16.1 - Drawbacks of DCF Analysis
In this chapter, we will discuss some of the important issues that can have a huge impact on your investment decisions. In the previous chapter, we saw how to calculate the intrinsic value of a company's stock using the DCF model. To find out the intrinsic value of a company DCF is probably the best approach. But this method also has its drawbacks. You should also know about these drawbacks. _ As we have discussed earlier, the DCF model is based on your assumptions. _ _ _ _ If your guess is not correct then this model won't work ok and you won't know the exact price of the share.
DCF requires forecasting – You know that in the DCF model, we need to forecast future cash...
14.1 – Share Price
In the previous chapter, we explained the first two steps of equity research. The first step is where we look at the company's business and the second step is where we look at the company's financial performance. The third step of equity research is to find out the valuation of the company's shares. But that it Should be done when you are absolutely sure about the business of the company after the first two steps.
An investment is considered a good investment only when you pay the right price for that business i.e. you get those shares at a very good price. Sometimes instead of a very good company, if a medium company is also found at a very good price, then it is considered That be a very good investment. That being said, price plays a very important role in terms of investment.
In the next...
11.1 The Valuation Ratio
Finding the value of something is called the valuation of that thing. When the price of a share is calculated in the stock market, it is called the valuation of the share. Before investing in any business, it is seen what should be its valuation. _ any business Its valuation is also seen to buy. _ _ _ Sometimes it is considered a better investment in a simple business at a low valuation rather than buying a very good business at a very high valuation.
The valuation ratio tells us how the market is viewing the price of any stock. _ _ Means how much he is valuing it. From this, we get to know which is the good stock to invest in. _ This ratio tells us that this stock is at this price _ What kind of benefit can we get from buying? Like all other ratios, it should be compared with the ratios of other companies.
Valuation ratios usually compare a specific portion of a business...
9.1 – Role of Financial Ratios
In the last few chapters, we have learned to read financial statements. Now we will learn to analyze them. For this, we have to first understand the financial ratios. Financial ratios were first introduced by a fundamental analyst named Benjamin Graham. _ _ them financial ratio Considered the father of. Through financial ratios, we can assess the financial results of the company. Current performance can be measured against the performance of previous years, previous quarters, and other companies. Financial ratios are usually included in the company's financial statements or financial statements. ' s data is used. _ Before understanding financial ratios, we need to know some of their important principles. Financial ratios by themselves do not provide much information. _ _ For example, if I am told that the profit of UltraTech Cement is 15%.If so, what will I know from this? It is true that a 15 % return is a good return, but is it the best return in the sector? _ Suppose you know that the profit of ACC Cement is 12 % and when we compare this profit with Ultratech _ If we do with the profit of Cement, then we will come to know that the profit of UltraTech is higher than that of ACC Cement. You must have understood from this that the ratio in itself does not tell much, but when it is used for any comparison You see the full picture. That is, it means that whenever you take out the ratio, it will be better if you use it for any comparison. Another important thing that you have to remember while calculating the ratio is that each company has its own unique _ _There is accounting policy. Accounting policies may also differ from financial year to year. _ _ _ That's why you should have this information while using the ratio.
7.1 – Assets portion of the Balance Sheet
In the previous chapter, we looked at the liabilities side of the balance sheet. Now we will look at the second part of it i.e. the asset part. This part of the balance sheet tells us about every A set the company has ever taken in its entire life span. Assets of the company in simple language It is called an asset that can help the company earn income later. _ _ _
As you can see there are 2 types of assets shown here non-current assets and current assets. _ Underneath all of these are multiple line items and notes associated with them. _ _ _ We will look at each of these in turn.
7.2 – Non-Current...