Corporate Finance Partner

Dear Madam/Sir ....

You receive this message because you are interested in company valuation. You bought F-Valuation Software or downloaded a demo version in the past. Herewith the latest news on the risk premium.

Latest Risk Premium 2014 now finally available.
The strong 2013 upswing in USA stock markets, resulted as to 2014 in a much higher risk premium of 6,67% for the USA. As to 2013 the risk premium was 3,80%, in 2012 still 4,68% and stood at 4.98% end 2011. All calculations are based on the maximum number of years since 1900 and using as method the unweighted average of all methods of calculation. Risk premiums in Europe in various countries may be found at this website under news etc. They tend to be much lower.

The 'risk free' US rate was up to 2,35% from 1,80% end 2012, being 2.78% at the end of 2011 and 3.26% end 2010. In total this gives actually about 9.02% remuneration for the equity component in company and other valuations. Supposing other sources of business financing are only available at the same price level (before tax), the impact of financial leverage may be disregarded.

With these assumptions, a WACC of around 9.02% is the result, or conversely, a theoretical Price/Earnings relation of about 11,01. In the USA the unweighted Dow Jones index at December 3 2014 gave a PE ratio of 17,17 based on 2014 estimated net earnings estimates. This difference between the theoretical and practical PE of 6.16 (17,17-11.01) has a meaning. Compared to last year a very strong structural turnaround occurred.

Last year, under similar assumptions, (strategic) investors, pension and investment funds should buy US shares. They listened indeed, resulting in a much higher index, continuing in 2014. Now however, they should sell. Excuses not to do so are running low. One excuse is that lending in the USA has become easier with often much lower rates than 9%. This lowers substantially the effective WACC for many companies. Keep in mind however that share selection and buying moments are basic for success. Therefore, even if you have doubts if these theoretical assumptions should lead to selling now, why take the risk when European shares are priced much more attractively than US stock?

A free demo can be downloaded from this website by clicking on the link: Free Software. The latest version 8 with the latest risk premiums can be purchased online with the link: Order Software.

Best Regards,

Finiconsult Ltd
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