Investment appraisal Essay Example | Topics and Well Written Essays - 1500 words

Investment appraisal - Essay Example This analysis has been conducted based on several financial theories related to equity valuation. 1 Introduction 1.1 History of Google Google, a name synonymous with world leader in specializing in internet related services and product. The product and services offered by Google are vast and its operations are expanding at a rapid pace. The primary services offered by this giant corporation include cloud computing, software and online advertising. As per the latest and historical financial analysis, the company has been deriving its main revenue from the Adwords. Google was founded Larry Page and Sergey Brin who own about 16% of the shares of the company as per the latest annual report of the company. Soon after the initial public offer (IPO), the company’s revenue, and in turn its profitability has increased by leaps and bounds. The initial public offering of the company took place on August 19, 2004. On this historical date, around 19,605,052 shares of the company were offer ed at a price of $85 per shares. The mode of the sale of the shares was suggested to be through online auction. Through this IPO, the company was able to generate a great deal of capital amount to around $ 1.67 billion resulting in a market capitalization of over $ 23 billion. However, the majority of the Google shares remained under the control of the Google. The paper evaluates the price of the shares of Google at the time of its IPO. Through applying different equity valuation method, it can be evaluated whether the share was overpriced or under priced. 2Financial Valuation 2.1 Introduction to equity valuation Equity valuation can be defined as the process of identifying the current market value of the company which is also regarded as the current market capitalization of the company. There are several step of equity valuation process and it requires an adequate understanding of financial management techniques and acumen. 2.2 Equity valuation techniques The most important step in equity valuation process is the selection of an appropriate valuation model. Few models widely used in financial evaluation are as under: Net Asset Valuation Price Earning Valuation Dividend growth model Based on the above valuation models, an analyst predicts the equity value of the company by selecting any one of the above mentioned models which appears to be apt in the circumstances. Finally the investor must make an investment decision based on the calculated value of equity in the above step. This decision involves investment recommendation to the investor whether it is financially feasible to invest in the stock of the company being valued or not. If the analyst concludes that the equity value of the company is as such which is significantly greater than the current book value of the company, then it represents that the company will reap benefits in the future for the investors, thus the investment decision would be financially viable. 2.3 Net Asset Valuation Net asset valuat ion is also called the net worth of a company. It is simple valuation model which is based on the recoded balance on the balance sheet items of a company. The stock price of the share under this model can be calculated by divided the net