Client Considerations for Equity Portfolios
Wealth managers and financial advisers often consider the following investment objectives and constraints when deciding to include equities in a …
equity
Role of Equities in a Portfolio
Capital Appreciation The main driver of long-term equity returns is capital (or price) appreciation. Equities tend to outperform other asset …
Module 30.5 LOS 30.f, 30.g, 30.i, 30.j 30.l: Firm valuation with FCFF and FCFE
In free cash flow valuation models, we have a control perspective that assumers value recognition will be immediate. DDM models …
Module 29.3 LOS 29.o: Using DuPont ROE to estimate a sustainable growth rate
The sustainable growth rate, the rate at which earnings and dividend can grow indefinitely, can be calculated by multiplying the …
Module 31.4 LOS 31.h: Relating Justified PE to Justified PS and Justified PB
From the justified PE equation we can derive several relationships to PS and PB ratios: where: V0 = fundamental value D0 = …
Module 29.2 LOS 29.f: Justified Leading and Trailing P/E
Justified P/Es are based on firm fundamentals. The leading P/E uses earnings forecasts from the next period while the trailing …
Module 31.4, LOS 31.p: Momentum indicators in valuation
Momentum indicators look at fundamental variables like price and EPS in the context of a time series of historical or …
Module 31.4, LOS 31.i: Predicted P/E Ratio
A predicted P/E can be estimated from linear regression of historical P/Es on its fundamental variables, including expected growth and risk. While …
Module 31.4, LOS 31.e: Normalizing EPS
The P/E ratio depends on estimating an appropriate earnings value. An analyst may take several adjustments for their earnings value, …
Module 31.4, LOS 31.k: PEG ratio and its uses
The PEG ratio standardizes different the P/E ratio for stocks with different growth rates. This is effective because one of …