Chapter 9: Equity Valuation—Concepts and Basic Tools

In this section

• Dividend Discount Models (Single-Stage, Multistage)
  Dividend Discount Models (Single-Stage, Multistage) (CFA Level 1): Single-Stage (Gordon Growth) Model, Core Concept, and Key Assumptions. Key definitions, formulas, and exam tips.
• Free Cash Flow to Equity (FCFE) Models
  Free Cash Flow to Equity (FCFE) Models (CFA Level 1): FCFE Formula, Single-Stage FCFE Valuation, and Multi-Stage FCFE Models. Key definitions, formulas, and exam tips.
• Price Multiples (P/E, P/B, P/S, EV/EBITDA) and Relative Valuation
  Price Multiples (P/E, P/B, P/S, EV/EBITDA) and Relative Valuation (CFA Level 1): Understanding the Basics of Price Multiples, Key Price Multiples, and Price-to-Earnings (P/E) Ratio. Key definitions, formulas, and exam tips.
• Asset-Based Valuation Approaches
  Asset-Based Valuation Approaches (CFA Level 1): Key Steps in Asset-Based Valuation, Adjusting to Fair Market Values, and Handling Liabilities. Key definitions, formulas, and exam tips.
• Strengths and Limitations of Valuation Techniques
  Strengths and Limitations of Valuation Techniques (CFA Level 1): Dividend Discount Models (DDM), Strengths, and Limitations. Key definitions, formulas, and exam tips.
• Residual Income Models and Adjustments for Non-Recurring Items
  Residual Income Models and Adjustments for Non-Recurring Items (CFA Level 1): Fundamental Concept of Residual Income, Relationship to Shareholder Value Creation, and Clean Surplus Relationship. Key definitions, formulas, and exam tips.
• Valuing Startups and Early-Stage Companies
  Valuing Startups and Early-Stage Companies (CFA Level 1): Understanding the Challenges in Valuing Startups, Common Valuation Methods, and Venture Capital Method. Key definitions, formulas, and exam tips.
• Multi-Stage FCFE Models with Changing Growth Patterns
  Multi-Stage FCFE Models with Changing Growth Patterns (CFA Level 1): Rationale Behind Multi-Stage FCFE Models, Key Components of a Multi-Stage FCFE Model, and Free Cash Flow to Equity (FCFE). Key definitions, formulas, and exam tips.
• Terminal Value Estimation Methods
  Terminal Value Estimation Methods (CFA Level 1): Importance of Terminal Value in Equity Valuation, Methods for Estimating Terminal Value, and Gordon Growth Model (Perpetual Growth Method). Key definitions, formulas, and exam tips.
• Reverse-Engineering Market Expectations
  Reverse-Engineering Market Expectations (CFA Level 1): Rationale Behind Reverse-Engineering, Common Applications, and Valuation Models Suited for Reverse-Engineering. Key definitions, formulas, and exam tips.
• Required Return on Equity (Cost of Equity)
  Required Return on Equity (Cost of Equity) (CFA Level 1): Understanding the Basics, Core Components of the Cost of Equity, and Risk-Free Rate. Key definitions, formulas, and exam tips.
• CAPM and Multifactor Models
  CAPM and Multifactor Models (CFA Level 1): CAPM at a Glance, Key Assumptions of CAPM, and Beyond the Single Factor. Key definitions, formulas, and exam tips.
• Equity Risk Premium Approaches (Historical, Forward-Looking)
  Equity Risk Premium Approaches (Historical, Forward-Looking) (CFA Level 1): Setting the Stage: Why the Equity Risk Premium and Historical Approach: Understanding the Past. Key definitions, formulas, and exam tips.
• Bond Yield Plus Risk Premium Approach
  Bond Yield Plus Risk Premium Approach (CFA Level 1): Conceptual Foundation, Detailed Mechanics, and Observing the Bond Yield. Key definitions, formulas, and exam tips.
• Equity Risk Indicators (Volatility, Value at Risk, Beta Computation)
  Equity Risk Indicators (Volatility, Value at Risk, Beta Computation) (CFA Level 1): Volatility: Capturing Total Risk, Defining Volatility, and Why It Matters. Key definitions, formulas, and exam tips.
• H-Model for Dividend Growth
  H-Model for Dividend Growth (CFA Level 1): Key Concepts and Underpinnings, H-Model Formula, and Intuitive Understanding. Key definitions, formulas, and exam tips.
• PEG Ratios and Adjusted P/E Multiples
  PEG Ratios and Adjusted P/E Multiples (CFA Level 1): Understanding the PEG Ratio, Why Growth Matters, and Interpreting the PEG Ratio. Key definitions, formulas, and exam tips.