 6.77
3. MDC, PHM, RYL TOL Undervalued P/E Benchmark P/E
Undervalued P/E Benchmark P/E

(average or median of
expected earnings growth) (average or median of beta)

(TSI)

67

 Expected Earnings Growth

Expected Earnings Growth P/E
Benchmark P/E ( P/E
) Expected Earnings
Growth P/E Benchmark P/E
Beta Beta
P/E Benchmark P/E ( Beta
P P/E )
Beta P/E Benchmark P/E
Undervalued

Expected Earnings Growth P/E
P/E-to-Growth (PEG) P/E Expected Earnings Growth rate
P/E PEG
PEG 1 PEG
P/E PEG PEG
1 P/E PEG

5-6 5-5

9 2547

Trailing P/E
()

Leading P/E
()

Five-Year EPS
Growth Forecast

Leading PEG

Beta

TOL

6.29

6.43

14.60%

0.44

1.05

GHI

7.99

7.37

14.20%

0.52

1.40

LEN

7.20

7.12

14.00%

0.51

1.45

BZH

6.83

7.29

14.00%

0.52

1.00

CTX

7.36

7.63

13.30%

0.57

1.20

MDC

4.91

5.93

13.30%

0.45

1.05

RYL

6.70

7.76

11.80%

0.66

1.20

(TSI)

68

PHM

5.94

6.08

11.70%

0.52

1.05

6.65

6.95

13.36%

0.52

1.18

6.77

7.21

13.65%

0.52

1.13

5-6 MDC, PHM TOL Undervalued

(most undervalued)
TOL 3
(14.60%) TOL, MDC PHM
P/E Benchmark P/E
TOL (14.60% > 13.65%)
TOL
TOL PEG The most undervalued stock
TOL MDC PHM ( Beta )
PEG TOL The most undervalued stock

Benchmark P/E
Benchmark P/E
Benchmark P/E
(mean) (median)

Benchmark P/E
P/E Benchmark P/E
P/E (individual P/Es weighted by the
companysmarket capitalization)
P/E (portfolio)
P/E
(mid-cap) P/E
5-7 3
(large-cap) P/E P/E
P/E
28 2547
(TSI)

69

()

23

50

260

1,229

P/E 2548 (E) ()

20

25.50

20

23.2

P/E 5
( P/E )

80

110

105

100

Most Undervalued P/E

C Most Undervalued
A C Leading P/E 20 Benchmark P/E 23.2
A P/E ( P/E 20%)
A
C P/E 5% Leading P/E C
(20 < 23.20 ) C A

Benchmark P/E Gordon Growth Model

Benchmark P/E
Benchmark P/E Gordon Growth Model
DDM (dividend discounted model) Constant Growth Model
V0 P0

D1
k g

(5.4)

P0
= ( 0)
D1
= 1
k
=
g
=
(5.4) E1 E1 1
P0
E1

=
=
=

(TSI)

D1 /E1
k g
1 b
k g
d
k g

(5.5)
70


b
d

= (retention rate)
= (dividend payout ratio)

P0
Benchmark Leading P/E
E1
(5.4)
D1
=
P0
k g

P0

D0 (1+g)
k -g

(5.6)

(5.6) E0 E0 0
P0
E0

D0 (1 + g)/E 0
k -g
D0 /E 0 (1 + g)
k-g
(1 - g)(1 + g)
k -g

=
=

P0
E0

(5.7)
(5.8)

P0
Benchmark Trailing P/E
E0

5-8 FPL (b) 50%

(g) 5% FPL
9% Benchmark Leading P/E FPL

P0
E1

P0
E1

1 b
k g

1 0.50
0.09 0.05
12.50

(TSI)

71

5.2.7 Intrinsic Value P/E ratio

(intrinsic value) Relative Approach

Vn

Benchmark Trailing P/E x En

Vn

Benchmark Leading P/E x En+1

(5.9)

(5.10)

Benchmark Trailing P/E Benchmark Leading P/E

Gordon Growth Model

5-9

0.10
(dividend payout ratio) 45%
ROE 13%
1 3
P/E 14.30

1. Intrinsic Value Benchmark P/E

2. Intrinsic Value 1 Benchmark P/E Gordon Growth Model

1.

V0

2.

=
=
=

Benchmark P/E x E1
14.30 x 3.00
42.90

=
RR x ROE
=
b x ROE

b
=
1-d
d Dividend Payout Ratio
=
1 - 0.45

(TSI)

72

ROE
g

=
=
=
=
=

0.55
0.13
0.55 x 0.13
0.0715
0.10

Benchmark Leading P/E E1

V0

=
=
=
=

(1 b) E1
k g
(1 - 0.55) 0.33
0.10 - 0.0715
15.79 x 3.00

47.37

Benchmark P/E Gordon Growth Model V0 Benchmark P/E

(47.37 - 42.90) / 42.90 = 0.1042 10.42%

5.3
(price/book value ratio P/BV)

/

5.3.1
Blocks1999 survey
(AIMR ICFA ) 3
Merrill Lynch Institute Factor Survey ..1889 2001
P/BV P/E
P/E E (flow
variable) P/BV BV (static
variable)

(TSI)

73

 (shareholders equity)

(5.11)

(book value of equity common shareholder

equity)

= -
(5.12)
(P/BV)

(5.13)

5-10 25X9 ()

12,000,000

2,000,000

500,000 ( 10 )
400,000

50
(BV)

BVPS

=
=
=

Common Equity
Share Outstanding
12,000,000 2,000,000
400,000

25 /

(TSI)

74

P / BV

P0
BV0

50
25

5.3.2 P/BV
P/BV
1. (book value)
(
)
(E) P/E
2. (volatility) Book Value
EPS Book Value
3. (liquid assets) (
) Book Value

4. (are not expected to
continue as a going concern) Book Value
5. P/BV (Bodie, Kane and
Marcus, 2001 )
P/BV
1. Book value
(human capital)

2. P/BV

3. Book Value
R&D

(TSI)

75

4.

Book Value

5.3.3 Benchmark P/BV

Benchmark P/BV
P/E P/BV
Benchmark P/BV
Trailing P/BV Leading P/BV
P/BV
Trailing P/BV

Benchmark P/BV Gordon Growth Model

Benchmark Trailing P/BV Gordon Growth Model
P0
BV0

ROE - g
k -g

(5.14)

5.3.4 Intrinsic value P/BV ratio

P/BV
V0

Benchmark Trailing P/BV x BV0

(5.15)

V0 =
BV0 =

(intrinsic value) 0
0

5-11
(mid-cap)
(large-cap)

mid-cap
4 AFC, AFG, SAFE DRI

(TSI)

76

P/BV ratio ()
1996

1997

1998

1999

2000

Five year
average

AFC

1.00

1.10

1.40

1.40

1.60

1.30

0.80

9.50%

1.10

AFG

1.50

1.50

1.60

1.20

1.00

1.36

1.00

13.50%

0.95

SAFE

1.20

1.20

1.10

0.80

0.90

1.04

1.10

10.00%

1.05

DRI

1.40

1.60

1.40

0.60

1.60

1.32

1.20

11.00%

0.90

2.20

11.00%

(mean)

Current
P/BV

Forecasted
ROE

Beta

AFG DRI
Intrinsic Value DRI AFG 1.20 2.00

DRI Current (Trailing) P/BV 55% (1.20 / 2.20) P/BV

Benchmark P/BV (1.20 < 2.20) Forecast ROE (11%)
P/BV
DRI DRI Undervalued
AFG Current P/BV (1.00 < 2.20) Forecasted ROE
(13.50% > 11.00%) AFG Undervalued

AFG Current P/BV Forecasted ROE Current P/BV Beta SAFE

AFG Current P/BV AFC 25% ROE AFC 42% Beta

AFG Current P/BV DRI 17% Forecasted ROE DRI

23% AFG DRI Beta 0.05 5.5%
AFG The most undervalued

Intrinsic Value AFG DRI 1.20 2.00

Intrinsic Value AFG DRI Benchmark Trailing P/BV

BV AFG
(TSI)

P/PBV
77

=
=
BV DRI

=
=
=

Intrinsic Value

1.20
1.00
1.20

2.00
1.60
1.25

Benchmark Trailing P/BV BV

AFG DRI Intrinsic Value Undervalued Intrinsic

Value AFG = 2.20 1.20 = 2.64 Intrinsic Value DRI = 2.20 1.25 = 2.75 DRI
Intrinsic Value AFG (Intrinsic Value
) AFG DRI AFG

5.4
5.4.1
Merrill
Lynch Institutional Factor Survey .. 1989 2001 1 4
(P/S)
P/S

(5.16)

5.4.2 P/S
(P/S)
1.

2. EPS P/E P/S

(TSI)

78

3. (volatility) EPS
P/S EPS
4. Martin (1998) P/S
(mature)
(cyclical) (zero - growth)
P/S
1.

2.

3.

5.4.3 Benchmark P/S

Benchmark P/S

P/S
Benchmark P/S Benchmark P/E
P/S (net profit margin)
(forecasted earnings growth) (risk)

5-12 MG
P/S (peer companies)
FF CXD
P/S 20 2547

P/S
Current
Close

YTD
High

YTD
Low

2546
Profit
margin

Forecast
Profit
Margin

Median Analyst
Long-Term EPS
Growth Forecast

Beta

MG

0.16

0.21

0.12

3.00%

2.50%

5.00%

1.11

FF

0.19

0.29

0.16

2.80%

3.00%

5.00%

0.99

(TSI)

79

CXD

0.32

0.37

0.18

2.20%

2.60%

7.00%

1.23

1. P/S (current close) MG
Undervalued
2. MG CXD FF

1. P/S MG 0.16 Peer companies ( P/S

MG P/S Peer companies) MG Undervalued
2. FF MG CXD Profit Margin, growth rate EPS,
risk (Beta) FF MG

Benchmark P/S Gordon Growth Model

Benchmark P/S Gordon Growth Model
P0
S0

(E0 / S0) (1 - b) (1 + g)
kg

(5.17)

E0 / S0 Profit Margin E0 / S0
Trailing Profit Margin Forecasted Profit Margin
Benchmark Leading P/S Benchmark Trailing P/S (5.17)

5.4.4 Intrinsic Value P/S ratio

Intrinsic Value
V0

Benchmark P/S x S

(5.18)

Benchmark P/S

Gordon Growth Model

(annual sale per share) S0 (
Trailing P/S ratio S1 (

(TSI)

80

Leading P/S ratio)

5-13 . TSI
3 MG 31
2547 MG 11% ( CAPM
Bond Yield Plus Risk Premium Model )
(long-term profit margin) 3.50%
(dividend payout ratio) 30%
(earnings growth rate) 5%
2547 MG 1% 2547
3.50%
5%

1. Benchmark P/S MG
2. 2547 MG 295 Intrinsic Value MG
3. MG 53 MG
Undervalued Overvalued

1. Benchmark Gordon Growth Model

P0
S0

0.035 0.30 1.05

0.11 - 0.05

0.1838

2. Intrinsic Value MG
V0
=
=

0.1838 x 295
54.22

3. MG Undervalued 53
54.22 MG Fully valued

5.5
(TSI)

81

5.5.1
(cash flow)

(cash flow: CF)
(depreciation) (amortization)

(5.19)
CF = Net Income + NonCash Charges
CFO

(working capital WC) (current asset: CA)
(c u r r e n t
l i a b i l i t y :
C L )

CFO

CF - WC

(5.20)

CFO

CF - CA + CL

(5.21)

t T 1 t T
FCFE (free cash flow to equity)

FCFE =

CFO - Net Investment in Fixed Capital + Net Borrowing

(5.22)

Net Investment in Fixed Capital =

Net Borrowing
=
EBITDA
EBITDA = Net Income + Interest Expenses + Income Tax
+ Depreciation + Amortization

(TSI)

(5.23)

82

 CF, CFO, FCFE EBITDA

P/CF, P/CFO, P/FCFE
P/EBITDA
Blockssurvey (1999) AIMR
2
Merrill Lynch Institutional Factor Survey .. 1989-2001
P/E, P/B, P/S Dividend Yield

5.5.2 P/CF
P/CF
1)
2)
Price Multiples P/E
3) DShaughnessy(1997)Hackel,Linvatand Rai (1994) Hacked and
Linvat (1991) P/CF

P/CF
1) CF
(
CFO)
2) FCFE FCFE
P/CF

5.5.3 Benchmark P/CF

Benchmark P/CF
Benchmark P/E, P/B, P/S
P/CF Benchmark P/CF
5-14 2 CPQ GTW
P/CF, P/FCFE

(TSI)

83

Current
Price
(/)

Trailing CF
(/)

Trailing
P/CF
()

Trailing
FCFE
(/)

Trailing
P/FCFE
()

Consensus Five
year Growth
Forecast

Beta

CPQ

17.98

1.84

9.8

0.29

62

13.4%

1.50

GTW

15.65

1.37

11.4

-1.99

N.M

10.6%

1.45

N.M. Not Meaningful

16 2547 CPQ CTW

CPQ Trailing P/CF GTW 14% (9.8 < 11.4 )

GTW GTW
CPQ 5 GTW (13.4% > 10.6%)
CPQ Undervalued
FCFE FCFE GTW
P/FCFE FCFE GTW
() FCFE CPQ
CPQ Undervalued
Benchmark P/CF Gordon Growth Model
Constant Growth Model
V0

(1 + g)CF0
k-g

(5.24)

(1 + g)
k-g

(5.25)

CF0
P0
CF0

( CF)

5.5.4 Intrinsic Value P/CF

Intrinsic Value
V0

(TSI)

Benchmark P/CF CF

(5.26)
84

 CF Benchmark

V0

Benchmark Trailing P/CF CF0

(5.27)

V0

Benchmark Leading CF CF1

(5.28)

5-15 DOLL
8.5% DOLL 14.5%
(Trailing FCFE) 1.39 Benchmark FCFE Intrinsic Value
DOLL
Benchmark P/FCFE
P0
FCFE 0

=
=

(1 + g)
k-g
1.085
0.145 0.085

18.08

Benchmark Trailing P/FCFE FCFE0

=
=

18.08 1.39
25.13 /

Intrinsic Value Doll

V0

(relative valuation technique)

(price multiple)
4 (earning multiple)
(book value multiple) (revenue multiple)
(cash flow multiple)

(price
multiple) ( )
(TSI)

85

 (method of comparables) Price Multiple

(comparison assets) Benchmark Value
(a closely matched individual stock)
(company or industry peer group) (all stocks in market)

(judgment)

(benchmark) Price Multiple

/ (
) Price Multiple ( ) Price Multiple
Undervalued (Overvalued)

(TSI)

86