Income based valuation models
You'll learn how income-based valuation models, specifically the price earnings ratio and earnings yield methods, value a business based on its earning potential. These techniques are essential for valuing companies when you're considering a controlling stake, as they directly reflect the earnings you'd control.
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In this lesson
- 0:00 Price earnings ratio explained
- 0:27 Calculating PE ratio valuations
- 1:04 Worked example: Joker company valuation
- 1:35 Strengths and limitations of PE method
- 2:43 Earnings yield as alternative method
About this lesson
In this lesson, you'll work through the calculations for both methods, understand when to apply each approach, and discover why accounting profit-based valuations have limitations compared to cash flow analysis. You'll also explore practical challenges like selecting appropriate ratios for unlisted companies and see how to apply these methods in exam scenarios.
Duration: 3m
Transcript
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