Value Of An Investment Based On The Amount Of Risk And Return It Provides

Valuation is the estimation of an asset’s value, whether real or financial, based on variables perceived to be related to future investment returns, on comparison with similar assets, or, when relevant, on estimates of immediate liquidation proceeds (Pinto, Henry, Robinson, Stowe; 2010). Correct valuation of real assets can present challenges to financial analysts. Different models can be used to arrive at the closest estimate of value and yet certain issues will always arise. This case attempts to tackle two approaches in real asset valuation: Discounted Cash Flow (DCF) analysis and the issues surrounding such, as well as the Black-Scholes Model for Real Options. Questions to be addressed in the study are:

• Valuation of the company—application of sophisticated quantitative valuation models, IRR, net present value and forecast of future cash flows.

Investors often come to believe that a stock is undervalued or overvalued compared to other stocks in its industrial group. To calculate an alternate target price for the current and next fiscal year based on those beliefs, investors can apply the average PE multiple for a company 's industrial group to the average professional analyst 's earnings estimate for the company in those periods. Valuation using the industry 's

A firm’s intrinsic value refers to the true worth of stock in that firm which is calculated on return data and accurate risks. On the other hand, a firm’s current stock price talks about its market price as a whole as perceived by an

Valuation Estimates: Actual Price (6/1/07): $21.63 Trailing P/E $9.57 Forward P/E $7.80 PEG $2.92 P/B $54.00 P/EBITDA $28.24 P/FCF $123.39 EV/EBITDA $3.54 Intrinsic Valuations Discounted Dividend Free Cash Residual Income LR ROE AEG Actual $18.40 $29.71 $3.22 $7.21 $8.79

During the 1990s Southwest achieved the highest average revenue and income growth rate and return on total assets and stockholders’ equity among all U.S. air carriers. Unfortunately in the fourth quarter of 1994 (October 1 – December 31, 1994) net income fell 47 percent compared to fourth quarter 1993. Southwest had not reported earning less than the same quarter a year earlier since the third quarter 1991. By the end of the fourth quarter 1994 Southwest’s stock had reached a 52-week low on the New York Stock Exchange closing at $15.75 which was down

Panera’s P/E ratios are higher than those of Einstein in both 2012 and 2013 (see Table 1). This suggests that investors are more optimistic about Panera’s future growth than Einstein’s, and that investors are willing to pay more

These large sums of cash outflow are spread out over long periods of time. Therefore, the present value of cash flow signifies the economic worth of a project for a company at a specific point in time. This, in turn, helps decision makers ascertain the time period that the company’s investments will be tied up. Also, it helps them establish the amount of time that it will take to begin receiving a return. Furthermore, decision-makers can better evaluate which projects have a higher chance of providing them with a return sooner since present value discounts future cash flows to their equivalent value today. Additionally, it aids them in establishing which projects should be invested in and those that should not. Moreover, it allows them to ascertain if and when a project will benefit them so they can evaluate their investment options and select the best alternative (Edmonds et al.,

In utilizing the fundamental data provided by the 2010 Richard Ivey School of Business Foundation article titled Valuing Wal-Mart - 2010, I have made the following conclusions regarding the value of Wal-Mart (WMT) stock as of February 2012.

The valuation process, in this case, requires us to estimate the short-run non-constant growth rate and predict future dividends. Then, we must estimate a constant long-term growth rate at which the firm is expected to grow. Generally, we assume that after a certain point of time, all firms begin to grow at a rather constant rate. Of course, the difficulty in this framework is estimating the short-term growth rate, how long the short-term growth will hold, and the long-term growth rate.

It is important for stockholders to continuously re-evaluate their investments. Although some investors do this more frequently and thoroughly than others, the majority of shareholders do so at least once each year. Therefore, Torres’ desire to update her analysis in order to determine whether Costco was still operating efficiently makes perfect sense. After thorough examination, my analysis proves that Costco remains one of the industry’s leading competitors and there seems to be no reason for Torres to sell her shares as long as she wishes to retain holdings of a retail wholesale club in her portfolio.

The management of JetBlue and its underwriters can also price the IPO using valuation multiples. JetBlue can employ the most current comparable data of the most appropriate competitors in terms of value in the airline industry. Valuation multiples that can be employed include, but are not limited to P/E multiples, EBIT multiples, EBITDA multiples. In this scenario, I choose to use Southwest airlines and Ryanair as the major benchmarks, because they are both considered as major low –fare airlines, and are key competitors in the United States and Europe. Nevertheless, I believe the P/E ratio is the stronger valuation tool to determine the true value of a firm. Using this method we come up with a share price of $19.32 for Southwest

Most rely on valuation heuristics involving P/E, PEG, and price-to-sales . The simplicity of using heuristic triggers dependence on valuation heuristics as an alternative for the fundamental valuation. P/E, PEG, and price-to-sales need few variables and use simple formulas. Therefore , the estimates are rather perceptive THUS subject to bias. The cause of these biases arise from weak assumption made towards P/E, PEG, and price-to-sales inputs.

After calculating the annualized stock price and S&P 500 found in the appendices section I was able to come up with a few comparisons among the U.S airlines. Southwest and Delta have stood out in the past few years for producing consistently strong profits. American airlines have been on the decline the last few years and stocks are still falling due to its higher prices than the other airlines. Investors have acknowledged the strong performance made by Delta and South which helped their stocks improve in recent years. However, the airlines S&P 500 has been on the decline over the past couple years after the company lowered its unit revenue outlook in the past three years. Southwest unit revenue 10 years ago was on the decline due to the 2007

To increase and maximize the wealth/value of shareholders, it is necessary that the company is competitive in their market and can reliably “earn a considerable return on its investments above their cost of capital” (Doyle, 2000). The increasing rates of return of well performing companies attract new investors who invest money to become shareholders. These outside funds from investors are essential for growth of businesses and the expansion into new markets. Measurements of generated shareholder returns over a certain time period deliver the company useful information on whether their objectives have been achieved or should be new adjusted (Atrill, 2009).