Understanding Valuation Methodology of the Financial Markets

Poul Lykkesfeldt () and Laurits Louis Kjaergaard ()

Chapter Chapter 4 in Investor Relations and ESG Reporting in a Regulatory Perspective, 2022, pp 25-28 from Springer

Abstract: Abstract As the company seeks to diversify its investor base, it is essential to realise the different approaches applied by the investors. In this chapter, we outline how established investors either assume efficient markets to be weak or to be semi-strong. The semi-strong oriented investor sees some share as priced correctly and others incorrectly relative to them. The investor considering weak efficient markets attempts to find fundamentally mispriced shares. The first can be defined as “top-down” and the latter as “bottom-up” investors. The company also dictates the method, as a bottom-up valuation method of discounting future cash flows (DCF) to today requires stable and positive future cash flows to arrive at a realistic estimate. This is mainly relevant for so-called value companies, whereas growth companies focus on growing their top-line and market share penetration, with less focus on earnings and cash flow.

Keywords: DCF; Discounted cash flows; Discounting; Bottom-up investing; Top-down investing; Peer multiples (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-05800-4_4

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DOI: 10.1007/978-3-031-05800-4_4

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