How do you calculate a PE valuation model?
How do you calculate a PE valuation model?
Homework Answers
PE= Price/EPS
The PE valuation mode is price to earnings ratio for a company. When we have to value a company based on PE valuation, we take the average value of the industry PE ratio and multiply by the EPS of the company. For example if we have to value a stock A which is in technology industry. We need to find the PE of technology industry.
Now for example if the PE of technology industry is 18 and the EPS of Company A is $2.50. Hence the value of stock according to PE model shall be $2.50*18=$45
Now the value of the stock may differ from this valuation due to a number of factors. Also PE ratio for industry is average and may differ highly from one company to another.
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10. Corporate valuation model The corporate valuation model, the price-to-earnings (P/E) multiple approach, and the economic value added (EVA) approach are some examples of valuation techniques. The corporate valuation model is similar to the dividend-based valuation that you've done in previous problems, but it focuses on a firm's free cash flows (FCFS) instead of its dividends. Some firms don't pay dividends, or their dividends are difficult to forecast. For that reason, some analysts use the corporate valuation model. Blur Corp....
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