How is the value of a company calculated? How is the value of a stock calculated?

The intrinsic value of a stock The price of a stock in the stock market is determined by the intrinsic value of the stock, when the market is in adjustment, the market capital is tight, the price of the stock is generally lower than the intrinsic value of the stock, when the market is in an uptrend, the market capital is plentiful, the price of the stock is generally higher than its intrinsic value. In short, the price of stocks in the stock market is fluctuating up and down around the intrinsic value of the stock. So how is the intrinsic value of a stock determined? There are generally three methods: the first price-earnings ratio method, the price-earnings ratio method is the stock market to determine the intrinsic value of the stock's most common, the most common method, usually, the stock market, the average price-earnings ratio is determined by the one-year bank deposit rate, for example, now the one-year bank deposit rate of 3.87%, corresponding to the stock market average price-earnings ratio of 25.83 times, higher than this price-earnings rate of the stock, its price is overvalued, below this price-earnings ratio of the stock price is undervalued. The second method, the appraised value method, is to appraise all the assets of a listed company once, deduct all the liabilities of the company, and then divide by the total share capital to arrive at the value of each share of stock. If the market price of the stock is less than this value, the stock is undervalued; if the market price of the stock is greater than this value, the stock is overvalued. The third method is the sales revenue method, which is to divide the annual sales revenue of a listed company by the total market capitalization of the listed company's stock; if it is greater than 1, the stock is undervalued; if it is less than 1, the stock is overvalued. The intrinsic value of a stock, i.e., the present value of a stock's future earnings, depends on expected dividend income and market yields. It is the intrinsic value that determines the long-term volatility trend of the stock market, but in real life the short-term volatility in the stock market tends to outweigh the increase in value over the same period of time. So what exactly determines the deviation of price from value? Investor expectations are the determining factor in short- and medium-term stock price volatility. Under the influence of investor expectations, the stock market spontaneously develops a positive feedback process. Rising stock prices increase investor confidence and expectations, which in turn attracts more investors to enter the market, driving stock prices up further and continuing the cycle. This feedback process is not self-correcting, and the end of the cycle needs to be broken by external forces. The recent A-share market has been rising under the effect of this mechanism. The initial catalysts of the current uptrend are undervaluation and equity separation reform, but as the valuation level of the A-share market continues to increase, investors' optimistic expectations have become the main driving force behind the current rising A-share market. Previously, doubts about the overall high level of the A-share market had triggered discussions about asset bubbles and led to oscillations in the stock market The intrinsic value of a stock is the present value of its future cash inflows. It is the real value of a stock, also called the theoretical value. The future cash inflow of a stock consists of two parts: the income received from the sale of expected dividends in each period. The intrinsic value of a stock consists of a series of dividends and the present value of the selling price when sold in the future. Methods of calculating the intrinsic value of a stock Model: A. Discounted cash flow model B. Internal rate of return model C. Zero-growth model D. Constant growth model E. Price-earnings ratio valuation model Methods of calculating the intrinsic value of a stock (a) Discounted cash flow model Discounted cash flow model (the basic model) The discounted cash flow model is the use of the capitalization-of-income pricing method to determine the intrinsic value of a common stock. According to the capitalization of income pricing method, the intrinsic value of any asset is determined by the cash flows that the investor who owns the asset will receive in future periods. The intrinsic value of an asset is equal to the discounted value of the expected cash flows. 1. The general formula for the cash flow model is as follows: (Dt: dividends per share of stock expressed in cash in a future period k: the appropriate discount rate for the cash flows at a given level of risk V: the intrinsic value of the stock) The net present value (NPV) is equal to the difference between the intrinsic value and the cost, i.e., NPV = V-P where: P the cost of purchasing the stock at t = 0 If NPV > 0. implies that the sum of the present value of all expected cash inflows is greater than the cost of the investment, i.e., this stock is undervalued and therefore it is feasible to purchase this stock. If NPV < 0, it means that the sum of the present value of all expected cash inflows is less than the cost of the investment, i.e., the stock is overvalued, and therefore it is not feasible to buy the stock. The Capital Asset Pricing Model (CAPM) security market line is usually used to calculate the expected rate of return for each security. And this expected rate of return as the discount rate for calculating the intrinsic value. 1, the internal rate of return The internal rate of return is the discount rate that makes the net present value of the investment equal to zero. (Dt: dividends per share of stock expressed in cash in a future period k*: internal rate of return P: stock purchase price) The resulting equation can be solved for the internal rate of return k*. (ii) Zero growth model 1. Assuming that the dividend growth rate is equal to 0, i.e., Dt=D0(1+g)tt=1,2,????, the general formula of the cash flow model is: P=D0/k<BR><BR>2. Internal rate of return k*=D0/P (iii) Constant growth model 1. Equation Assuming that the dividend grows at the constant growth rate g forever, the cash flow The general formula of the model to get: 2. Internal rate of return (d) P/E valuation method P/E ratio, also known as the price-earnings ratio, which is the ratio between the price per share and earnings per share, which is calculated as the inverse of the formula, the price per share = P/E ratio × earnings per share. If we can estimate the P/E and EPS of a stock separately, then we can indirectly estimate the stock price from this formula. This method of evaluating stock prices, is the "price-earnings ratio valuation method".