Capital Valuation Paper- Target
Capital Valuation Paper
A business valuation of a company, especially one the size of Target, is a mystery but is often an integral part of planning, decision-making, strategic assessment, and maybe an equitable resolution to a touchy concern. Knowing what a business is worth and placing a value on it builds confidence so undervalue or overvalue of the business does not happen.
Team C will perform a capital valuation of the retail merchandising chain Target. To obtain the answers needed for the valuation, Team C will justify the current market of Target’s debt and equity by using various capital models of valuation. Team C will provide in-depth …show more content…
Current Market Price of Target’s Equity
Many of the ratios used to evaluate a company can be used to evaluate and justify the current market price of Target’s equity. One valuation model, which is good for evaluating Target’s equity, would be the price per earnings (P/E) ratio, which gauges the quantity in which investors are prepared to give for every dollar of a business’s earnings. An elevated P/E ratio indicates larger investor assurance in the company. The P/E ratio is figured by dividing the market price per share of common stock by earnings per share (Gitman, 2006). Gitman explains “The P/E ratio is most informative when applied in cross-sectional analysis using an industry average P/E ratio or the P/E ratio of a benchmark firm” (p. 70). Targets industry is categorized as discount variety stores, and includes 12 other companies (YCharts, 2010).
Although the P/E ratio is good for comparing a company with other companies in the industry, the main valuation model for evaluation the value of common stock is the basic common stock valuation model, which seeks to determine “the value of a share of common stock is equal to the present value of all