Excel valuation of stock in practice. PV( ) function
Hello,
so there is this little guide on how to value a stock in excel using the =pv( ) function, See this link please on investopedia
1) Would this procedure actually be used in practice? Or is it just a theoretical approach?
2) Where would you get the figures from for expected profits of a company for the coming 10 yrs?
3) *edit
any help would be appreciated.
1) I mean the basic idea is the same as a DCF analysis, except here it looks like they are using earnings to keep things simple, and instead of doing their own "terminal value" calculation, they are using an analyst estimate for the stock price 10 yrs out. In reality, nobody would do a valuation that relies on an analyst's estimate of future value, and analysts don't project prices out that far anyway. The basic concept, however - projecting cash flows over a period of 5-10 years, valuing the business at the end of that period, and then discounting everything to the present to get the fair stock price today - is widely used.
2) Presumably if you are considering an investment, you have done a thorough analysis of the business and you have your own idea of what the growth / profitability of the business will be going forward. That said, if you were in banking or otherwise needed a quick estimate, you could look at sell-side equity research reports, which usually have at least a few years of projections of the big line items.
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