The most recent valuation methodology which I have been researching is "Earnings Power Value", and I'm still really trying to get my head around all it's facets, i.e. not just wack out the formula, prior to writing a thread on this. In my researches so far, I have read up a couple of online documents, for example:
https://seekingalpha.com/instablog/2929 ... estop-corp
https://moneyweek.com/361556/earnings-p ... -has-legs/
(no paywalls obvious in either above)
One of the steps in the EPV calculation process is dividing an "adjusted earnings" figure by a value in order to give an equity value for the company. This value is described in the first document as being the WACC (weighted average cost of capital) and in the second document as the discount rate. After noting the substitution of terms above, I was reminded of a wiki I read earlier, where again, an equivalence between these terms is suggested i.e.:
b) This equation is also used to estimate the cost of capital by solving for r
r = (D1/P0) + g
So it seems that discount rate and WACC are indeed two sides of the same coin. One is from the investor's side, i.e. how risky a venture he/she considers the company, and thus "how much reward" is expected for investing in the company, and from the company's perspective - how enticing their interest rate must be, in order for someone to "take a risk" and lend it some money.
To date I have pondered upon how exactly to set an appropriate rate in a model, i.e. my desired rate of return. This is usually described as being:
rate = risk free rate + risk premium
Where an easy to understand value for the risk free rate is the current 10 year gilt yield (no paywall obvious), whereas the risk premium is really down to each investor's appetite etc. and thus the rate can be seen as being a little subjective.
Anyway, seeing as my readings lead me to believe in an acceptance of a more formal equivalence between the discount rate and WACC, I decided to research definitions of WACC, and in a subsequent post, will play around with some online formulae for this value; probably citing my current favourite of Marshalls Plc (MSLH) as an example.
Matt