SU4: Valuation Flashcards
Book Value Per Share
(Total Stockholders Equity - Preferred Equity)/Total Number of Shares Outstanding
Book Balue Per Commons Share
(Total Equity - Liquidation Value of Preferred Equity)/Common Shares Outstanding
Market to book ratio
Market price per share / book value per share
PE Ratio
Market Price Per Share / Earnings per share OR
Total Market Value / Net Income
A decrease in an investsors required rate of return will…
cause share prices to increase, higher PE Ratio
A decline in the rate of dividend growth will…
cause share price to decline, resulting in a lower PE ratio
A increasing dividend yield indicates that…
a share price is declining, resulting in a lower PE ratio
Price to EBITDA ratio
Market price per share / ebitda per share
Price sales ratio
Market price per share / sales per share
BEPS
Income available to common shareholders / weighted-average number of common shares outstanding
DEPS
Dilutive earnings per share
Earnings Yield
earnings per share/market price per share
Dividend Payout Ratio
dividends to commons shareholders / income available to commons shareholders
Dividend Yield
dividend per share / market price per share
Constant Growth Dividend Model
Expected dividend / (discount rate - dividend growth rate)
Expected dividend
Last Annual Dividend Paid x (1 + Growth Rate)
Shareholder Return
(Ending Stock Price - Beginning Stock Price +Annual Dividends Per Share) / Beginning Stock Price
Put Call Parity Formula
Value of call + PV of exercise price = Value of put + Value of underlying
An increase in the exercise price of an option will..
Decrease the value of the call option and increase the value of the put option
An increase in the price of underlying item will…
Increase the value of the call option and decrease the value of the put option
An increase in interest rates will…
Increase the value of a call option and decrease the value of a put option
Component Cost of Debt
Effective Rate x (1 - marginal tax rate)
Component Cost of Preferred Stock
Cash Dividend on Preferred Stock / Market Price of Preferred Stock
Component Cost of Common Stock
Cash Dividend on Common Stock / Market Price of Common Stock
Cost of new Debt
Annual Interest / Net Issue Proceeds
Cost of New Preferred Stock
Next Dividend / Net Issue Proceeds
Cost of New Common Stock
(Next Dividend / Net Issue Proceeds) + Dividend Growth Rate
Cost of Preferred Stock
Dividend Per Share / Cost of Capital
The use of derivatives to either hedge or speculate results in
Offsetting risk when hedging and increased risk when speculating
For the purposes of EPS, Stock Dividends and Stock Splits are considered…
Issued over the entire term in question
The date when the right to a divident expires is called the
Ex-dividend date
When calculating the cost of capital, the cost to retained earnings should be <> than the cost of external common equity
Lower. Newly issued or esternal common equity is more costly than retained earnings.
A firm’s target or optimal capital structure is consistent with
Minimum weighted average cost of capital
How would a 5% stock dividend affect a companies paid in capital and retaine earnings when declared?
Increase APIC, Decrease RE
A declaration of a stock dividend reclassifies from RE to APIC
The formula for the conversion ratio of a convertible bond
Conversion ratio = par value of the convertible bond / conversion price
