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Equity Valuation in R

Intermediate

Updated 12/2024

Learn the fundamentals of valuing stocks.

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RApplied Finance4 hours16 videos58 exercises4,750 XP7,855Statement of Accomplishment

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Course Description

How do we know when a stock is cheap or expensive? To do this, we need to compare the stock's price with its value. The price of the stock can be obtained by looking at various public sources, such as Yahoo Finance or Google Finance. The value of the stock though is much harder to identify. Every investor has to form his or her valuation of the stock. In this course, you will learn the fundamentals of valuing stocks using present value approaches, such as free cash flow to equity and dividend discount models, and valuation multiples. By the end of this course, you will be able to build your own valuation models.

Prerequisites

Importing and Managing Financial Data in R

1

Present Value Approaches

Course Intro and Fundamental Valuation

Time Value of Money

Difference Between Valuing Enterprise and Equity Cash Flows

The Free Cash Flow to Equity Model

Calculating Operating Profit

Calculate Free Cash Flow to Equity

Calculating Terminal Value

Calculating Equity Value

Calculating Present Value of Free Cash Flow to Equity

Calculate Present Value of Terminal Value

Calculate Equity Value

2

Perpetuity Growth Rate, Analyzing Projections, and Using a Dividend Discount Model

Analyzing the Projections

Analyze Revenue Trends - Bar Chart

Analyze Revenue Trends - Regression

Perpetuity Growth Rate

Calculate Retention Ratio

Perpetuity Growth Rate Calculation

Dividend Discount Model

Valuing Preferred Stock

Valuation Assuming No Dividends For First Few Years

Valuation Assuming 2-Stages of Dividends

3

Discount Rate / Cost of Capital Estimation

What is a discount rate?

Risk and Return

Calculating Returns

Estimating Beta

Unlevering Betas

Hamada vs. Fernandez Formula

Beta Unlevering Exercise

Beta Relevering Exercise

Risk-Free Rate and Equity Risk Premium

Obtain Risk-Free Rate Data

Calculate Historical Equity Risk Premium

Calculate the Cost of Equity

4

Relative Valuation

Relative Valuation

Identifying Comparable Firms

Valuation Multiples

Calculating Valuation Multiples

Calculating the Relevant Multiple

Implied Price

Analyzing Determinants of Multiples

Calculate ROE and P/B

Plot P/B vs. ROE

Strength of Relationship

Implied Price Using Regression

Difference in Implied Values

5

Comprehensive Exercise

Fundamental Valuation: Analyzing Projections

Visually Inspecting the Data

Using Regression to Test the Projections

Fundamental Valuation: Implementation

Cost of Equity

Calculate Value During Projection Period

Calculate the Terminal Value

Equity Value Per Free Cash Flow to Equity Model

Equity Value per Dividend Discount Model

Relative Valuation

Equity Value Per Price-to-Earnings Multiples

Combine valuation into a summary table

Congratulations!

Equity Valuation in R

Course
Complete

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