This lesson explores the methods used to value equities, which may be part of a longer-term investment portfolio.

5.1 Key Concepts in Equity Valuation

Valuing equities is a core skill for a treasury professional managing a long-term portfolio. Key terms and concepts include:

• Initial Public Offerings (IPOs), Seasoned Offerings, and Private Equities: Understanding the different forms of equity issuance . Equity issuance types include IPOs, seasoned offerings, and private placements.

• Holding Period Return: The total return on an equity investment over a specific period, including dividends and capital appreciation . Holding period return (HPR) includes price change and dividends.

5.2 Valuation Models for Equities

Two primary valuation methods are covered in the Treasury Fundamentals syllabus :

• Discounted Cash Flow (DCF) Model: Values a stock based on the present value of its expected future dividends (the Dividend Discount Model) . DCF models estimate present value of future cash flows.

• Multiplier Model: Values a stock using a multiple of a financial metric, such as the Price-to-Earnings (P/E) ratio or Price-to-Book (P/B) ratio . Multiplier models use ratios like P/E and P/B.