Equity Valuation Methods and Inferences

CFA Level I Equities
#1

If all the methods of equity valuation yield varying results,

(1) how must I come to a conclusion of what value an equity security holds?

(2) and on what basis would I have to prefer one valuation method over another?

#2

This isn’t an exact science.

#3

It depends on the purpose of the valuation. Estate tax, acquisition, sale, investment, life insurance, liquidation, bankruptcy. There are many reasons and many opposing goals.

#4

  1. There is no “true” specific equity value. Different valuation methods will give you a range of valuation results. The “true” value may the lay somewhere within this range.

  2. This depends on the purpose of valuation: Are you valuing an equity to buy just a share? Are you valuing a company with regards to M&A, and if so as a buyer or a seller? Depending on the purpose of the valuation you may apply different methods with different assumptions and different results. Regards, Oscar