Question

Stock Valuation Research Paper

How is Stock Valued, How stock Valuation Changes with change in economy or change with other parameters and more

Answer 1

Stock valuation methods can be primarily categorized into two main types: absolute and relative.

1. Absolute

Absolute stock valuation relies on the company’s fundamental information. The method generally involves the analysis of various financial information that can be found in or derived from a company’s financial statements. Many techniques of absolute stock valuation primarily investigate the company’s cash flows, dividends, and growth rates. Notable absolute stock valuation methods include the dividend discount model (DDM) and the discounted cash flow model (DCF).

2. Relative

Relative stock valuation concerns the comparison of the investment with similar companies. The relative stock valuation method deals with the calculation of the key financial ratios of similar companies and derivation of the same ratio for the target company. The best example of relative stock valuation is comparable companies analysis.

The changing factors of interest rates, economic outlook, inflation, deflation, economic and political shocks, change in economic policy, change in the value of Dollar.

Stock prices can be affected by:

• company news and performance
• industry performance
• investor sentiment
• economic factors