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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Operating ROA =
= (Operating income or EBIT) / avrg total assets
Return on capital =
= EBIT / avrg. total capital
Return on Equity =
= NI / avrg total equity
DuPont System
In order to assess a company’s ability to fulfill long-term obligations an analyst should examine
The sale of shares between two investors is called
The current market price is USD 40, an order to sell at USD 45 would be which type of order?
Limit order
Why would anyone ever want to sell securities short?
The seller believes the current price is too high and will fall in the future. (sell high, buy low).
A portion of the proceeds are kept on deposit with the broker (margin requirement). Dividends are paid to the lender.
Compare margin trading to corporate gearing.
The benefit of margin trading is leverage. It may enhance returns, but alsomagnify losses.
Price-weighted indices
calc
Summe (p) / n
n - number of stocks included
Market Value-Weighted Indices
calc
Unweighted indices
value calc
- The value can be calculated using arithmetic average (1)
- The value can also be calculated applying geometric average (2)
What kind of index should be used to
a) Calculate a firm’s beta for CAPM
b) Measure performance of a portfolio
a) A broad index which best represents the theoretical market portfolio.
b) An index which represents the investment policy, e.g. utlities
5000 / 15000 = 33%
Which of the following have to be considered when constructing a market index
Research has revealed that the performance of professional money managers compared to the market is
The strong form EMH asserts that stock prices fully reflect which of the following types of information
Market efficiency refers to
Top-Down Approach in equity valuation
name and explain steps
Assume a preferred stock with an annual dividend of $ 3,30 and an investor requiring 6 %.
What is the value of the preferred stock for the example investor?
V = Div_t / r = $ 55
Assume a current dividend of USD 3 a growth rate to this dividend payment of 5% p.a. and a required return of 9%. What is the corresponding stock value?
External Factors and Structural Changes
name and explain 2 of 5
Industry life cycles are typically categorized by the
Defensive companies are companies
Compute and interpret the Herfindahl index and the 3 firm concentration ratio
Which industry sector would most likely be the first to experience increase in sales at the upturn in the business cycle?
Assume the following projections of an industry index data.
What is the according industry earnings per share estimate? The numbers are per share data.
− Sales USD 400, EBITDA margin 25%
− Industry depreciation USD 30, Interest USD 20, tax rate 40%
EBITDA USD 100
EBIT USD 70
EBT USD 50
EPS USD 30
Assume the following projections of an industry index data.
What is the according industry growth rate estimate?
− Dividend payout ratio 40% and profit margin of 15%
− Asset turnover 1,5x and an asset / equity leverage factor 2x
Value of preferred stocks
r - return
Dividend DIscount Model (DDM)
Explanation + Formulas
- The stocks intrinsic value is the PV of its future cash flows
- The discount rate is estimated via CAPM (1)
- The PV is the sum of the discounted dividends (2)
- The infinite period DDM assumes a stable growth rate g
and simplifies to (3)
– Also known as constant growth or Gordon Growth Model
– Long-term growth above GDPnom is unrealistic
Model Variation: Two-stage DDM
explanation + graph + formula
- Short-term return can exceed the industries average returns. This is called the competitive advantage period
- Theory assumes that the competitive advantage can not be sustained for ever
- In the long-term a stable stable growth is assumed
Calculate the expected return for a stock trading at USD 25 with an expected dividend of USD 1 and which can be sold for USD 27 in one year.
Is this stock under- or over-valued?
Dividend yield 4% + Capital gain yield 8% = Total expected return 12%
There is no defenite answer. It depends on the investors required rate of return.
YourCo earned USD 10 and paid a dividend of USD 6.
Expected earnings are USD 11 and YourCo will continue its payout ratio.
The selling price in one year will be USD 132.
If you require 12% how much would you pay for the stock?
