Equity Valuation

[Course Title and Date]

Equity Valuation

Introduction

This paper discusses the equity valuation of the Cobham Plc through the data and information of the financials of the company. In this paper, I have calculated the fair value of the equity through the dividend valuation model. Furthermore, the evaluation of the valuation is also made, and the possible range of errors is also highlighted. In other words, it can be said that the limitations or the chances of errors are also highlighted in this paper. They drivers of the dividend valuation model are also highlighted. Aside from that this paper has also the credit rating and the default risk of Cobham Plc. In this paper I have estimated the volatility of the firms as well, the volatility can also be considered as a risk.

Discussion

In this paper, the valuation of the Cobham Plc is made and before doing the valuation one must understand the key financial highlights to better understands the financial position of the company. When one looks at the sales, it can be seen that sales are showing an increasing trend for last three years. No matter what the conditions of the costs are, increase in sales is always a good sign. The management will be quite delighted by an increase in the operating income as well as it has crossed 4 million pounds comfortably and it is sitting pretty at 416 million this year. When one looks at these two things, it becomes pretty much clear that why Cobham has been showing rather encouraging financial results this year (Qian & Wang, 2012). Only thing that can be done better is that it can do some more debt financing to ensure that they leverage their income bit further.

There are two main methods of valuation of equity: analysis of different pricing and valuation discount. Although much price report is easy to use and above all it requires a personal judgment, discounted valuation method is accurate in theory, but requires more calculations. The appropriate method depends on your actions and analyzes your needs, goals and preferences.

Investors make stock valuation determine if a stock is worth the price quoted in the market.

Without the proper conduct valuation of shares, investors can not know if a stock traded on the market is overvalued or undervalued.

Investors need the information to make investment decisions. If the valuation of stocks shows that a stock is overvalued by the market, investors do not want to buy the shares, but may consider selling it. If the stock valuation shows a stock is undervalued by the market, investors may want to buy the stock or continue to hold if already owned. Multiple price study directly compares stock price with a representative value intrinsic to the operation, such as company earnings or book value (Pinto, Henry, Robinson & Stowe, 2010). The most common price multiples are price-earnings ratio and the price to book. To determine whether an action is right valuation, investors still compare many multiples of price action with similar ...