1. Relative valuation is an important method for equity analysis and evaluation, which is highly...
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1. Relative valuation is an important method for equity analysis and evaluation, which is highly popular among market practitioners. P/E, price to book value, price to cash flow and price to sales are the four key multiples that form part of the relative valuation toolbox. (Sehgal and Pandey, 2010)
Required:
(a)Discuss the advantages and disadvantages of using multiples, or relative valuation in stock valuation as compared to the absolute valuation approach. [10 marks]
(b)Discuss why the valuation of private companies is needed and the factors to be considered when valuing private companies as compared to public companies. [10 marks]
[Total 20 marks]
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