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Absolute Valuation in the Bloomberg Terminal: Absolute Valuation

This guide is an introduction of functions withing the Bloomberg Terminal that help to do the absolute valuation of a company

A valuation helps to determine what a company is worth and whether its price is reasonable. 

  • The valuation of the company is inherently subjective;
  • The objective of valuation is to find out what a willing buyer will pay to a willing seller;
  • Valuation gives the cost basis for the investment;
  • A lower valuation at the time of investment does provide investors with higher profits;
  • “Moneyball” – is a good analogy. Buying undervalued players is very similar to buying undervalued stocks.
     

The absolute valuation is a process by which we assess the current intrinsic value of the company, independently of price. 

 

Absolute valuation is based on 5-step process:

  1. Estimating long-term future cash-flows of the firm;
  2. Estimating the rate at which to discount those cash-flows to derive today’s value;
  3. Discount the estimated future cash-flows by the Weighted Average Cost of Capital (WACC);
  4. Take the total firm value and derive the market capitalization from it;
  5. Estimate fair share price.

Side-note: Estimating long-term future cash-flows is the most challenging step in the absolute valuation process. It involves making assumptions upon which future performance of a share will be projected.

 

Some of the main functions for performing absolute valuation within the Bloomberg Terminal are:

Every of the above function has its own distinct features which also depend on the type of security chosen. This lig guide provides a brief introduction to company and industry analysis, which are based on the Bloomberg Market Concept (BMC) course. 

Trivia

https://soundcloud.com/bloombergview/joel-greenblatt-discusses-the-thrill-of-investing;
> https://en.wikipedia.org/wiki/Moneyball