So just how do you value the shares of a company? Based on earnings, revenues, cash-flow. . . or something else entirely? Or do you simply apply multiple valuations in order to discern what the fair price for a share of stock might be?
Equity is a fancy way of referring to what is actually there. Whether it's tangible things like cash, current assets, working capital and shareholder's equity, or intangible qualities like management or brand name, equity is everything that a company has if it were to suddenly stop selling products and stop making money tomorrow.
Traditionally, investors who rely on buying companies with a substantial amount of equity to back up their value are a paranoid lot who are looking to be able to collect something in liquidation. However, as the TV-dominated mass-consumer age has helped intangibles like brand names create powerful moats around a core business, contemporary investors have begun to push the boundaries of equity by emphasizing qualities that have no tangible or concrete value, but are absolutely vital to the company as an ongoing concern.
To be able to value equity, we need to first understand how equity is to be analysed.
Finding Information :
One of the more perplexing tasks individual investors have to face is where to get information about publicly traded companies. As strangers in a strange land when they first come to the world of investing, they not only face the already daunting endeavor of finding information from a variety of sources, but they also face the even more important task of determining which information is important. Unless facts are placed in a framework that provides meaning, they can be confusing, contradictory chunks of white noise.
Getting Data :
The lowest form of information is data, which almost always takes the form of numbers. Whether daily stock prices, condensed financial statements, or any of a variety of quantitative tools,... [continues]
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(2010, 08). Equity Valuation. StudyMode.com. Retrieved 08, 2010, from http://www.studymode.com/essays/Equity-Valuation-386001.html
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"Equity Valuation." StudyMode.com. 08, 2010. Accessed 08, 2010. http://www.studymode.com/essays/Equity-Valuation-386001.html.