Valuing equity securities involves assessing the company’s financial health and future prospects. Common methods include:
Price-Earnings (P/E) Ratio: This ratio compares a company’s current share price to its per-share earnings. It is widely used to gauge whether a stock is overvalued or undervalued. Discounted Cash Flow (DCF): This method estimates the value of an investment based on its expected future cash flows, discounted back to their present value. Book Value: This is the net asset value of a company, calculated as total assets minus intangible assets and liabilities. It provides a baseline value for the company’s equity.