Question

In Finance Valuation, discuss why value is a range and it is not a specific answers ? (150Words)

Answer 1

Valuation is based on many factors. We do not have control over many factors. We cannot be certain that the values of the parameters in the future will be same as we assumed. Macroeconomic factors play a key role in financial markets. Interest rates keep changing. Systematic risks vary. Nothing is constant. There are various risks involved too. Hence we do a sensitivity analysis too. We take into account the various likely scenarios and calculate the value of the stock in these situations. There are also assumptions about the future growth rates. This cannot be predicted with 100% accuracy. Hence there is often a range of financial valuation and not a specific answer. There are optimistic and pessimistic scenarios as well. And new information keeps coming and impacting stock. We need to understand that not everything is constant.