Week 9 Flashcards
1
Q
Analysts will not use current price as the sole benchmark of market expectations re a particular firm
What will they do
A
Will observe other analysts’ forecasts of:
– Sales, operating profit, net profit, EPS etc, over short and long forecast horizons
2
Q
Price reflects
A
Price reflects both market expectations of cash flows AND cost of equity
3
Q
If an analyst / investor arrives at a valuation for a company that is significantly different to that implied by the current market price of the firm’s equity, it is often useful to identify the source of the disagreement
A
– Different beliefs about short-term future profits?
– Different beliefs about long-run earnings growth?
– Different beliefs about appropriate discount rate?
