Question

what factors must be considered when placing value on a stock? which of these factors are the most significance? explain

Answer 1

There are several factors in consideration when placing a value on stock. Some of these factors are growth in cash flows(earnings), competitive strength in industry, Debt to Equity ratio, Price to earnings ratio, Qualitative parameters like management, corporate governance and intellectual property etc.

Out of these Earnings growth and competitive strength plays a very important role in identification of value stock. While PE ratio or PBV ratio is the initial screening parameter, the competitive strength in the market coupled with growth in earnings such that the return on equity is greater than the cost of capital is very important in determining the value of stock.