9 - Inv mgmt growth and Value Flashcards
Capitalized earnings model
V = E / (r-g) Value of the stock E current year's net income or cash flow R discount rate = rate of return investors need for the kind of stock being valued G Assumed growth rate
EPS earnings per share
=(inc available to comm shareholders) /avrg number of common shares outstanding
= (profit - dividends)/#shares outstanding
NB Inc to common shareholders = net profit after taxes, less pref dividends
=(net income - Pref Dividends)/avrge shares outstanding
Dividend Discount Model DDM
V = D (1+g) / (r-g)
Price /Earnings (P/E) ratio
Mkt price of common stock/current EPS
‘Reasonableness’ of common stock’s price
= (stock price per share)/EPS
Best known investment valuation indicators
How many times a stock is trading (it’s price) per each dollar of EPS
NAV per share = net asset value = Book Value
= Total assets / # common shares outstanding
Total assets -( claims from creditors and pref stockholders claims)
How much company is worth if stopped operating today sold all assets paid off all it’s debts
= tangible assets - liabilities
Stop Limit Order
Stop loss order only at specific price
If he can’t get the specific price then no execution
Stop Loss Order
Request to sell stock once it reaches certain price, usually below current mkt price
Sold immediately at whatever price the broker can get
Becomes Mkt Order once specified price is reached
Limit Order
= an order to buy or sell at specific or better price
Specifies
max price willing to pay or
If selling the Minimum price willing to accept
When mkt prices are uncertain or fluctuating rapidly
Selling short
Sequence
1 . Borrow 1000 shares from broker , sells them, $25,000 money in his acct
2. Price goes down from 25 to 20
3. To close acct : buys 1000 shares of security to return it to broker. Pays $20,000 for it at lower price.
4. Profit of $5000
Real Estate formula to calculate Operating Rate of Return
(NOI from property before interest and depreciation)/
Purchase price of property
Common stock valuations -> Market Approach
EPS, P/E ratio, NAV
Where valuations are based on or analyzed in relation to:
prices paid for or Ratios of companies in same industry w/o estimating intrinsic value of stock
Income Approach to valuation method
Uses present value analysis to estimate the value of a stock
Theoretical models to value common stock based on their earnings and dividends
profit companies are valued on basis of expected future earning power represented by future income (cash flow) or future dividends
Cap Earnings Model = Net income model
DCF. Discounted cash flow model
DDM Dividend Discount Model
Market order
Order to buy or sell at best price NOW
An order to buy or sell at the market
