Valuation

14 concepts in this category.

• DCF Model

  Imagine a friend promises to pay you $100/year for 10 years. Would you pay $1,000 today? Not quite — money tomorrow is worth less than money today. DCF calculates what future cash flows are worth right now.

• Dividend Discount Model

  If a stock pays $2/year in dividends, that payment is expected to keep growing at 3% a year, and you want a 10% return, the Gordon Growth version of DDM values it at $2 ÷ (0.10 − 0.03) ≈ $29. It's like valuing a bond off its coupon, but for a growing dividend.

• Comparable Analysis

  If similar houses in your neighbourhood sell for $300/sqft and your house is 2,000 sqft, it's worth roughly $600K. Same logic applies to stocks — take the average P/E or EV/EBITDA of similar companies and apply it to the target's own earnings or EBITDA.

• Intrinsic Value

  The market price is what people are willing to pay right now. Intrinsic value is an estimate of what the stock is actually worth based on the company's cash flows and assets. If a $40 stock has an estimated intrinsic value of $55, the gap ($15) is what practitioners call the margin of safety.

• WACC

  WACC is the average rate a company pays for all its funding — both equity (shareholders expect returns) and debt (banks charge interest). It's the minimum return a company must earn to create value.

• Risk-Free Rate

  The rate you earn on the safest available investment, typically short- to medium-term government debt. Everything else gets compared against it — if a 10-year government bond pays 4%, why accept only 3% from a riskier stock or corporate bond with no extra compensation?

• Equity Risk Premium

  If government bonds pay 4% and investors demand 10% from stocks to compensate for the extra risk, the difference — 6 percentage points — is the equity risk premium. It's the extra return investors require, on average, for accepting stock market risk instead of a safer bond.

• Cost of Debt

  If a company borrowed $1 million at 5% interest, its pre-tax cost of debt is 5%. But since interest payments are tax-deductible, the after-tax cost is lower — about 3.5% at a 30% tax rate, since the tax savings partly offset the interest actually paid out.

• Terminal Value

  In a DCF, you can't project cash flows forever. Terminal value captures everything after your forecast period (usually 5-10 years). It often accounts for 60-80% of total DCF value — so getting the growth rate right matters more than almost any other single input.

• Margin of Safety

  If you think a stock is worth $100, don't pay $100 — pay $70. That 30% discount is your margin of safety. If your estimate is wrong, you still might not lose money.

• FMP Institutional DCF

  An independent DCF calculation from an external financial data provider, built with its own growth and discount-rate assumptions. Comparing it to the platform's own DCF is a quick cross-check: rough agreement is a mild reassuring signal, and a wide gap is worth investigating rather than assuming either figure is right.

• Enterprise Value

  Market cap tells you what the equity is worth. Enterprise value tells you what the WHOLE company is worth, including what it owes (debt) minus what it holds in cash. If a company has a $10B market cap, $3B of debt, and $1B of cash, its EV is $12B — the closer estimate of a true acquisition price.

• Earnings Power Value

  EPV asks a simple question: if this company never grew again, what would it be worth based on the profits it makes today? Assuming zero growth gives a conservative 'floor' value — anything the market pays above it is paying for future growth.

• Residual Income Model

  Say you put $1,000 of your own money into a business and expect at least 10% ($100/year) for the risk you're taking. If it earns $150, the extra $50 is residual income — profit beyond what you required. This model values a company as what's already invested plus all that extra profit, discounted to today.