Equity and Valuation

Key information

Equity

Public companies, meaning they are listed on the stock exchange, have a market value which is known as market capitalisation.

Source: IG

Share price is impacted by supply and demand, and sustainability factors are increasingly influencing demand of stocks.

Tesla is a great case study for this, it took them 17 years to turn their first annual profit in 2020. Yet it became the most valuable automative company in the world in July of that year, before the news of its annual profit was announced. Investors became confident in the future of cars being electric, and hence demand for a piece of the company skyrocketed.

Valuation

The most common intrinsic valuation method is the discounted cash flow (DCF) approach.

Analysts are now aware that many factors relating to sustainability will impact the future cash flows of companies. For example, necessary investments to make processes less polluting or potential regulations that could force a firm to change some of its products/services.

Quick Activity: Think of a company you like, or one you don't, how do you think sustainability factors might affect their future cash flows?

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