Equity: Concepts & Basic Tools

Question 1

Asset-Based Valuation Models

Answer 1

Valuation based on estimates of the market value of a company’s assets

Question 2

Bonus issue of shares

Answer 2

A type of dividend in which a company distributes additional share of it common stock to shareholders instead of cash

Question 3

Book Value

Answer 3

Excess of assets over liabilities

Question 4

Buy back

Answer 4

A transaction in which a company buys back its own shares unlike stock dividends and stock splits, share repurchases use corporate cash

Question 5

Carrying Value

Answer 5

Book Value

Question 6

Declaration Date

Answer 6

The day that the corporation issues a statement declaring a specific dividend

Question 7

Discounted Cash Flow models

Answer 7

Valuation model that estimates the intrinsic value of a security as the present value of the future benefits expected to be received from the security

Question 8

Dividend

Answer 8

A distribution paid to shareholders based on the numbers of shares owned

Question 9

Dividend discount model

Answer 9

DDM a present value model that estimates the intrinsic value of an equity share based on the present value of its expected future dividends

Question 10

Enterprise Value

Answer 10

A measure of a company’s total market value from which the value of cash and short-term investments have been subtracted

Question 11

Ex-dividend date

Answer 11

The first date that share trades without (ie “ex”) the dividend.

Question 12

Extra Dividend

Answer 12

A dividend paid by a company that does not pay dividends on a regular schedule, or a dividend that supplements regular cash dividends with an extra payment

Question 13

Free Cash Flow to Equity Models

Answer 13

Valuation models based on discounting expected future free cash flow to equity

Question 14

Fundamental Value

Answer 14

The underlying or true value of an asset based on an analysis of its qualitative and quantitative characteristics

Question 15

Holder of Record Date

Answer 15

The date that a shareholder listed on the corporations books will be deemed to have ownership of the shares for purposes of receiving an upcoming dividend

Question 16

Intrinsic Value

Answer 16

The value obtained if an option is exercised based on current conditions

Question 17

Law of One Price

Answer 17

The condition in a financial market in which two equivalent financial instruments or combinations of financial instruments can sell for only one price. Equivalent to the principle that no arbitrate opportunities are possible

Question 18

Market Multiple Models

Answer 18

Valuation models based on share price multiples or enterprise value multiples

Question 19

Multiplier models

Answer 19

Valuation models based on share price multiples or enterprise value multiples

Question 20

Payable Date

Answer 20

The day that the company actually mails out ( or electronically transfers) a dividend payment

Question 21

Payment date

Answer 21

The day that the company actually mails out (or electronically transfers) a dividend payment.

Question 22

Preferred Stock

Answer 22

A type of equity interest which ranks above common shares with respect to the payment of dividends and the distribution of the company’s net assets upon liquidation. They have characteristics of both debt and equity securities.

Question 23

Present Value Models

Answer 23

Valuation Models that estimate the intrinsic value of a security as the present value of the future benefits expected to be received from the security.

Question 24

Price multiple

Answer 24

A ratio that compares the share price with some sort of monetary flow or value to allow evaluation of the relative worth of a company’s stock

Question 25

Reverse stock split

Answer 25

A reduction in the number of shares outstanding with a corresponding increasing in share price, but no change to the company’s underlying fundamentals

Question 26

Share repurchase

Answer 26

A transaction in which a company buys back its own shares. Unlike stock dividends and stock splits, share repurchases use corporate cash

Question 27

Special Dividend

Answer 27

A dividend paid by a company that does not pay dividends on a regular schedule, or a dividend that supplements regular cash dividends with an extra payments

Question 28

Stock Dividend

Answer 28

A type of dividend in which a company distributes additional shares of its common stock to shareholders instead of cash

Question 29

Stock Split

Answer 29

An increase in the number of shares outstanding with a consequent decrease in share price but no change to the company’s underlying fundamentals

Question 30

Terminal stock value

Answer 30

The expected value of a share at the of the investment horizon- in effect, the expected selling price

Question 31

Terminal Value

Answer 31

The expected value of a share at the