Common Stock Valuation & Performance Measurement begins with a discussion of dividends and their importance and use when it comes to estimating valuations of stocks. Several dividend-based valuation methods are discussed, including the non-growth model (typically used with preferred stock), the constant growth model, and the non-constant growth model. From that point, several other valuation methodologies are discussed – especially since not all stocks pay dividends and necessitate different valuation methods. The second half of the material covers various methods of quantifying and measuring performance along with developing an understanding of the relevant and related risk measures.

4–1 Analyze the impact of different types of cash and stock distributions on shareholders and on the company.
4–2 Explain terminology related to equity investment valuation models.
4–3 Calculate the intrinsic value of a stock using various stock valuation techniques or calculate the expected return of a stock.
4–4 Evaluate the appropriateness of investment decisions based on stock valuation models.
4–5 Explain the various components of the Investment Policy Statement (IPS).
4–6 Explain the characteristics, uses, and limitations of stock performance measurement indexes.
4–7 Calculate one or more stock performance measurement indexes for a given portfolio’s returns and risk.
4–8 Specify relationships among various indicators of security returns.
4–9 Evaluate the risk-adjusted performances of alternative investment securities or portfolios to recommend the most appropriate selection for a given client situation.

Author: Craig Kinnunen, MS, CFP®

Craig Kinnunen, MS, CFP® is an associate professor at the College for Financial Planning. Prior to joining the College, Craig enjoyed a long and successful career in personal financial planning and wealth management. Craig’s enthusiasm for financial planning extends beyond the classroom, as he also spends time providing pro bono financial education and individual financial counseling to members of the Colorado National Guard. Craig earned a bachelor of science degree in accounting from Northern Michigan University and followed that up with a master of science degree in finance from the University of Colorado in Denver. You can contact Craig at craig.kinnunen@cffp.edu.

Complexity Level: Advanced