Bloomberg - Absolute Valuation in the Bloomberg Terminal

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.

Bloomberg functions

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

Every function has its own distinct features which also depend on the type of security chosen.

This libguide provides a brief introduction to company and industry analysis, which are based on the Bloomberg Market Concept (BMC) course. 

This guide was created by Mantas Geidrichis