Stocks Valuation Methods
Name
Instructor
Institution
Course
Date
Introduction
1.1. Problem statement
The Pound land corporations a UK private company. The Pound land Group PLC wants to float to the London stock market. The IPO estimates indicate that the Pound land Group PLC could make 700 million pounds. The end of the private equity ownership is expected to offer numerous benefits for the Pound land Group PLC, (Luke, 2011). The organization wishes to be listed in the stock market for the operations of the Pound land Group PLC. The organization operates in the retail industry. The company was founded in 1990, (Edward, 2011). The founders of the organization were Dave Dodd and Steven Smith. The organization has 450 subordinate operating places. The organization offers groceries, consumer goods and DIY electrical services. The organization offers revenue of 642 million. The operating income for the Pound land Group PLC is 16 million dollars and has a profit of 11.8 million.
1.2. Scope
The discussion section will assess the five reasons that have led to the consideration of the organization to enter into the London stock exchange market. The discussion section will assess the different stock evaluation techniques that could be applied by the management in the valuation of the stocks. The analysis will offer the recommendation of the best two approaches for the analysis of the Pound land Group PLC’s stocks.
1.3. Purpose
The aim of the editorial is to offer the assessment of the best techniques that allow the Pound land corporation top enters into the London stock market.
Thesis
The Discounted cash flow method and earning Based techniques are the best techniques to value the stocks.
Discussion
2.1. Reasons for stock market listing
The main reasons for the listing of the Pound land corporation in the stock exchange market have been on the need for raising capital and providing a market in their share. The venturing into the stock market helps the management to sell its shares to the general public with regard to the analysis of the best approach for the Pound land corporation and the management, (Roger, 2011). These reasons can be analyzed in the different requirements that the Pound land corporation wished to achieve through the stock market listing.
2.1. 1. Capital growth
The organization aimed at the provision of the best approaches that they could raise awareness to investors to invest in the organization, (Roger, 2011). The listing of the Pound land corporation will assure the increased primary capital for the Pound land corporation in the market’s organic growth for the acquisition of the funding for the organization. The investors that invest in the company will be required to list the growth of the savings through the share price fluctuations and dividends.
2.1. 2. Corporate profile elevation
The Pound land corporation wishes to join into the stock listing for raising the public profile for the organization. The listing of the Pound land corporation assures the buildup of publicity from the media, suppliers, investors and customers, (Stephen, 2011). The companies that become listed in the stock exchange are part of the analyst reports and are listed in the market index. This assures the increased shareholders assessment of activities.
2.1. 3. Company Valuation
The listing of the Pound land Group PLC in the stock market will offers the increased need for the company’s valuation, (Edward, 2011). The generation of the independent valuation focuses on becoming the possible ways that the transparency of the Pound land Group PLC can be assured. This increases the investors and shareholders confidence in the providence of activities for the organization.
2.1. 4. Trading Platform
The Pound land corporation will benefit from the overall ways that can be used in the providence of the activities that generate the operations of the organization through the exchanges in the companies, (Edward, 2011). The companies are able to offer the shareholders the opportunity to enjoy the shared values and profits made in the Pound land Group PLC. This increases the organizations shareholders base. This will boost the publicity and support of the Pound land Group PLC from the public.
2.1. 5. Reassurance
The Pound land Group PLC action for listing in the stock market will allow the increased improvement for the business and financial confidence, (Luke, 2011). The purveyors and clients will be proficient to assess the best approaches that can be implemented in the assessment of the approaches of the organization.
2.2. Valuation techniques
The valuation techniques that can be used in the analysis of the Pound land Group PLC’s approaches to the joining of the stock exchanges are the following. The techniques include the Asset Basis method, Earning Basis method, Dividend Valuation method and the discounted cash flow method. The problems, disadvantages, limits and strengths of the techniques are states as follows.
2.2. 1. Asset basis method
The technique focuses of the evaluation of the business through the taking of the individual assets and liabilities that focus on the adjustment of the current market value, (Roger, 2011). The valuation method allows the assessment of the valuation trading. The drawback of the loom is that it does not seize deliberations on the future profits of the Pound land Group PLC.
The approach applies the liabilities and the net assets of the business for the principle of valuation of the Pound land Group PLC’s stocks, (Edward, 2011). The focus of the evaluation is through the assessment of the balance sheet and adjustment of the assets or liabilities that allow the reflection of the current market values for the assets of the organization. The potency of the valuation method is that it is suitable for the valuation of goodwill for the organization.
The limitations of the approach are that one is required to adjust the book values to the price factor for the organization. The technique is not suitable for the valuation of the investment businesses and the as asset rich businesses, (Stephen, 2011). The management is able to value the properties that are seen to rise and include the current valuation of the stock through the analysis of the obsolescence that reduces the stocks from the recoverable amounts for the huge bad debt that lurks in the trade for the debtors and reducing the recoverable amounts.
The advantages for the implementation of the technique are that it allows the management of the existing goodwill and the overall development costs that are included in the organization. The method of the valuation assures the suitable assessment of the environment through the businesses that are the going concern for the organization.
2.2. 2. Earning basis method
The valuation method assures the assessment of the levels of sustainability for the business profitability and the earnings of the multiple assessments of the rate of return. The earning basis method allows the attempt for the production of the business valuation for the sustainable profit assessment for businesses and the use of the recognized approaches that allow the valuation of the business that are a going concern, (Massimo, 2011). The technique requires the analysis of the historic profits for the need of adjusting the exceptional items being performed in the organization, (Brandon, 2011). The restriction of the technique is that the technique focuses on the evaluation of the sustainable profits of the business and recognition of the approach for the valuation of the trading businesses, (Roger, 2011). The Pound land corporation will be needed to look at the expenses and revenue that are restated in the financial reports.
The technique requires the multiplication of the multiple sustainability for businesses for the earning’s multiple. The usual approach allows the application of the appropriate price earnings ratio. The price to earning’s ratio allows the private companies to assess their operations, (Clarke, 2011). The problems of the technique are the need to consider the different issues that allow the formation of the exceptions in the analysis of activities for the organization’s shareholding. The businesses are seen to be based on the assurance of the sustainable profits that are generally having high price earnings ratios, (Massimo, 2011). The potency of the approach is that it allows the organization to forecast the high future profitability for the organization. The valuing of the shareholders and the assessment of the business interests rarely focus on the representation of the pro-rata proportions for the value of the business as a whole.
2.2.3. Dividend valuation method (DVM)
The technique will help the Pound land corporation to assess the potential value of the organization for the determination of the share price via the dividend, (Roger, 2011). This method of share valuation is based on the premise of the market valuation being ordinary for the shared representation for the sum of the expected future dividend flow and discounted to present value assessment.
The techniques strength is that it allows the valuing of the holdings for the companies through the regular payment of dividends, (Yang, 2011). The dividend valuation method allows the valuation of the future dividends that are expected from the business and discounts for the present value assessment, (Massimo, 2011). The limitations of the approach are the use of the equity beta that focuses on the essential elements analysis for the business and discounts for the present valuations. The DVM calculations focus on the analysis of the estimates that are made for the different people with values for the same business.
The restraint of this advance is that it is only used for companies that are seen to distribute their dividends, (Yang, 2011). The technique assumes that the dividend will grow at a constant rate. The equation for the technique follows the following steps, (Stephen, 2011). The Pound land corporation will determine the current stock price for the organization and the current period’s dividend, (Chambers, 2011). The amount is multiplied as one plus the constant growth rate. The amount is divided by the required rate and is subtracted from the growth rate.
2.2. 4. Discounted cash flow method
The valuation methods are used for estimating the attractiveness of the investment opportunity for the organization. The approach uses the free cash flow projections and discounts that allow the arrival of the present values for the organization, (Stephen, 2011). The management uses the approach for evaluating the discounted cash flow method analysis that is higher than the current cost of investment for the organization in the analysis of opportunity for the Pound land Group PLC, (Massimo, 2011). The management will focus on the assessment of the summation of the current worth for the projected cash flow and the present value for the residual. The addition of the two items will assure the value of equity is obtained.
The boundaries of the procedure are that the changes in the input for the analysis of the discounted cash flow method could lead to the forecast of large changes for the company, (Luke, 2011). A realistic estimate of the cash flows for the Pound land corporation will be hard to assess, (Garcia, 2011). The search for the simple annuity will be required for the analysis of the estimated terminal values for the past ten years.
Analysis
The best methods that can be used for the assessment of the case for the Pound land corporation are the discounted cash flow method or earning basis method, (Roger, 2011). The reasons for choosing these valuation methods are the following.
The earning based valuation focuses on the assessment of the price to earnings multiples for the market capitalization to the annual income of the Pound land Group PLC. The ascertaining of value of the company allows the current equity value to be divided by the recent net income for the ascertaining of the price to earnings multiples, (Massimo, 2011). The methods will allow the assigning of value to a stable and predictable businesses that are about to make IPO. The technique was chosen due to the ability base the price values on the multiples of the businesses earnings potential through the prospective buying that based on the ability for the translation of the purchases for individual prices into the expected earnings for the projected return on investments.
The discounted cash flow assures the valuation of the asset and company through the use of the relevant concepts and time value for money. The Discounted cash flow method valuation allows the assessment of the estimated and discounted value that offer the analysis of the present values, (Massimo, 2011). The Discounted cash flow method is efficient in the application for assessing the investment finance assessment and corporate financial management. The key components that are required for the assessment are the free cash flow analysis, terminal value and discounting rate. The rate is applied the discount to project the free cash flow and the terminal value to the present value assessment.
Conclusion
In conclusion, the discounted cash flow method and earning Based techniques are the best techniques to value the stocks. The five reasons that have led to the consideration of the organization to enter into the London stock exchange market are the following. The London stock market offers an opportunity for increasing the capital growth, corporate profile appreciation and elevation, companies valuation and reassuring suppliers and customers of the organization’s ability. The London stock market offers the opportunity for the organization to have a trading platform. The discussion section assessed the different stock valuation methods. The valuation methods were the asset basis method, earning basis method, dividend valuation method and discounted cash flow method.
Reference
Brandon V. (2011). Constructive techniques for obtaining the explanation of the intermittent boundary value predicament for a system of matrix discrepancy equations: Journal on Differential Equations, 47, 10, 1426-1434.
Chambers, A. (2011). Revisiting the evaluation of Timberland–Terminology, techniques, and holder Studies: Journal on Statistical Analysis 79, 3, 812-869
Clarke, P. M. (2011). A meta-analysis of strength state valuations for populace with diabetes: amplification the distinction across methods and implications for fiscal evaluation. Journal on Life Research, 20, 10, 1669-1678.
Edward, E. W. (2011). In the ground of the unsighted, the one-eyed are sovereignty: financial economics contribution to the collapse of 2008-2009. Journal of Post Keynesian Economics, 34, 1, 3-24
Garcia, A. (2011). Forecasting linear dynamical arrangement using subspace methods: Valuation methods: Journal on Time Series Analysis, 32, 5, 462-468.
Luke C. (2011). Observation from Ministry of structure on proliferation of the nationwide Standard or Estate Appraisal Code: Journal on the Chinese Law and Government, 44, 1, 80-102
Massimo, C. (2011). Interest, enlargement, and Income allocation: Valuation methods: International Journal on Political Economy, 40, 4, 31-61
Roger, C. (2011). The wages Effects of Marketing message Expenditures during downturn. International Journal on Advertising, 40, 2, 5-24
Stephen, D. (2011). The contemporary food production and public vigor: Valuation of Stocks perspective. Journal on Post Keynesian Economics, 35, 3, 491-516
Yang, T. (2011). Gas Storage evaluation: Price Modeling versus Optimization Methods. Journal on energy, 32, 1-18
