Year 2 · Core Finance · Corporate Finance & Valuation
Equity Valuation
Understand what an equity claim is worth, why price and value differ, how growth and required return interact, and how investors use dividends, earnings, book value and market multiples to build a valuation thesis.
LEARNING OBJECTIVES
What you should be able to explain after this lesson
01
Distinguish market price, equity value and intrinsic value.
02
Explain how earnings, payout, reinvestment and ROE drive sustainable growth.
03
Apply a dividend discount model and the Gordon Growth Model.
04
Understand how required return and growth assumptions affect value.
05
Interpret P/E, P/B and selected enterprise-value multiples without using them mechanically.
06
Build a valuation thesis using business quality, catalysts, scenarios and risk.
CONCEPT MAPFrom business economics to equity value
A stock price is observable; intrinsic value is an estimate
CORE FACTS · SAME IN EVERY MODE
Market price is the price at which the stock currently trades; intrinsic value is an analyst's estimate of the present value of the equity claim.
Equity holders are residual claimants after contractual obligations such as debt.
Intrinsic value depends on expected future cash generation, growth, risk and capital allocation.
Valuation is a range of conditional estimates rather than a perfectly observable fact.
BeginnerTeaching style changes, knowledge does not.
If a stock trades at $50, $50 is its market price. You may estimate that the underlying equity is worth $60 based on future cash flows, or only $40 if your assumptions are weaker. The market gives you the price; valuation asks what you think the claim is worth.
COMPARISON
Price and value
| Concept | Meaning |
|---|---|
| Market price | Observable transaction price |
| Market capitalization | Share price × relevant shares outstanding |
| Intrinsic value | Estimated economic value under stated assumptions |
PROFESSIONAL VOCABULARYResidual claim / créance résiduelle / residual claim Intrinsic value / valeur intrinsèque / intrinsic value
Claim on value remaining after higher-priority contractual claims are satisfied.
Estimated economic value of an asset based on expected future benefits and risk.