FSA regels
Vraag 1
Enterprise value = mv of equity + mv of debt(= often bv)
DDM not good because dividends irrlevancy and dividends are a redistribution of the firm
capital funds
DCF not good, I perceived as value destroying, C-I is excess cash, connection to value is
weak, management discretion
Earnings/(1+r).. not good: double counting, discounting assumes e1 is reinvested at r, with no
div e1 contributes to e2 (e2=(1+r)er). Disc. Implicitely assumes e1 = 50 is reinvested at 5%
discount rate. E2 explicitelty takes into account reinvestment of e1.
Correct for earnings that we would expect Re(t) = e(t) -r*bv(t-1)
Case 1: Re =0, cv=0. Case 2: Re = constant, cv = Re/r, AEG = 0, cv=0. Case 3: Re grows at
rate g, cv =Re/(r-g), AEG grows at rate g, cv = AEG/(r-g)
Normal forward P/E ratio=1/r. P0/E1 > 1/r, market expects postive future AEG
Normail trailing P/E ratio = (1+r)/r. Trailing P/E =current mv +div paid/Current
periodEarnings
Firms comprehensive income is independant on FCF (C-I)
Normal PEG ratio = (1+r)/r*100%. PEG ratio = (forward p/e)/ 2-year ahead earnings growth.
PEG> normal, market overprices expected growth. In theory lower PEG, the better, paying
less for future earnings growth. Although other explanation for first sentence…
Why sell put warrants: Compmay believes stock is undervalued, commitment to repurchase
program.
Without NFE, OI=CI
Financing activities don’t create value, only operating assets. influence ROCE
RE or AEG creats value for common shareholders.
Financial leverage increases investment risk of common shareholders affects cost of
capital. Re = rf + Vd/Ve (rf-rd). Re increases with financial leverage
Unleverd P/B = NOA mv/NOA bv
Levered P/B = CSE mv/CSE bv
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Enterprise price = equity price + NFO
Rf on firms OA does not depend on the degree of financial leverage
, Alle Hidden Dirty Surpluses uit equity statement gaan ook Income Statement in, CI van de 2
moet hetzelfde zijn
Differences between P and E and P and B reflects future expectations of the market, the higher
the difference, the higher the expectations. But growth in future earnings doesnt have tob e
high necessarily
Comparebles not a good valuation model, also not in effecient markets
Effect of FINLEV depends whether spread is positive or negative
HDS can involve cash payments
The difference between dirty and Hidden dirty surplus: dirty surpus flows are reported in the
financial statements
SF2 forecast assumes reinvestments do not create value, ?SF3 does?
Normal P/E ratio decreases with financial leverage
Not the granting but exersizing of stock options results in HDS
AEG model assumes earnings for each period are persistent
Use re when doing P/E, not rf
Required rate of return rf on the firms net operating does not depend on the degree of financial
leverage.
Screening results in a trading strategy
Timing of future pay outs is only value irrelevant when reinvestments earns the required rate
of return
Pv of ReOI is not the same as PV of AOIG
In Re model, g cant be greater than r, in cv??
The normal P/E ratio is equal to 1/r . Since r increases with the degree of Fnancial leverage,
the normal P/E ratio decreases with the degree of financial leverage.
A simple forecast type SF3 assumes that residual operating income and net operating assets
grow at the same rate.
The forward P/E ratio doesnt have to be lower than the trailing P/E ratio.
For a high tech firm with many intangible assets, the abnormal earnings growth model is
prefered over the residual income model.
Information gained from a pro_t and growth analysis is not used in a simple type SF2 forecast.
A simple forecast type SF3 depends on the _rm's future investments in net operating assets.
