STUDY OF EQUITY VALUATION APPROACHES

Abstract

The purpose of this project is to compare the Dividend Discount model, Discounted Cash Flow and Price to Earnings approach of equity Valuation by applying them on 5 different Indian stocks and calculating the intrinsic value using the same. Along with the description of valuation methods, pros and cons of these models are also described in this. There are a couple of objectives that are to be fulfilled. Firstly, the practical applications of these models are tested on real stocks. Secondly, the importance of Terminal value and its effect on the valuation is studied and finally deciding on which valuation method would work best on Indian stocks. Approach which will give the least deviation from the market value of the stock is considered to be best among all three. It is assumed that discounted cash flow model is the best model and give the least deviation but by the end of the study it has been found that relative method of valuation works better in case of these companies which is P/E valuation.