can u tell me the concepts of valuation in stock market?

[Fundu Vishy]

Stock Market is one place in which the valuations depends more on the future than on the past. This being the case, there are various valuation methods available. As we all know, predicting the future is difficult / impossible. That too, predicting the future in the volatile business environment that the world faces and the fast changing nature of the business makes it that much more difficult.

However, a few of the key parameters used in the market are

a. PE Ratio: Price to Earnings Ratio. A stock is valued at a 'number of times' to the current earnings. A 15 trailing PE means that the stock is vlaued at 15 times the last year earnings. A 15 forward PE means that the stock is valued at 15 times the projected earnings for the next year.

b. P/BV ratio: Price to Book Value. The book value of a Company can be obtained from its balance sheet. this value is converted in to Book Value per share. The ratio P/BV is the multiple to the book value to arrive at the price / value of the stock. For eg. if the BV per share of a company is Rs. 100 and the Price of the share is Rs. 150 then the P/BV ratio is 1.5

c. Discounted Cash Flow: This again is one way of finding the value of a busienss and thus its stock. One of the key objectives of the business is to generate cash. Projections are done on the business of a company and the cash flow generated out of the business is discounted to arrive at the current value of the future cash. This provides for a value.

While these are some of the concepts there are many more. Further, even within these concepts, what is explained above is only a overall approach.
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Fundu Vishy - Your 'Mutual' Friend
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