nach oben

Erschienen in:

2013 | OriginalPaper | Buchkapitel

3. Valuation Based on Required Payback Period

verfasst von : Zhiqiang Zhang

Erschienen in: Finance – Fundamental Problems and Solutions

Verlag: Springer Berlin Heidelberg

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

This chapter finds a new valuation method competitive to the DCF method and further derives a series of valuation models based on the new method. These models solve the key valuation issues in absolute valuation ---- can avoid the ZZ growth paradox trouble, and are flexible enough to value individual stocks in stable sectors and in high-growth sectors. These models solve as well the key valuation issues in relative valuation ---- can find the theoretical valuation ratios (P/E, P/B and P/S) effectively, and measure the bubbles of the individual stocks and the overall market. This chapter finally indicates the vast potentials of this brand new valuation method by demonstrating some basic applications.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Vorheriges Kapitel Does a Positive Perpetual Growth Rate Exist?

Nächstes Kapitel Certainty Equivalent, Risk Premium and Asset Pricing

There are a number of variants on the basic P/E ratio based upon how the price and the earnings are defined. For example, apart from the basic P/E ratio, the Forward P/E is also prevailing in stock market, which is defined as the ratio of the current share price to forecasted earnings per share next year. To focus our main intention of searching for solutions to fundamental financial problems, most of the reasoning in this chapter will be based on the basic P/E ratio. Of course, the conclusions are valid too for other P/E variants. For detail, see Aswath Damodaran [2]

A Nobel Prize is not awarded posthumously but Fischer Black would undoubtedly have been a joint winner of the 1997 Nobel Prize for Economics had he lived. Black was unfortunately diagnosed with throat cancer in 1994 and died on 30 August 1995.

Please note that “their earnings per share over foreseeable future period (such as about 15 years) are 10 %, 20 % and 30 % respectively” is a very realistic situation. For the DCF method, an asset value is the total present value of their future cash flows, including the cash flows over the foreseeable periods and those over the unforeseeable periods. But any assumption beyond the foreseeable period, such as cash flows are nothing or grow at a constant rate, etc. is conceptually unreliable and too arbitrary for valuation hence may result to a too big bias.

Here we use the original concept of the payback period rather than the discounted payback period in many financial books and literature. The discounted payback period is a misleading concept because it incorporates two competing criteria: the required rate of return and the required payback period. In fact, the required payback period = 1/the required rate of return. Thus the application of the discounted payback period implies that the return requirement is satisfied twice in valuation or decision making. This makes no sense and is definitely wrong.

The ZZ growth model cannot be abbreviated to “ZZ model”, because there are other models invented by the author in the rest parts of this chapter and the following chapters.

Retention ratio indicates the percentage of a company's earnings that are not paid out in dividends but credited to retained earnings. The payout ratio is the amount of dividends the company

Earnings/Net Income = 1 − Dividend Payout Ratio
Payout Ratio = Dividends Payout/Net Income = 1 − Retention Ratio.

When g = 0, the ZZ growth model is: P = nE. .

Note that when g = 0, the theoretical P/E model becomes: P/E = n.

Based on data from Economic & Social Data Ranking (http://www.dataranking.com), GDP of China in 1985 and 2005 are 305.259 and 2,243.688 respectively. Thus average growth rate is 10.49 %.

Based on data from Economic & Social Data Ranking (http://www.dataranking.com), GDP of the US in 1985 and 2005 are 4,220.250 and 12,455.825 respectively. Thus average growth rate is 5.56 %.

Gordon MJ (1962) The savings investment and valuation of a corporation. Rev Econ Stat 44(1):37–51CrossRef

Damodaran A (2006) Damodaran on valuation: security analysis for investment and corporate finance. John Wiley & Sons, Inc

Black F, Scholes M (1973) The pricing of options and corporate liabilities. J Polit Econ 81(3):637–654CrossRef

Merton R (1973) Theory of rational option pricing. Bell J Econ Manage Sci 4(1):141–183

Cox JC, Ross SA, Rubinstein M (1979) Option pricing: a simplified approach. J Financ Econ 7:229–263CrossRef

Hull JC (2012) Options, Futures, and Other Derivatives, 8th edn. Pearson Education Limited.

Titel: Valuation Based on Required Payback Period
verfasst von: Zhiqiang Zhang
Verlag: Springer Berlin Heidelberg
Buch: Finance – Fundamental Problems and Solutions
Print ISBN: 978-3-642-30511-5

Electronic ISBN: 978-3-642-30512-2

Copyright-Jahr: 2013
DOI: https://doi.org/10.1007/978-3-642-30512-2_3