Last year, GrowthCo traded at $20 per share. Over the past 12 months, the company’s share price rocketed to $60 per share. Does this mean the share price was misvalued last year?
Answer to relevant QuestionsWhat are the benefits of a long-term perspective on value creation? For companies? For the economy? How does return on invested capital (ROIC) affect a company’s cash flow? Explain the relationship between ROIC, growth, and cash flow. Given that TRS is not a clean measure of management performance and is therefore a flawed basis for management compensation, how should a company gauge management performance? What measures should it use? Assuming investors had perfect foresight, how would the volatility of a cyclical company’s share price compare to the volatility of its profits? Identify the value drivers embedded in the equity cash flow model. How do the equity cash flow drivers differ from the drivers of the enterprise DCF models?
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