Fin/419 fin 419 fin419 week 3 – learning team assignment – capital
The DDM is based on the premise that investors value future expected dividends, while the DCF takes into account all of a company’s future projected cash flows in order to estimate its true worth. Comparing similar companies can help determine whether one is under or overvalued in comparison to its peers using relative valuation models, such as enterprise value/EBITDA or price/earnings.
By using these various capital valuation models, an investor can justify the current market price of an organization’s debt and equity by analyzing information about past performance, financial projections for the future, and comparisons with other firms within its industry. Ultimately these methods will help inform investors whether they should buy or sell a particular security and at what price point – thus providing them with a better understanding of how much value their investments may hold over time.