Equity Valuation Methods use by Finance professional

Dividend Discount Model (DDM) & Discounted Cash Flow Model (DCF) are commonly use by the CFA holders or Analyst to value the company shares how much is it worth.

However, these models are all forward looking, base on forecasting & to project the Dividend or Free Cash Flow and discount it back to the present.

By understanding the pro and cons of each model, I would say the DDM will be a more reliable model compare to DCF. Even for myself, I also uses the DDM and other price multiple (e.g. PE, PB, Dividend Yield, PEG, etc) to value company shares.

However, the DDM which I am using are modified not according to CFA standards. Thus, after years of investing in the market, I will know what to use and how to use those models by removing most of the things which are not practical.

Somehow, people tend to ask me, can those valuation methods taught by CFA be practical and applicable in the market. I would say “yes” to certain extend but it will not be the best approach.

Millionaires stock investors that I know, dun really use those models to value the shares but they uses price multiple instead.