Problem 3 (You were promoted to CFO)

Two Categories of Valuation Models

Valuation methods typically fall into two main categories: absolute and relative valuation models. Absolute valuation models attempt to find the intrinsic or "true" value of an investment based only on fundamentals. Looking at fundamentals simply mean you would only focus on such things as dividends, cash flow and growth rate for a single company, and not worry about any other companies. Valuation models that fall into this category include the dividend discount model, discounted cash flow model, residual income models and asset-based models.

In contrast to absolute valuation models, relative valuation models operate by comparing the company in question to other similar companies. These methods generally involve calculating multiples or ratios, such as the price-to-earnings multiple, and comparing them to the multiples of other comparable firms. For instance, if the P/E of the firm you are trying to value is lower than the P/E multiple of a comparable firm, that company may be said to be relatively undervalued. Generally, this type of valuation is a lot easier and quicker to do than the absolute valuation methods, which is why many investors and analysts start their analysis with this method.The Bottom Line

No one valuation method is perfect for every situation, but by knowing the characteristics of the company, you can select a valuation method that best suits the situation.

***Construct a comparative financial analysis of Walgreen's financial position with that of it's prime competitor CVS.

Assessing Walgreen's Future Financial Health, your financial analysis and proposal will be composed by answering the following questions based on the Data tables below with your best answer..

A) WALGREENS -Current financial plan. Interpret current equity valuations in order to recommend strategic solutions regarding future financial goals. Consider how stock splits and stock dividend allocations can impact the plan.

B) WALGREENS - Future external financing needs. To support growth, companies need capital, and external financial needs are vital any firms future success. Describe external financing needs sufficient to support your ongoing analytical assumptions and create a 5yr pro forma of financial statements both for WALGREENS and CVS

C) WALGREENS - Access to target sources of external financing. You will need to consider the amount of financing, timing, length of time required, and deferability of financing options.

D). WALGREENS -Viability of a 3-5 Year Plan. Assess the consistency of the plan with the firms goals, and the achievability of both the operating plan and the financing plan you are proposing

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