The Valuation Checklist (Qualitative)

 


Now that you Trust the Management to run the company successfully (The Management Checklist) and the also are fairly confident with How the Company is Performing (The Basic Checklist), it’s time for you to look at the Valuations of the Company.

What do I exactly mean by Valuation of the Company? In the stock market, Valuation is the analytical process of determining the current (or projected) worth of an asset or a company. The importance of valuing stocks evolves from the fact that the intrinsic value of a stock may be different from its current price. By knowing a stock’s intrinsic value, an investor may determine whether the stock is over- or undervalued at its current market price. Now this is actually a perceived value which might be different from investor to investor. Investor A might find buying a stock at Rs. 100 to be Cheap (Valued Low) and another Investor B might find it to be Expensive (Highly-Valued). This means that the intrinsic value (perceived value) for Investor A is higher than Rs.100 and would end up buying the stock. For Investor B, the intrinsic value (perceived value) is lower than Rs. 100, so would end up not buying the stock or wait for the price to correct and then buy the stock.

How would you determine the intrinsic valuation? The following Qualitative Factors could help as given below:

·         Net Worth of the company: It is an important metric to gauge a company's health, providing a useful snapshot of its current financial position.

·         Average Sales/Profit Growth of the company over the last 10 years:  Sales/Profit Growth of the company helps in understanding how much the company can grow in the future.

·         Economic Moat: A company with a defensible economic moat is better able to compete with new market participants, while companies with large user bases benefit from network effects. A company with a relative cost advantage is likely to be more profitable, and companies in industries with high switching costs can more easily retain customers. High-quality companies often have intangible assets (e.g., patents, regulations, and brand recognition) with considerable value.

Quantitative Metrics can also help in Valuation of the company. 

An MBA, Passed CFA Level 1. Stock Market Investor. Director at http://E-global.in. Like Researching Listed Companies. Music Lover. Gym Goer. Like Travelling.

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