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Valuing Common Stock

In: INTRODUCTION TO FINANCE Financial Management and Investment Management

Author

Listed:
  • Pamela P. Drake
  • Frank J. Fabozzi
  • Francesco A. Fabozzi

Abstract

In this chapter, we discuss practical methods of valuing common stock using two methods: discounted cash flow models and relative valuation models. Both methods require strong assumptions and expectations about the future. No one single valuation model or method is perfect. All valuation estimates are subject to model error and estimation error. Nevertheless, investors use these models to help form their expectations about a common stock’s fair market price.

Suggested Citation

  • Pamela P. Drake & Frank J. Fabozzi & Francesco A. Fabozzi, 2022. "Valuing Common Stock," World Scientific Book Chapters, in: INTRODUCTION TO FINANCE Financial Management and Investment Management, chapter 17, pages 487-511, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811241284_0017
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    More about this item

    Keywords

    Financial Management; Investment Management; Derivatives; Common Stock; Bonds; Company Analysis; Entrepreneurial Finance; Financial Instruments; Financial System; Financial Statements; Time Value of Money; Yields; Present Value; Future Value; Financial Strategy; Dividend Policy;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G3 - Financial Economics - - Corporate Finance and Governance
    • N2 - Economic History - - Financial Markets and Institutions
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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