Relative Valuation Models Research Articles

Market concentration of the Brazilian hospital medical supplementary health system

BackgroundThe Brazilian supplementary health market has undergone transformations in recent years due to constant mergers and acquisitions of by large corporations, contributing to the increase in market concentration, especially in the poorest and least developed regions of the country. Thus, given the care it provides and its economic relevance, understanding the fundamentals of these movements, the likely consequences and trends for the health market are relevant, important, and strategic.ObjectiveTo understand the general and specific context of Brazilian supplementary health, its scenarios, and trends, with emphasis on the analysis of market concentration and recent mergers and acquisitions.MethodologyThe research is applied, descriptive and exploratory and uses secondary data from various sources, submitted to quantitative data analysis methods. The data are organized into three groups: historical and regulatory documents; industry data; and market.ResultsThe results show the growing concentration of the market promoted by large publicly traded corporations, the growing relevance of tech startups on the healthcare landscape, the predominant use of the relative valuation model, with implicit multiples for asset pricing and the prevalence of corporate health plans.ConclusionThe growing concentration of the system projects a market with fewer options and less competitiveness, since the growth of large operators is evident, in addition to the relevant increase in the number of complaints from users of the system, which signals the growing gap between the expectations of users and the levels of quality care offered. The study also highlights the predominance of corporate health plans, revealing the direct relationship between access to supplementary health services and employability rates. The analysis of M&A operations, in addition to the increase in market concentration, reveals the prevalence of the use of the relative valuation model and implicit multiples for the pricing of traded assets. This denotes the future expectation of wealth generation, at least equivalent to the historical series of the sector, on the part of investors, whose frustration may signal the decreasing attractiveness of resources and M&A operations in the sector in the coming years.

The Finance of Cybersecurity: Quantitative Modeling of Investment Decisions and Net Present Value

Despite the growing literature on cybersecurity investment, significant gaps remain unaddressed. First, the existing literature does not differentiate between cybersecurity expenditures, namely investment versus spending, despite the differences in their financial treatments. Second, the literature predominantly employs economic and risk-based models, in which the incorporation of financial parameters is limited. Third, the literature focuses on quantifying market (stock) loss of cyberattacks or conducting a cost-benefit analysis of cybersecurity investments but has yet to bridge these two areas. Thus, our objective is to introduce a new financial model, the Alpha Model, that addresses these gaps. We first provide distinctions between cybersecurity investment (capital expenditure) and spending (operational expenditure). Grounded in Relative Valuation Models and Optimal Capital Structure Theory, we quantify the upper-bound of optimal cybersecurity investment by utilizing book and market values of equity and debt. We also demonstrate that the Net Present Values (NPV) of cybersecurity investment is considerably lower than its book value by incorporating financial parameters of equity and debt financing, inflation-adjusted capital cost, and tax credits of depreciation and interest. To validate our model, we empirically test it by using data from the S&P500 index during 2018–2023. We offer practical implications to key stakeholders, including: (1) industry executives to financially quantify cybersecurity investments and ascertain their actual NPVs, individually and collaboratively with supply chain partners; (2) cybersecurity solution providers to promote business investments in cybersecurity; and (3) insurance providers to price premiums with higher NPVs than the corresponding investments. We also offer several avenues for further research.

Valuation of CATL Based on FCFF, Residual Income and Relative Valuation Model

Valuation of CATL Based on FCFF, Residual Income and Relative Valuation Model

Competitive Analysis of Starbucks

The main purpose of this research report is to conduct a market analysis of Starbucks Corporation. From this analysis, it can be concluded that since 2015, the market value and stock price have risen to a record level. However, due to the financial difficulties faced by the company during the epidemic of COVID-19, it would rebound in 2020. A comparison of Starbucks' market value with its top competitors in the retail coffee and snack industry shows that only McDonald's has a market value of $214.42 billion higher than Starbucks in this industry. In the previous Starbucks stock analysis, the stock price calculated using the absolute valuation model was $94, while the relative valuation model was $89.43, which was lower than the market price of $101.87, indicating that Starbucks' stock was overvalued; Therefore, it is recommended to sell stocks.

Research on Theory and Methods of Corporate Valuation

Corporate evaluation has been a long-history research field, mostly in finance. There are traditional methods such as DCF, CAPM and APT, which were the most popular valuation method being used in 20th century. Nevertheless, more neoclassical theories have been brought up recently, from the perspectives of investment, pricing or other qualitative areas. Besides, the specific times in post-pandemic environment provide valuable research samples of how company keep survived during the period of declination in economic. Based on the previous traditional research as well as neoclassical and recent studies on business new valuation model, this article gives a more comprehensive overview and appraisal about corporate valuation theories, ranging from absolute to relative valuation models, and finally to recent neoclassical models such as EVA valuation, along with other elements that need to concern when processing corporate valuation, which might contribute to the practical use of corporation acquisition and other investors decisions in both capital and money market.

EDSAI Education: Start-up Valuation amidst nCOVID-19

This article is a field case on business valuation woven around the dilemma for a young EdTech firm to choose between the two opportunities that came out as collaterals to the nCOVID-19 pandemic in 2020. The selection would be based on the principle of firm value maximization, for which the opportunities needed to be valued. Students will learn the application of the venture capital (VC) model used for start-up firms. Students are challenged to apply the discounted cash flow (DCF) model and the relative valuation (RV) model, and, in the process, learn to estimate the cost of equity using the capital asset pricing model (CAPM). The case provides an opportunity to learn how to build the narrative around numbers by augmenting a discussion on the impact of a pandemic on various input variables used in the valuation exercise. The case is most suitable for the course on business valuation in management and doctoral programmes.

Stock Valuation of Indonesia Pharmaceutical Company with COVID-19 Vaccination Development Prospects Amidst Pandemic Situation (Case Study of PT. Kalbe Farma, Tbk.)

As one of the world’s most populous countries with a fast-growing economy, Indonesia's market for pharmaceuticals has become very promising. COVID-19 pandemic that outbroken since early 2020 has brought a huge impact on the overall country condition while at the same time stimulate the growth of the pharmaceutical market as it is forecasted to grow at a CAGR of 6.3% between 2016 and 2021 according to IQVIA. This situation creates a reaction in the stock market especially of pharmaceutical companies that experienced an average increase of 67% since last year with its key driver of news regarding the distribution of Sinovac vaccine by some state-owned pharma companies as part of the national vaccination program. PT. Kalbe Farma, Tbk as one of the largest pharma companies in Indonesia is also accounting a positive growth over the years while also presented with bright prospects as a result of its strategic initiatives to collaborate with South Korea in developing COVID-19 vaccine and medication, named Genexine which is planned to be completed in Q3 2021. The possibility of success in this project might affect the company’s stock performance since it would result in bigger profitability for the company. In order to help investors to make a decision in this situation, the intrinsic value of the company stock is required. Therefore, conducting absolute and relative valuation are believed to be important in order to find the intrinsic value. This study examined absolute valuation using FCFF model and relative valuation using P/E and EV/EBITDA for KLBF. Result of the valuation suggested that the current stock price of IDR 1,445 is overvalued. The intrinsic value calculated from FCFF model is IDR 1,397 and based on the relative valuation models are IDR 1,330 and IDR 1,233 for EV/EBITDA and P/E ratio, respectively.

Absolute and Relative Valuation Models to Accommodate Pre-IPO Appraisal of an Airport Authority: A Case Study of PT. Angkasa Pura II Persero

The study had firstly scanned the PT. Angkasa Pura IIs external industry through the help of PESTEL framework and Porters Five Forces. The internal business was then assessed by using the VRIN framework and the financial ratio analysis. The study proceeded to look into the perspectives of both the absolute and relative valuations of the company. Absolute valuation models were to uncover the companys underlying, sole value as a firm of its own and had employed the FCFF and three-stage DDM models as the courses. Relative valuation models were to stage market perceptions on the firm value and had taken advantage of the forward P/E and EV/EBITDA multiples as the courses. Both absolute and relative valuation models developed for this study had fundamentally concluded that Angkasa Pura II could very well raise more capital than what had been intended to. The study significantly leaned more towards the absolute valuation models than the counterparts. The absolute valuation models had additionally prompted significantly high intrinsic value for the company, which in return should appeal to prospective investors to purchase the companys stock at a high initial price.

Performance Evaluation of Stocks’ Valuation Models at MSE

Abstract Subject and purpose of work: The main task of this paper is to examine the proximity of valuations generated by different valuation models to stock prices in order to investigate their reliability at Macedonian Stock Exchange (MSE) and to present alternative “scenario” methodology for discounted free cash flow to firm valuation. Materials and methods: By using publicly available data from MSE we are calculating stock prices with three stock valuation models: Discounted Free Cash Flow, Dividend Discount and Relative Valuation. Results: The evaluation of performance of three stock valuation models at the MSE identified that model of Price Multiplies (P/E and other profitability ratios) offer reliable stock values determination and lower level of price errors compared with the average stocks market prices. Conclusions: The Discounted Free Cash Flow (DCF) model provides values close to average market prices, while Dividend Discount (DDM) valuation model generally mispriced stocks at MSE. We suggest the use of DCF model combined with relative valuation models for accurate stocks’ values calculation at MSE.

Metode procene vrednosti akcija i kreiranje vrednosti za akcionare

This paper analyzes the methods of determining the value of the shares, which are among the most used financial instruments. The company's shares are transferable in the capital market, according to the regulations of a particular state, where the price is formed according to the principles of supply and demand. The interest of the investor will depend on a number of parameters-the length of the stock owning, its affinity to the shares of renowned companies that give stable dividends, the tendency to risk with new, growing companies, and the affinities for the shares of companies that are planning serious investment ventures, etc. Despite the fact that there are certain visible value parameters, such as bookkeeping or market price, they are often insufficient to properly evaluate the value and possible profit for investors who opt for their purchase. Therefore, models for evaluating higher or lesser complexity of the discounting dividends, discounting cash flows, as well as series of relative valuation models have been developed. These valuations are important during the life of a joint stock company, during the first emission, subsequent recapitalization, as well as when making investment decisions on the secondary stock market.

VALUATION PADA INITIAL PUBLIC OFFERING (IPO) BANK BRI SYARIAH

Adding the number of ownership by issuing new shares and selling them to the capital market, is one alternative method used with the aim of increasing the Company's finances, funds and capital. The issuance of the company's initial shares and selling them to the capital market is called the Initial Public Offering. BRI Syariah Bank adds capital by conducting an IPO, so that it is necessary to analyze Stock Prices on the Initial Public Offering (IPO) of BRI Syariah Bank to obtain stock fair value that does not harm the company if the stock price is too low or detrimental to investors due to stock prices too high (over valued). The research problem formulation is: How is the valuation of the initial stock price of BRI Syariah Bank using the Relative Valuation Model method, How is the valuation of the initial stock price of BRI Syariah Bank with the Free Cash Flow to Equity (FCFE) method, and Is the initial stock Under Valued or Over Valued. The researcher analyzed the data obtained using quantitative descriptive methods. The value of Bank BRI Syariah shares calculated using the Relative valuation method and FCFE are in an overvalued position. The initial stock decision taken by the company is correct, that is, if the valuation is done using the Relative Valuation and FCFE methods, the company is already due because the stock price in the market is overvalued.

Bank Valuation Models – A Comparative Analysis

The Bank valuation model was designed based on objective to fit the most applicable valuation model for banks to help in forecasting bank specific decision and also forecast the market value of share. First study the accuracy and explanatory value of the value estimates from the residual income model compared to the estimates from the Relative valuation model for banks. Empirical evidence suggests that the residual income model is superior to the relative valuation model when it comes to measuring bank shareholder value. The results of the comparison suggest that value estimates from the residual income model are even more reliable for banks. On this basis, we conclude that residual income is an appropriate value estimate for the shareholder value of banks. There was positive significant relationship identified between the intrinsic value of bank share determined by RIV model and Market price of share in all the cases by performing correlation and Regression study. This study will be useful for forecasting the possible changes in market price. It was identified that determinants vary as per the working and regulatory condition as determinants impacting private, public and Indian banks were not similar so panel regression model will vary for each cases. It was also identified that Public Sector Bank in India shows more positive progressive trend as compared to private Sector Bank even after the fact that public Sector Bank has higher regulatory restriction as compared to Private Sector banks. This research will serve very useful for the banker to plan and take decision regarding shareholder value creation by implementing proper valuation model for getting appropriate value estimate and also adopting proper internal performance measure for having accurate and regular check on the process of value creation.

The role of optimistic news stories in IPO pricing

This study investigates the influence of optimistic news stories on first-day pricing of initial public offerings (IPOs) in Australia between 1995 and 2005. Unlike the United States, Australia has no quiet-period regulation limiting the dissemination of information from media before IPO listing dates. We find that optimistic news stories are negatively associated with IPO underpricing. Results from a relative valuation model show that IPOs which received positive news stories ahead of the first trading day are not overpriced relative to their industry benchmarks. These results suggest that optimistic news stories mitigate information asymmetry and adverse selection problems. However, optimistic news stories do not appear to inflate the share price on the first day of trading. Our findings suggest that regulation mandating a ‘quiet period’ before the commencement of trading in IPOs is neither necessary nor desirable in the Australian environment.

A Short Note on the Valuation of Asset Management Firms

Market capitalization relative to assets under management is an often used valuation metric for asset management firms. While the dividend discount model suggested by HUBERMAN (2004) implies that cross-sectional variations in this measure are explained by cross-sectional differences in operating margins, we do not find this in our data set. Instead, we show that a much preferred model – inspired by the work of BERK/GREEN (2004) – would also include the level of fees as an explanatory variable. This dramatically increases the fit of our relative valuation model and casts some doubt on the validity of the “HUBERMAN puzzle”.

RELATIVE VALUATION MODEL ANALYSIS OF IDX

There are various valuation models can be used by investors in order to predict the stock value. This paper focuses on the Relative Valuation Model, which is the popular model used by investors as it is easier to use compared to other models. The aim of this paper is to compare the prediction accuracy of various ratios in the model. Ratios examined in this paper are Price to Earning (PE), Price to Book Value (PBV), Price to Cash Flow (PCF), and Price to Sales (PS). Using the LQ45 listed stocks during period 2006 – 2010, it is found that, overall, PBV appears to be the best ratio to predict LQ45 stocks in Indonesian equity market. However, mixed results are found in the yearly analysis, in which PE, PBV, and PCF result in lower prediction errors, in different years. In the sector industry analysis, both PE and PBV are the best predictors in three sectors each. The descriptive analysis is supported by the hypo research testing that shows the accuracy of examined ratios is different. The research result implication is that investors should take time and sectors into the account before choosing a single ratio as a predictor.

Relative Valuation Methods in Performing Security Analysis

This project include the following:- Introduction to relative valuation- DCF in brief (definition) and its comparison to relative valuation- Understanding multiples (4-step approach)- Explanation of multiples (with illustration), its intention of usage and, some advantages/disadvantages- Explanation of Current, Trailingand ForwardP/Es multiple- Reconciliation of relative valuation and DCF models- Peer-group construction- Cross-sectional analysis of multiples- Time-series analysis of multiples

Employee Stock Options (ESOPs) and Restricted Stock: Valuation Effects and Consequences

In the last decade, firms have increasingly turned to offering employees options and restricted stock (often with restrictions on trading) as part of compensation packages. Some of this trend can be attributed to the entry of young, cash poor technology firms into the market, many of which have to use equity because they have no choice. However, many larger market cap firms that can afford to pay cash compensation have used stock based compensation as a way of aligning managerial interests with stockholder interests. In this paper, we begin by looking at motives, good and bad, for using equity based compensation, and trends over the last few years. We then turn to the accounting rules, old and new, that govern how equity compensation is recorded and reported. Finally, we consider how best to incorporate employee options and restricted stock - both past and prospective - into discounted cash flow and relative valuation models.

Dealing with Cash, Cross Holdings and Other Non-Operating Assets: Approaches and Implications

Most businesses hold cash, often in the form of low-risk or riskless investments that can be converted into cash at short notice. The motivations for holding cash vary across firms. Some hold cash to meet operating needs whereas others keep cash on hand to weather financial crises or take advantage of investment opportunities. In the first part of this paper, we will begin by looking at the extent of cash holdings at publicly traded firms and some of the motives for the cash accumulation. We will also look at how best to value these cash holdings in both discounted cash flow and relative valuation models. In the second part of the paper, we will turn to a trickier component - cross holdings in other companies. We will begin by looking at the way accountants record these holdings and the implications for valuation. We will then consider how to incorporate the value of these cross holdings in a full information environment, followed by approximations that work when information about cross holdings is partial or missing.

An empirical study on the relevance of applying relative valuation models to investment strategies in the Japanese stock market

In this study, we empirically investigate the relevance of relative valuation models in the Japanese stock market. Using various multiples such as price earnings ratio (PER), price book value ratio (PBR), price sales ratio (PSR), and price cash flow ratio (PCR), we study which valuation model is the best in forecasting stock prices, and in identifying portfolios which generate higher returns. We find that in terms of prediction accuracy, PBR is the best, while in portfolio selection results vary across the industry.

An Empirical Test of the Relative Valuation Model of Portfolio Selection

The Relative Valuation Model may be a useful screening tool, especially during periods of low inflation and high productivity. The model is simple in structure and the data inputs are publicly available. Practitioners could program PCs to screen large databases of current company information (e.g., Value Screen) and select a more manageable sample on which to perform further fundamental analyses. Moreover, the results indicate that, during bullish markets, more frequent rebalancing-e.g., quarterly or semiannual rather than annual-results in higher excess returns.