In recent weeks, we have covered a financial statement analysis scheme focusing on operating performance...
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In recent weeks, we have covered a financial statement analysis scheme focusing on operating performance drivers as well as forecasting techniques to estimate the amount, timing and uncertainty of future performance (including the parsimonious forecasting method, which also highlights operating, as opposed to non-operating, performance). This week, we take the next logical step to cover intrinsic valuation. That is, we next use our high-quality forecasted information set to discount future performance expectations to produce a current value. While there are many valuation models and techniques from which to choose, and one method is generally not appropriate for every decision-making context, our focus this week is on the Residual Operating Income (ROPI) valuation model. Similar to previous weeks, I encourage you to analyze, in meta fashion, the ROPI model. So, let's explain and discuss the notion behind the ROPI valuation model. How is value measured using the ROPI model? How is the ROPI model in particular useful for best determining intrinsic value in this important decision-making context?
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