Financial Analysis
Financial Analysis
Financial Analysis
Set of flashcards Details
| Flashcards | 288 |
|---|---|
| Language | English |
| Category | Finance |
| Level | University |
| Created / Updated | 06.01.2017 / 10.03.2017 |
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Value a stock with dividend growth of 20% for four years and an indefinite growth rate of 5% p.a. Last dividend was USD 1 and rCS is 10%.
firms earnings growth rate
g = RR*RoE
with RR - retention rate (earnings plowback)
RoE - return on equity = (NI/sales) * (sales/assets) * (assets/equity)
Earnings per Share
calc
EPS= (S* m_op - Dep - I) * (1 - s)
S: sales per share; m_op: operating profit margin; Dep: depreciation expenses; I: Interest Rate; s: tax rate
Firms with abnormally high RoE will probably
In the infinite DDM, which of the following is expected to be growing at the same rate as dividends
YourCo paid a USD 1 dividend and expects to grow this payment at 6% p.a.
What is the stocks value if an investor requires 15% rate of return?
V = Div_1 / ( r - g ) = 1,06 / ( 0,15 - 0,06) = 11,78
Trailing and leading version of P/E
- Commonly used trailing P/E ratio uses earnings over the most recent 12 month (1)
- Leading (forward or prospective) P/E ratio uses next year expected earnings (2)
Assume a comparable company to the company you want to analyze with a P/E ratio of 12. The estimated EPS are USD 2 and the payout ratio is 50%.
Determine the appropriate relative price.
P = P/E * E = $ 24
As the company is assumed to be comparable the payout ratio, growth rate and required rate of return should be the same.
The P/E multiplier determines
- Calculate the P/E ratios for the peer group
- Build the arithmetic average
- Multiply YourCo's earnings with the peer group's P/E ratio
Price to book value (P/BV) ratio
P/BV = V_EQ,mkt / V_EQ,BV
where BV = common shareholder’s equity = total assets- total liabilities –preferred stock
Price to sales (P/S) ratio
P/S = V_EQ,mkt / S
Price to Cash Flow (P/CF) ratio
P/CF = V_EQ,mkt / CF
where
CF = NI + Dep + Amor
CFO_adj = CFO + (I*(1-s))
YourCo has consistently paid out 40 percent of its earnings in dividends. The company’s return in equity is 16 percent.
What is your estimate for the dividend growth rate?
g = RR * ROE = 0,6 * 0,16 = 9,6 %
YourCo has consistently paid out 40 percent of its earnings in dividends. The company’s return in equity is 16 percent. The required rate of return is 13%.
What P/E ratio applies to YourCo’s earnings assuming past paid out to be constant?
P/E = (1- RR ) / ( r - g ) = 0.4 / ( 0.13 - 0,096 ) = 11,76x
YourCo states the following information
− P = USD 15; ROE = 20%
− Book value of equity = USD 50 m
− Sales = USD 36 m; Retention rate = 60%
− Shares outstanding USD 10 m
− Operating expenses USD 19 m, thereof USD 1,4 m
depreciation and amortization
Calculate YourCo’s P/E, P/BV, P/S, P/CF ratio.
P/BV ratio is most suitable when
Which of the following accounting figures are least subject to manipulation?
Value of an option-free bond with par value M, coupon payment C, m coupons per year, n years to maturity and a constant discount rate i (yield to maturity) is calculated according to
Value of a zero-coupon bond
calc
where
M: par value
i: constant discount rate
m coupons per year
n years to maturity
$1000 par value bond with a 3-year life, paying 6% semiannual coupons
Calculate bond values using required yields of 3, 6 and 12% as the bond approaches maturity
V = 30/ (1,015)1+ 30 / (1,015)2 + 1030 / (1,015)3 = 1043,683
- As maturity approaches the price of a bond converges toward its par value
Value of a bond with yearly coupon payments discounted by varying spot rate
(formula)
A 5-year, 12 % coupon bond with quarterly payments and a face value of USD 1.000.
What is the cash value of each coupon payment?
$ 30
A 10-year, 10 % annual-pay bond has a par value of USD 1.000.
What would this bond be trading at if it were being priced to yield 15 %?
USD 749,06
A 7-year, 10 % semiannual-pay bond has a par value of USD 1.000.
What would this bond be trading at if it were being priced to yield 15 %?
USD 787,77
Nominal Yield
expl
nominal yield represents the coupon rate the bond carries
current yield
expl
current yield represents the annual cash coupon payment divided by current bond price
Yield to maturity (YTM)
expl
YTM is the promised yield
YTM
formula
where V= price of a bond
Assumptions to be satisfied for realizing YTM
- Bond is held to maturity
- All principal and interest payments are received promptly and
timely - Coupon payments are reinvested at a rate of return equal to the YTM
Relationship between nominal yield, current yield and yield to maturity
Yield to call (YTC)
expl + formula
considers the impact of a bond being called
Yield to put (YTP)
expl + formula
considers the impact of a bond being put
Computing the value of an n-year bond using the spot rates Z_1,Z_2,...Z_n
formula
Determine the spot rates for a 3-year Treasury security using the following three Treasury securities with the following data
- 1-year (pure discount) T-Bill with a coupon rate of 0% and an actual price of 96,154%
- 2-year T-Note with a coupon rate of 8% and an actual price of 100%
- 3-year T-Note with a coupon rate of 6% and an actual price of 85,589%
Forward Rates
1f1 ?
A 1-year US government Treasury Bill has an annually compound YTM of 5,8%. A 2-year US government 6,9% annual coupon is trading at par.
What is the two year spot rate?
6,938%
The 4-year spot rate is 9,5%, and the 3-year spot rate is 9,9%.
What is 1-year forward rate in three years from today?
8,3%
A semi-annual coupon bond is being priced to yield 6,450%.
What is the bond equivalent yield?
6,349%
Relationship between price and yield
graph
