A work still in progress ;
Intrinsic valuation, relates the value of an asset to its intrinsic
Intrinsic valuation, relates the value of an asset to its intrinsic
characteristics: its capacity to generate cash flows and the risk in the
cash flows. In it’s most common form, intrinsic value is computed
with a discounted cash flow valuation, with the value of an asset being
the present value of expected future cashflows on that asset.
Relative valuation, estimates the value of an asset by looking at the
pricing of 'comparable' assets relative to a common variable like
earnings, cashflows, book value or sales.
Contingent claim valuation, uses option pricing models to measure
the value of assets that share option characteristics.
Discount cash flow valuation
-----------------------------------
What is it: In discounted cash flow valuation, the value of an asset is
the present value of the expected cash flows on the asset.
Philosophical Basis: Every asset has an intrinsic value that can be
estimated, based upon its characteristics in terms of cash flows, growth
and risk.
Information Needed: To use discounted cash flow valuation, you
need
• to estimate the life of the asset
• to estimate the cash flows during the life of the asset
• to estimate the discount rate to apply to these cash flows to get present value
Market Inefficiency: Markets are assumed to make mistakes in
pricing assets across time, and are assumed to correct themselves over
time, as new information comes out about assets
Relative valuation
----------------------------
What is it?: The value of any asset can be estimated by looking at
how the market prices “similar”
or ‘comparable” assets.
Philosophical Basis: The intrinsic value of an asset is impossible (or
close to impossible) to estimate. The value of an asset is whatever the
market is willing to pay for it (based upon its characteristics)
Information Needed: To do a relative valuation, you need
• an identical asset, or a group of comparable or similar assets
• a standardized measure of value (in equity, this is obtained by dividing the price by
a common variable, such as earnings or book value)
• and if the assets are not perfectly comparable, variables to control for the
differences
Market Inefficiency: Pricing errors made across similar or
comparable assets are easier to spot, easier to exploit and are much
more quickly corrected.
Contingent Claim / Option valuation
------------------------------
Options have several features
• They derive their value from an underlying asset, which has value
• The payoff on a call (put) option occurs only if the value of the underlying asset is
greater (lesser) than an exercise price that is specified at the time the option is
created. If this contingency does not occur, the option is worthless.
• They have a fixed life
Any security that shares these features can be valued as an option
Summary : chose your model carefully ; every company is different
-----------------------------
While there are hundreds of valuation models and metrics around,
there are only three valuation approaches:
• Intrinsic valuation (usually, but not always a DCF valuation)
• Relative valuation
• Contingent claim valuation
The three approaches can yield different estimates of value for the
same asset at the same point in time.
To truly grasp valuation, you have to be able to understand and use all
three approaches. There is a time and a place for each approach, and
knowing when to use each one is a key part of mastering valuation.
Useful Resources ;
------------------------------------------------------------------------------------------------------
----------------------------------------------------------
The values are as of 05/08/2011. The rank in brackets is by 08.07.2011.The percentage in brackets after the premium is the corresponding increase in the period. With "L" marked countries have low market liquidity, which can possibly lead to incorrect or erratic results. All data are to be removed and updated monthly, if possible.
Useful Resources ;
------------------------------------------------------------------------------------------------------
Local currency goverment bond rates Jan 2013
|
Jan-13
|
Jan-12
|
Country
|
Jan-13
|
Jan-12
|
13.50%
|
NA
|
3.62%
|
5.96%
| ||
12.01%
|
15.27%
|
3.60%
|
3.44%
| ||
11.50%
|
13.01%
|
3.54%
|
3.81%
| ||
11.47%
|
37.09%
|
3.54%
|
3.29%
| ||
10.05%
|
12.24%
|
3.50%
|
3.69%
| ||
9.84%
|
NA
|
3.43%
|
5.22%
| ||
9.18%
|
11.39%
|
3.39%
|
6.50%
| ||
8.00%
|
8.36%
|
3.28%
|
3.93%
| ||
6.98%
|
13.46%
|
3.15%
|
3.80%
| ||
6.88%
|
NA
|
2.68%
|
NA
| ||
6.85%
|
6.00%
|
2.12%
|
2.29%
| ||
6.80%
|
NA
|
2.05%
|
4.37%
| ||
6.76%
|
6.76%
|
1.99%
|
3.32%
| ||
6.55%
|
NA
|
1.87%
|
3.61%
| ||
6.39%
|
8.20%
|
1.82%
|
2.05%
| ||
6.23%
|
10.73%
|
1.81%
|
2.01%
| ||
5.55%
|
7.56%
|
1.76%
|
1.99%
| ||
5.51%
|
5.58%
|
1.74%
|
3.24%
| ||
5.29%
|
6.51%
|
1.54%
|
1.71%
| ||
5.26%
|
5.43%
|
1.51%
|
2.40%
| ||
5.17%
|
6.08%
|
1.50%
|
2.31%
| ||
5.03%
|
NA
|
1.38%
|
1.72%
| ||
4.95%
|
7.41%
|
1.31%
|
1.92%
| ||
4.53%
|
8.21%
|
1.30%
|
1.60%
| ||
4.50%
|
6.92%
|
1.26%
|
NA
| ||
4.40%
|
NA
|
1.17%
|
NA
| ||
4.31%
|
4.31%
|
0.79%
|
0.99%
| ||
4.09%
|
6.35%
|
0.65%
|
1.57%
| ||
3.91%
|
4.54%
|
0.46%
|
0.71%
|
----------------------------------------------------------
The values are as of 05/08/2011. The rank in brackets is by 08.07.2011.The percentage in brackets after the premium is the corresponding increase in the period. With "L" marked countries have low market liquidity, which can possibly lead to incorrect or erratic results. All data are to be removed and updated monthly, if possible.
Country Risk Premiums ;
| Rank | Country | Risk Premium | PD | Note | Rating |
| 1 (1) | Greece | 1644 (-22%) | 98% | U, R, I, E, S | CCC |
| 2 (2) | Venezuela | 956 (3%) | 88% | BB | |
| 3 (4) | Pakistan | 883 (5%) | 86% | 5y | B |
| 4 (3) | Portugal | 855 (5%) | 85% | BBB | |
| 5 (12) | Cyprus | 809 (118%) | 83% | A | |
| 6 (5) | Ireland | 716 (5%) | 79% | U, R, I, E, S, K | BBB + |
| 7 (6) | Argentina | 691 (7%) | 77% | R | B |
| 8 (7) | Jamaica | 581 (5%) | 71% | B | |
| 9 (8) | Ukraine | 494 (3%) | 65% | I, U | B + |
| 10 (20) | Spain | 414 (40%) | 58% | AA | |
| 11 (18) | Hungary | 406 (30%) | 57% | I, U, K, E, S | BBB |
| 12 (11) | Lebanon | 398 (7%) | 56% | B | |
| 13 (9) | Dominican Republic | 391 (3%) | 56% | B + | |
| 14 (10) | Dubai | 387 (3%) | 55% | ||
| 15 (15) | Croatia | 378 (19%) | 54% | BBB | |
| 16 (29) | Italy | 373 (66%) | 54% | A + | |
| 17 (14) | Vietnam | 354 (4%) | 52% | BB | |
| 18 (13) | Serbia | 349 (1%) | 51% | I | BB |
| 19 (17) | Egypt | 344 (9%) | 51% | 5y | BB |
| 20 (16) | El Salvador | 318 (0%) | 48% | BB | |
| 21 (19) | Iraq | 299 (0%) | 46% | ||
| 22 (23) | Romania | 287 (14%) | 45% | K, I | BB + |
| 23 (25) | Malta | 287 (19%) | 45% | A | |
| 24 (24) | Bulgaria | 285 (13%) | 44% | U, K | BBB |
| 25 (26) | Latvia | 269 (15%) | 42% | I, U, R, K, E, S | BB + |
| 26 (27) | Lithuania | 262 (12%) | 42% | U, K | BBB |
| 27 (22) | Bahrain | 261 (1%) | 41% | BBB | |
| 28 (21) | Iceland | 256 (-8%) | 41% | I, U, R | BBB |
| 29 (28) | Turkey | 254 (11%) | 41% | BB | |
| 30 (40) | Belgium | 240 (40%) | 39% | AA + | |
| 31 (32) | Poland | 230 (19%) | 38% | E | A |
| 32 (35) | Kazakhstan | 224 (19%) | 37% | BBB | |
| 33 (30) | Algeria | 220 (0%) | 36% | ||
| 34 (34) | Morocco | 206 (8%) | 34% | BB + | |
| 35 (31) | Costa Rica | 203 (2%) | 34% | BB | |
| 36 (33) | Guatemala | 200 (4%) | 33% | BB | |
| 37 (37) | Russia | 197 (8%) | 33% | K | BBB |
| 38 (36) | Uruguay | 189 (1%) | 32% | BB | |
| 39 (38) | Philipines | 182 (0%) | 31% | BB | |
| 40 (39) | Indonesia | 182 (1%) | 31% | BB + | |
| 41 (41) | Israel | 168 (3%) | 29% | A | |
| 42 (49) | Slovenia | 167 (26%) | 29% | AA | |
| 43 (43) | Peru | 167 (5%) | 29% | BBB | |
| 44 (42) | Thailand | 164 (0%) | 28% | BBB + | |
| 45 (45) | Brazil | 161 (11%) | 28% | BBB | |
| 46 (44) | South Africa | 159 (8%) | 28% | BBB + | |
| 47 (58) | France | 159 (46%) | 28% | U | AAA |
| 48 (46) | Mexico | 157 (11%) | 27% | BBB | |
| 49 (47) | Colombia | 156 (10%) | 27% | BBB | |
| 50 (54) | Slovakia | 155 (23%) | 27% | A + | |
| 51 (52) | Panama | 145 (12%) | 25% | BB + | |
| 52 (48) | Korea | 137 (3%) | 24% | A | |
| 53 (51) | Malaysia | 135 (4%) | 24% | A | |
| 54 (53) | China | 130 (3%) | 23% | U | AA |
| 55 (59) | Estonia | 129 (22%) | 23% | A | |
| 56 (57) | Czech Republic | 128 (13%) | 23% | R | A + |
| 57 (50) | Qatar | 127 (3%) | 23% | AA | |
| 58 (55) | Abu Dhabi | 123 (-1%) | 22% | AA | |
| 59 (56) | Japan | 122 (0%) | 22% | AA | |
| 60 (63) | Austria | 117 (39%) | 21% | AAA | |
| 61 (69) | Denmark | 101 (63%) | 19% | AAA | |
| 62 (60) | Saudi Arabia | 96 (1%) | 18% | 5y | AA |
| 63 (62) | United Kingdom | 95 (12%) | 17% | U | AAA |
| 64 (61) | Chile | 95 (1%) | 17% | A + | |
| 65 (67) | Germany | 89 (38%) | 17% | AAA | |
| 66 (70) | Netherlands | 78 (40%) | 15% | AAA | |
| 67 (71) | Finland | 75 (41%) | 14% | S | AAA |
| 68 (66) | Hong Kong | 73 (9%) | 14% | AAA | |
| 69 (65) | Singapore | 73 (6%) | 14% | AAA | |
| 70 (64) | New Zealand | 70 (0%) | 13% | AA + | |
| 71 (68) | USA | 65 (2%) | 12% | U | AA + |
| 72 (73) | Sweden | 61 (50%) | 12% | AAA | |
| 73 (72) | Switzerland | 48 (-2%) | 9% | AAA | |
| 74 (75) | Norway | 48 (49%) | 9% | AAA | |
| 75 (74) | Australia | 37 (0%) | 7% | AAA |
Annual Returns on Stock, T.Bonds and T.Bills: 1928 - Current
| Annual Returns on Investments in | Compounded Value of $ 100 | |||||
| Year | Stocks | T.Bills | T.Bonds | Stocks | T.Bills | T.Bonds |
| 1928 | 43.81% | 3.08% | 0.84% | $143.81 | $103.08 | $100.84 |
| 1929 | -8.30% | 3.16% | 4.20% | $131.88 | $106.34 | $105.07 |
| 1930 | -25.12% | 4.55% | 4.54% | $98.75 | $111.18 | $109.85 |
| 1931 | -43.84% | 2.31% | -2.56% | $55.46 | $113.74 | $107.03 |
| 1932 | -8.64% | 1.07% | 8.79% | $50.66 | $114.96 | $116.44 |
| 1933 | 49.98% | 0.96% | 1.86% | $75.99 | $116.06 | $118.60 |
| 1934 | -1.19% | 0.32% | 7.96% | $75.09 | $116.44 | $128.05 |
| 1935 | 46.74% | 0.18% | 4.47% | $110.18 | $116.64 | $133.78 |
| 1936 | 31.94% | 0.17% | 5.02% | $145.38 | $116.84 | $140.49 |
| 1937 | -35.34% | 0.30% | 1.38% | $94.00 | $117.19 | $142.43 |
| 1938 | 29.28% | 0.08% | 4.21% | $121.53 | $117.29 | $148.43 |
| 1939 | -1.10% | 0.04% | 4.41% | $120.20 | $117.33 | $154.98 |
| 1940 | -10.67% | 0.03% | 5.40% | $107.37 | $117.36 | $163.35 |
| 1941 | -12.77% | 0.08% | -2.02% | $93.66 | $117.46 | $160.04 |
| 1942 | 19.17% | 0.34% | 2.29% | $111.61 | $117.85 | $163.72 |
| 1943 | 25.06% | 0.38% | 2.49% | $139.59 | $118.30 | $167.79 |
| 1944 | 19.03% | 0.38% | 2.58% | $166.15 | $118.75 | $172.12 |
| 1945 | 35.82% | 0.38% | 3.80% | $225.67 | $119.20 | $178.67 |
| 1946 | -8.43% | 0.38% | 3.13% | $206.65 | $119.65 | $184.26 |
| 1947 | 5.20% | 0.57% | 0.92% | $217.39 | $120.33 | $185.95 |
| 1948 | 5.70% | 1.02% | 1.95% | $229.79 | $121.56 | $189.58 |
| 1949 | 18.30% | 1.10% | 4.66% | $271.85 | $122.90 | $198.42 |
| 1950 | 30.81% | 1.17% | 0.43% | $355.60 | $124.34 | $199.27 |
| 1951 | 23.68% | 1.48% | -0.30% | $439.80 | $126.18 | $198.68 |
| 1952 | 18.15% | 1.67% | 2.27% | $519.62 | $128.29 | $203.19 |
| 1953 | -1.21% | 1.89% | 4.14% | $513.35 | $130.72 | $211.61 |
| 1954 | 52.56% | 0.96% | 3.29% | $783.18 | $131.98 | $218.57 |
| 1955 | 32.60% | 1.66% | -1.34% | $1,038.47 | $134.17 | $215.65 |
| 1956 | 7.44% | 2.56% | -2.26% | $1,115.73 | $137.60 | $210.79 |
| 1957 | -10.46% | 3.23% | 6.80% | $999.05 | $142.04 | $225.11 |
| 1958 | 43.72% | 1.78% | -2.10% | $1,435.84 | $144.57 | $220.39 |
| 1959 | 12.06% | 3.26% | -2.65% | $1,608.95 | $149.27 | $214.56 |
| 1960 | 0.34% | 3.05% | 11.64% | $1,614.37 | $153.82 | $239.53 |
| 1961 | 26.64% | 2.27% | 2.06% | $2,044.40 | $157.30 | $244.46 |
| 1962 | -8.81% | 2.78% | 5.69% | $1,864.26 | $161.67 | $258.38 |
| 1963 | 22.61% | 3.11% | 1.68% | $2,285.80 | $166.70 | $262.74 |
| 1964 | 16.42% | 3.51% | 3.73% | $2,661.02 | $172.54 | $272.53 |
| 1965 | 12.40% | 3.90% | 0.72% | $2,990.97 | $179.28 | $274.49 |
| 1966 | -9.97% | 4.84% | 2.91% | $2,692.74 | $187.95 | $282.47 |
| 1967 | 23.80% | 4.33% | -1.58% | $3,333.69 | $196.10 | $278.01 |
| 1968 | 10.81% | 5.26% | 3.27% | $3,694.23 | $206.41 | $287.11 |
| 1969 | -8.24% | 6.56% | -5.01% | $3,389.77 | $219.96 | $272.71 |
| 1970 | 3.56% | 6.69% | 16.75% | $3,510.49 | $234.66 | $318.41 |
| 1971 | 14.22% | 4.54% | 9.79% | $4,009.72 | $245.32 | $349.57 |
| 1972 | 18.76% | 3.95% | 2.82% | $4,761.76 | $255.01 | $359.42 |
| 1973 | -14.31% | 6.73% | 3.66% | $4,080.44 | $272.16 | $372.57 |
| 1974 | -25.90% | 7.78% | 1.99% | $3,023.54 | $293.33 | $379.98 |
| 1975 | 37.00% | 5.99% | 3.61% | $4,142.10 | $310.90 | $393.68 |
| 1976 | 23.83% | 4.97% | 15.98% | $5,129.20 | $326.35 | $456.61 |
| 1977 | -6.98% | 5.13% | 1.29% | $4,771.20 | $343.09 | $462.50 |
| 1978 | 6.51% | 6.93% | -0.78% | $5,081.77 | $366.87 | $458.90 |
| 1979 | 18.52% | 9.94% | 0.67% | $6,022.89 | $403.33 | $461.98 |
| 1980 | 31.74% | 11.22% | -2.99% | $7,934.26 | $448.58 | $448.17 |
| 1981 | -4.70% | 14.30% | 8.20% | $7,561.16 | $512.73 | $484.91 |
| 1982 | 20.42% | 11.01% | 32.81% | $9,105.08 | $569.18 | $644.04 |
| 1983 | 22.34% | 8.45% | 3.20% | $11,138.90 | $617.26 | $664.65 |
| 1984 | 6.15% | 9.61% | 13.73% | $11,823.51 | $676.60 | $755.92 |
| 1985 | 31.24% | 7.49% | 25.71% | $15,516.60 | $727.26 | $950.29 |
| 1986 | 18.49% | 6.04% | 24.28% | $18,386.33 | $771.15 | $1,181.06 |
| 1987 | 5.81% | 5.72% | -4.96% | $19,455.08 | $815.27 | $1,122.47 |
| 1988 | 16.54% | 6.45% | 8.22% | $22,672.40 | $867.86 | $1,214.78 |
| 1989 | 31.48% | 8.11% | 17.69% | $29,808.58 | $938.24 | $1,429.72 |
| 1990 | -3.06% | 7.55% | 6.24% | $28,895.11 | $1,009.08 | $1,518.87 |
| 1991 | 30.23% | 5.61% | 15.00% | $37,631.51 | $1,065.69 | $1,746.77 |
| 1992 | 7.49% | 3.41% | 9.36% | $40,451.51 | $1,101.98 | $1,910.30 |
| 1993 | 9.97% | 2.98% | 14.21% | $44,483.33 | $1,134.84 | $2,181.77 |
| 1994 | 1.33% | 3.99% | -8.04% | $45,073.14 | $1,180.07 | $2,006.43 |
| 1995 | 37.20% | 5.52% | 23.48% | $61,838.19 | $1,245.15 | $2,477.55 |
| 1996 | 23.82% | 5.02% | 1.43% | $76,566.48 | $1,307.68 | $2,512.94 |
| 1997 | 31.86% | 5.05% | 9.94% | $100,958.71 | $1,373.76 | $2,762.71 |
| 1998 | 28.34% | 4.73% | 14.92% | $129,568.35 | $1,438.70 | $3,174.95 |
| 1999 | 20.89% | 4.51% | -8.25% | $156,629.15 | $1,503.58 | $2,912.88 |
| 2000 | -9.03% | 5.76% | 16.66% | $142,482.69 | $1,590.23 | $3,398.03 |
| 2001 | -11.85% | 3.67% | 5.57% | $125,598.83 | $1,648.63 | $3,587.37 |
| 2002 | -21.97% | 1.66% | 15.12% | $98,009.73 | $1,675.96 | $4,129.65 |
| 2003 | 28.36% | 1.03% | 0.38% | $125,801.18 | $1,693.22 | $4,145.15 |
| 2004 | 10.74% | 1.23% | 4.49% | $139,315.72 | $1,714.00 | $4,331.30 |
| 2005 | 4.83% | 3.01% | 2.87% | $146,050.90 | $1,765.59 | $4,455.50 |
| 2006 | 15.61% | 4.68% | 1.96% | $168,853.19 | $1,848.18 | $4,542.87 |
| 2007 | 5.48% | 4.64% | 10.21% | $178,114.34 | $1,933.98 | $5,006.69 |
| 2008 | -36.55% | 1.59% | 20.10% | $113,009.37 | $1,964.64 | $6,013.10 |
| 2009 | 25.94% | 0.14% | -11.12% | $142,318.62 | $1,967.29 | $5,344.65 |
| 2010 | 14.82% | 0.13% | 8.46% | $163,411.79 | $1,969.84 | $5,796.96 |
| 2011 | 2.07% | 0.03% | 16.04% | $166,787.51 | $1,970.44 | $6,726.52 |
| Risk Premium | ||||||
| Arithmetic Average | Stocks - T.Bills | Stocks - T.Bonds | ||||
| 1928-2011 | 11.20% | 3.66% | 5.41% | 7.55% | 5.79% | |
| 1962-2011 | 10.60% | 5.22% | 7.24% | 5.38% | 3.36% | |
| 2002-2011 | 4.93% | 1.81% | 6.85% | 3.12% | -1.92% | |
| Risk Premium | ||||||
| Geometric Average | Stocks - T.Bills | Stocks - T.Bonds | ||||
| 1928-2011 | 9.23% | 3.61% | 5.14% | 5.62% | 4.10% | |
| 1962-2011 | 9.20% | 5.19% | 6.85% | 4.02% | 2.35% | |
| 2002-2011 | 2.88% | 1.80% | 6.49% | 1.08% | -3.61% | |
Table 1: Survival of new establishments founded in 1998
Proportion of firms that were started in 1998 that survived through
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
Natural resources 82.33% 69.54% 59.41% 49.56% 43.43% 39.96% 36.68%
Construction 80.69% 65.73% 53.56% 42.59% 36.96% 33.36% 29.96%
Manufacturing 84.19% 68.67% 56.98% 47.41% 40.88% 37.03% 33.91%
Transportation 82.58% 66.82% 54.70% 44.68% 38.21% 34.12% 31.02%
Information 80.75% 62.85% 49.49% 37.70% 31.24% 28.29% 24.78%
Financial activities 84.09% 69.57% 58.56% 49.24% 43.93% 40.34% 36.90%
Business services 82.32% 66.82% 55.13% 44.28% 38.11% 34.46% 31.08%
Health services 85.59% 72.83% 63.73% 55.37% 50.09% 46.47% 43.71%
Leisure 81.15% 64.99% 53.61% 43.76% 38.11% 34.54% 31.40%
Other services 80.72% 64.81% 53.32% 43.88% 37.05% 32.33% 28.77%
All firms 81.24% 65.77% 54.29% 44.36% 38.29% 34.44% 31.18%
------------------------------------------------------------------------------------------------
Multiples by Market Cap Class (US)
Data Used: Value LineDate of Analysis: Data used is as of January 2012
| Market Cap Class | Number of firms | Average PE | Average PBV | Aggregate P/S | Average EV/EBITDA | Average EV/ Invested Capital | Aggregate EV/Sales |
| <5 mil | 875 | NA | 0.21 | 0.03 | NA | 0.87 | 0.86 |
| 5-17.5 mil | 560 | 3.86 | 0.21 | 0.06 | 0.11 | 0.86 | 1.52 |
| 17.5-40 | 518 | 3.52 | 0.67 | 0.53 | NA | 0.71 | 0.64 |
| 40-100 mil | 619 | NA | 0.88 | 0.50 | 3.40 | 0.93 | 0.84 |
| 100-250 mil | 662 | NA | 2.57 | 0.58 | 1.91 | 1.07 | 5.36 |
| 250 - 500 mil | 503 | 48.09 | 1.52 | 0.57 | 4.22 | 1.35 | 0.76 |
| 500-1000 mil | 526 | 22.12 | 1.63 | 0.85 | 4.81 | 1.46 | 1.05 |
| 1000-2500 mil | 620 | 19.41 | 1.92 | 1.07 | 5.03 | 1.62 | 1.34 |
| 2500-10000 mil | 624 | 15.78 | 1.91 | 1.11 | 4.55 | 1.60 | 1.41 |
| >10000 mil | 384 | 14.24 | 2.06 | 1.41 | 4.57 | 1.70 | 1.77 |
| Grand Total | 5891 | 15.38 | 2.00 | 1.28 | 4.55 | 1.62 | 1.67 |
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