BUSI 530: DB 2
Liberty University Online
January 30, 2014
Company valuation can be defined as the process of determining the economic value of a business or company (www.investopedia.com, 2014). According to David Harper, the factors that determines a company valuation depends on whether or not you are looking to make a long term or short term investment. In relation to what factors are important, short-term investors prioritize technical factors while long term investors rely heavily upon the fundamental factors; however, the long term investors still acknowledge the impact of the technical factors (Harper, 2010). However, both investors can influence the price through investor sentiment, which is the investor’s confidence in the stock.
Fundamental factors that comprise company valuation are the result of a combination of two things, the earnings base and a valuation multiple. The earnings base, most commonly called the earnings per share, is often used to determine the company’s profitability, while the valuation multiple aids in figuring out the potential earnings growth. The technical factors that affect company valuation are inflation, economic strength, substitutes, incidental transactions, demographics, trends and liquidity These are the things that directly impact supply and demand, which in turn affect the fundamental factors (Harper, 2010). The last of the factors, investor sentiment, is usually based upon the financial performance of the company. This sentiment is said to be based upon the emotions of the people, and thus naturally, if financial performance is good, the sentiment would be positive and vice versa (www.investopedia.com, 2014).
In 2 Corinthians 9:6, it states “The point is this: whoever sows sparingly will also reap sparingly, and whoever sows bountifully will also reap bountifully.” As an investor, one realizes that they will only reap in the abundance directly related to how much they...