Editing Alpha Financial Markets Consulting plc
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|Research suggests that following a market crash, the average amount of time it takes for the price of a stock market to return to its pre-crash level (i.e. the recovery period) is at least three years.<ref>https://www.newyorkfed.org/mediabrary/media/medialibrary/media/research/staff_reports/research_papers/9809.pdf</ref> Accordingly, we suggest that to account for general market cyclicity, it's best to estimate the expected return of the company between now and five years time. | |Research suggests that following a market crash, the average amount of time it takes for the price of a stock market to return to its pre-crash level (i.e. the recovery period) is at least three years.<ref>https://www.newyorkfed.org/mediabrary/media/medialibrary/media/research/staff_reports/research_papers/9809.pdf</ref> Accordingly, we suggest that to account for general market cyclicity, it's best to estimate the expected return of the company between now and five years time. | ||
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{| class="wikitable" | {| class="wikitable" | ||
|+Cost of equity (%) | |+Cost of equity (%) | ||
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|Cost of equity = Risk-free rate + Beta x Equity risk premium. | |Cost of equity = Risk-free rate + Beta x Equity risk premium. | ||
|} | |} | ||
===Relative valuation approach=== | |||
== Sensitive analysis == | |||
== Appendix == | == Appendix == | ||
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The three main inputs that result in the greatest change in the expected return of the Alpha investment are, in order of importance (from highest to lowest): | The three main inputs that result in the greatest change in the expected return of the Alpha investment are, in order of importance (from highest to lowest): | ||
#The | #The growth-adjusted EV/sales multiple (the default multiple is cccx); | ||
# The Year-one | # The Year-one sales forecast (the default forecast is $ccc million); and | ||
#The Year 2 to 4 | #The Year 2 to 4 sales growth forecast (the default forecast isccc%) | ||
The impact of a 10% change in those main inputs to the expected return of the Alpha investment is shown in the table below. | The impact of a 10% change in those main inputs to the expected return of the Alpha investment is shown in the table below. |