explain the principle of stock valuation?

Answer 1

The principle is figuring out how much a stock, and by inference, a corporation is worth. There are many ways of doing this:

1. The Gordon model or discounted dividend model - This valuation method values a stock based on its cash payments, or dividends, to stock holders. It ignores all other factors

2. Relative valuation - These methods employ comparisons between similar corporations. For example if the retail sector has an average PE of 10, than a retail company trading at a PE of 15 would be considered overvalued.

3. Cash Flow Valuations - These methods are similar to the DDM mentioned in 1 but focus on all cash flows produced by the company. This is one of the most widely used methodologies, also one of the most difficult as it requires forecasting all revenues and expenses for many years.

4. Intrinsic/Liquidation Valuations - These methods value a company based on the scrap or sell-off value of the company. This value is than used as the minimal value of a corporation or stock. This is the methodology Benjamin Graham presents in his famous work on financial analysis and the one he taught to Warren Buffett (who now comedically denounces it).

Answer 2

It starts off based on asset value: Corporation worth $100 divided by 10 shares = $10 per share. After that, the fun starts with speculation. This is the hunch that the company will be worth more and/or (more likely) the stock will be worth more when sold. This is similar to people buying antiques at a Yard Sale believing they can turn around and eBay them for triple the price. If some one believes stock will go up in value, they'll invest with the intention of selling for a profit. As more people get on this trend, market demand drives the price up naturally. But, the largest percentage of it is based on pure speculation.

Answer 3

It potential which you're meant to value it on the cost it value to purchase that inventory and not show a value that represents how plenty you're gonna be waiting to sell it for. it somewhat is what's called "being prudent" given which you prefer to be "careful" (the be conscious prudence potential cautiousness) approximately what you write on your money owed coz something might ensue which will steer away from you from advertising the inventory including a hearth or something. This hyperlinks to the realisation theory - this suggests which you will't write down earnings until they have been realised. So in case you be responsive to for a actuality your getting a hundred pounds tomoro u nonetheless cant positioned it on your money owed coz you havnt have been given it yet. the rule of thumb for valuing inventory at its value somewhat than what it is going to sell for is named SSAP9 interior the united kingdom