valuation method for stock

valuation_method.docx

Valuation method

Instructions

1) choose a company and get their income statement for the last five years ( from 2010 till 2014)

2) find the OCF for each year

· OCF = EBIT – D –T

3) estimate growth rate for example ( g1= OCF 2012 – OCF 2011 /OCF 2011) we need to find g1, g2, g3,g4

4) find the average of the growth rate g’

5) find the FCF ( FCF= delta NWC – delta NWC – delta NCS

6) find FCF for five years forward (from 2015 till 2019)

· for example: FCF 2015= FCF 2014(1+g’)^1

· FCF 2016= FCF 2015(1+g’)^2 ….etc.

7) then we calculate P 2019= FCF 2020/r-g ( we find r from WACC)

8) FIND P = FCF 2015/(1+r)^1 + FCF 2016/(1+r)^2 + FCF 2017/(1+r)^3 + FCF 2018/(1+r)4 + FCF 2019/(1+r)^5 + P 2019

9) Find out the actual price at the market and do a reflection paper if it under valued or over valued