| Abstract |
Valuation texts typically use discounted cash flow analysis to value business, whereas analysts typically forecast earnings to indicate business value. The stock market appears to focus on earnings; when a firm announces earnings that are different from analysts’ earnings estimates, the stock price responds accordingly. The best way to accurately value a firm is to look at the future earnings of the firm.
This study focuses on using financial statements in valuation. The reason is that financial analysis and valuation analysis are inextricably entwined; valuation is an exercise in financial statement analysis. The study will use P/E and P/B ratios to forecast expected future earnings.
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