All you need to know about equity valuation

1. Equity Valuation is a method of deriving the fair value of a firm or its equity stock.

2. For the stock market, value is the price that someone is willing to pay for owning the company.

3. There are two types of valuation methods –absolute valuation model and relative valuation model.


4. Absolute valuation method attempts to find the ‘true’ value of a stock based only on fundamentals such things as dividends, cash flow and growth rate of the company.

5. Relative valuation is when one compares the company in question to other similar companies and typically involves calculating and comparing multiples or ratios such as the PE.

(Content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)