Different Valuation Methods
Ninad RamdasiCategories: DSIJ_Magazine_Web, DSIJMagazine_App, Editorial, Letter to Editor, Letter to Editor
The cover story in the recent issue gave me good insights into the growth expectations priced into the stock. Could you please elucidate on the DDM method and other methods one can use for valuation? - Seema Pandit
The cover story in the recent issue gave me good insights into the growth expectations priced into the stock. Could you please elucidate on the DDM method and other methods one can use for valuation? - Seema Pandit
Editor Responds: We appreciate your kind words of encouragement. In the Indian market, various valuation methods are employed by investors to assess the intrinsic worth of a company’s stock. One commonly used approach is the dividend Discount Model (DDM). DDM calculates the present value of expected future dividends, discounting them back to their present value. Another popular method is the Discounted Cash Flow (DCF) analysis. DCF assesses a company’s potential cash flows over its lifetime, adjusting them to their present value using a discount rate. This method offers a comprehensive view of a company’s financial health and growth prospects, making it suitable for long-term investors. In addition to these, the Price-to-Earnings (P/E) ratio and Price-to-Book (P/B) ratio are also widely utilised in the Indian market for relative valuation. Keep writing to us.