1 / 9

Equities Chapter 6

Equities Chapter 6. Common Stock Valuation Schemes Dividends, Splits, Etc. Features of Common Stock. Represents ownership claims on earnings (dividends) Elect directors Approve changes in charter, mergers & acquisitions May have different classes of stock Voting Non-Voting Weak Voting.

moshe
Download Presentation

Equities Chapter 6

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. EquitiesChapter 6 Common Stock Valuation Schemes Dividends, Splits, Etc.

  2. Features of Common Stock • Represents ownership • claims on earnings (dividends) • Elect directors • Approve changes in charter, mergers & acquisitions • May have different classes of stock • Voting • Non-Voting • Weak Voting

  3. Valuation of Common Stock • Gordon Growth Model • Normal Growth • Supernormal Growth • Zero growth • P/E ratio • Intrinsic Value Analysis • Present value of future cash flows • Importance of fundamental Analysis

  4. Valuation Concerns • Holding Period • Any present value form sensitive to assumed period • Future price movements are nonlinear • Dividends may increase, decrease, or be withheld • Problem with Comment on Page 6.5 • “Why value isn’t based on earnings” • Numerous empirical studies suggest Price is strongly correlated with future (expected) earnings • Non-Dividend stocks – P/E ratio

  5. Gordon Growth Model • Assumes constant growth rate g of dividends and a known discount rate r, where r > g. V0 = d1 / (r – g) = d0 (1+g) / (r – g) • Implications of Growth Model • Decrease in r (discount rate), will cause value of stock to be higher • Increase in expected growth rate of dividends (g), will cause value of stock to be higher • Increase in next year’s expected dividend (d1) will cause value of stock to be higher

  6. Other Valuation Schemes • P/E Ratio • Price/Cash • Price/Sales • CAPM • ri = rf +  (rm – rf) • PEG Ratio (stock screens)

  7. Other Equity Instruments • ADR • Warrants • Attached to debentures as sweetener • Exercised or sold • Rights • Preemptive rights; maintain proportionate ownership share • Exercised or sold • Preferred Stock • Generally high dividend yields • Interest rate sensitive like bonds

  8. Dividends • Mechanics of Dividends • Declaration date (set by directors) • Ex-dividend date (set by market @2 business days prior to record date) • Record date (date of stock ownership) • Payment date

  9. Alternative Investments • Collectibles • Art • Gems • Coins • Memorabilia • Real Estate

More Related