Stock Valuation V2

Question 1

Short seller dividends

Answer 1

Initial dividend is paid to investor that they borrowed from

If there is another it goes from the company to the investor

Question 2

Limit order protections

Answer 2

Protect from any unanticipated price increase / decrease

Question 3

Liquidating Dividend

Answer 3

Associated with bankruptcy

Sell assets to convert them to cash

1. expenses
2. liabilities
3. PS
4. CS

Question 4

Stock Divdend

Answer 4

Pay corporate dividend in stock not cash

Question 5

Companion variables

Answer 5

P:E - growth

P:BV - ROE

P:S - net profit margin

Question 6

Comparable under / over stating

Answer 6

if companion variable for the firm is bigger the estimated price is too low because, because the comprable is too small

Question 7

When to use P:BV

Answer 7

Good for firms that have a lot of assets both tangible and intangible

Question 8

Risk of using comprables

Answer 8

Only measure intrinsic value, but they rely on the assumption firm is similar to the industry

Question 9

Industry vs Sector

Answer 9

Sector - broad, NBA

Industry - narrow e.g. front office

Question 10

Free cash flow

Answer 10

cash available to stockholders after CAPEX

NI + D&A - increase in no cash WC - CAPEX

Question 11

FCFC

Answer 11

free cash flow - preferred dividends

Question 12

Non-cash operating WC

Answer 12

current assets (except cash) - current liabilities

increases in liabilities are a source of cash (negative inc non cash WC) means +

Question 13

Gordon Growth Model Timing

Answer 13

PV of CF 1 period before

D11 / ke - g would be the time 10 price