Equity Valuation Using Discounted Cash Flow Method - A case study: Viking Line Ltd
Le, Anh (2017)
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The value of an asset is the future cash flow it can generate discounted at an opportunity rate that reflects the risks of the asset. Thus, the discounted cash flow (DCF) method is widely used to estimate the true value of an asset. On the stock market, the price of an equity or a stock determined by the market may differ from its true value to the extent that it is overvalued or undervalued. In that belief, the investment theory suggests to buy or hold a stock if it is undervalued and not to buy or sell it if it is overvalued. The purpose of this study is to evaluate the fair value of stocks from Viking Line Ltd by conducting fundamental analysis on the financial performance of the company period 2012-2016. The aim is to find out if Viking Line Ltd is a good investment by comparing its fair value with the current stock price. The valuation was limited to applying only to public equity, employing only DCF method using FCFF model with historical data, and investment potential is determined solely on estimated value per share. Within the limitations, the author found the estimated value per share was €23.6, which was higher than the market price of €20.5 on March 31st, 2017 when the valuation was started. Hence, the conclusion was that Viking Line was undervalued and investing in the company would be profitable. The study aims to provide a reference in valuating Viking Line stock price and a benchmark to compare with results from other researches to assist investors in making investment decisions. Furthermore, the research can be considered as a guide line of stock valuation, more specifically, using DCF method for readers who take an interest in equity investment.