- The discount rate should match with the risk of the cash flow in the numerator.
WHEN DO WE USE RELATIVE VALUATION TECHNIQUES
- When comparing companies in the same industry
- Valuations ( price earning ratio, price cash flow ratio, price to sales ratio and price to book value
ratio) fluctuates during market high and lows.
a. Price earning TTM ( trailing twelve months) is based on the previous months. And its different
from p0/ E1is a forecasted P/E
b. EPS :
ii. Retain it.
So that Payout ratio + retention ratio ( or plow back ratio) = 100% EPS
And so we can use this idea to find g ( growth rate) : ROE x Retention ratio.
p 0 𝐸 1
𝐸 1 k−g
- Low beta
- Low chances of making huge money and high chances of making low money
- Like start up companies
Value vs growth investing
A buy / hold/ sell rating by analyst
- Currencies market
- Commodities - Bonds 100T ( 30% USA)
- Equities 32T
Three biggest issuers in USA
- MBS -> derivatives
- Other institutions – life insurers