Valuing Publicly Traded Equity Securities:
The Black & Decker Corporation (BDK)
I. Introduction
This teaching note describes the valuation of publicly traded equity securities using the Discounted Cash Flow (DCF) and Price/Characteristic (market comparison) approaches, with a specific spreadsheet example for The Black and Decker Corporation. Free cash flow valuation and comparables (comps) are key tools in fundamental analysis, the process of picking stocks with high expected return based on an analysis of the company. In theory, buying stocks of companies that are undervalued in the stock market will produce high returns as other investors slowly realize the company’s true value and quoted share prices increase to match that value.
Three basic ideas underlie the application of discounted cash flow (DCF) analysis. First, the value of a company is ultimately derived from the cash that can be extracted from that company, and more cash is preferred to less. Second,......
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