EFE 3772: Financial Economics - Relative Valuation - Report Writing Economics Assignment Help

Assignment Task:

Us the following quote to answer the questions that follows: 

When using spot or monthly multiples for valuations, most P/E multiples have fallen between  31 December 2019 and 31 March 20200 (source: PwC analysis). .The decline in multiples is  correlated with a general increase in the cost of equity, so theoretically, both discounted cash  flow and market multiple-based valuation methodologies should result in generally lower valuations. Our view is that trading multiples are an important tool to benchmark any  discounted cash flow valuation. 

1.1. Explain the difference between relative valuation (multiple-based valuation methods) and  discounted cash flow and name a specific example of each of the two methods.(4) 

1.2. Do you agree with the statement “trading multiples are an important tool to benchmark any discounted cash flow valuation”. In other words, do you think it is important to use both discounted cash flow models and relative valuation techniques in investment analysis. You  must motivate your answer. (4) 

2.While stock selection is best approached from the bottom-up, ignoring the top-down can be  extraordinarily expensive. The bottom-up can also inform the top-down. As Ben Graham  pointed out “True bargain issues have repeatedly become scarce in bull markets (James  Montier) 

2.1. Differentiate between the bottom-up and top-down approach to fundamental analysis.(3) 2.2. Do you think investors should choose between the two approaches, or do you believe that  they are complimentary? (3)

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