VALUE MEASUREMENT
INTRODUCTION
The purpose of this report is to understand the Canadian stock market and valuing stock prices of the following six Canadian companies: Bank of Montreal, Toronto-Dominion Bank, Canadian Tire, Sears, Husky Energy, and Petrol Canada. We have used ten years of data to examine the prices of these six Canadian companies under the Security Market Line theory. The stock prices of these companies have been taken from Yahoo finance and MSN finance. The simple linear regression method was used to calculate risk premium and beta.
Bank of Montreal (BMO)
BMO Financial Group is one of the largest financial services providers in North America, offering comprehensive retail banking, wealth management and investment banking products, services and solutions.
According to the TSX historical data obtained from Yahoo Finance, the arithmetic method was used to average the returns of BMO stock at 5.19% (Exhibit 1) based on semi-annual prices during the 10-year period. The same method was also implemented to calculate the average of compensation prices of 4.02% (Exhibit 1). Besides the simple linear regression offered, the way of calculating beta, which equaled 0.5177 (Exhibit 1) less than 1, indicated the relatively low risk to the markets. Alpha 0.0311 (Exhibit 1) was also brought out after the entry of the point (4.02%, 5.19%) to the linear function y=a + 0.5177x (Exhibit 1). In addition, according to the formula RRR (Required Rate of Return), we could easily get the average RRR of BMO which is 3.58%.
Above all, compared to the average return of BMO, it was obvious that the RRR, 3.58% was lower than the average stock return on the TSX market, 5.19%. Therefore, the value of BMO stock was undervalued, which meant the benefit for investors gained was higher than their expectation.
Toronto-Dominion Bank
Toronto-Dominion Bank is the personal, small business and commercial banking operation of the Toronto-Dominion Bank offering a range of financial products and services to over 10 million customers throughout Canada through more than 1000 branches and 2700 ATMs.
From 1997 to 2007, the average returns of the TD stock were calculated as 6.22% (Exhibit 2) based on the semi-annual prices. Since both BMO and TD were from the TSX market, the average return on compensation should be treated as the same as the result we retrieved for BMO, 4.02% (Exhibit 2). Moreover, the beta of TD was 0.6757 (Exhibit 2) less than 1 but very similar to data of BMO 0.5177 which also demonstrated the lower risk than the average of the Market.
Grand Metropolitan PLC is the world’s largest wine and spirits seller. It mainly operated in London, USA. In 1991, it beats market expectation with a 4.8% increase in pretax profits, and the company Chairman stated that company’s goal “to constantly improve on”. Despite the great performance in the world recession in 1991, the price of GrandMet shares was 10% below the average price/earnings ratio of the companies in the Standard & Poor’s 500 index. And more important, rumors had that GrandMet, valued at more than $14 billion in the stock market, maybe a takeover target. The management dilemma is to understand why the company’s stock is traded below of what considered being the right price and whether the company is truly being undervalued by the market or there are consistent issues with negative NPV projects and lines of businesses.
The Smith & Wesson Holding Corporation stock has an EPS of 1.42 and a P/E ratio of 10.52. Upon running a regression, a coefficient of 0.139 was calculated. This means that if the SWHC stock increases by 1%, the S&P 500 stock will increase by 0.139%.When compared against the S&P 500 index, the SWHC stock has a correlation of 16.3%. This is relatively low. The SWHC stock can explain approximately 16.3% of the variation in the S&P 500. In other words, the stock does not behave the same as the S&P 500 and should not be used to predict the S&P 500. There is about 83.7% of the...
The stock price is currently 103.31, down from a recent high of 121.50. The P/E ratio is declining at 28 and beta at .67, which is expected to grow closer to 1.0. A recent earnings surprise last December yielded a 15% difference from the lower expectations and the latest earnings reports late last month also surprised investors. Estimates for the 2000 fiscal year are being raised by a large majority of analyst who believe that earnings per share will increase and the stock price will reach close to 150.
The return on equity for the company stood at 18.71% in 2009 as compared to 20.90% for the year 2008 which shows a declining trend. The investors are always keen to see high returns on their investments, but here the return on their equity is declining. It is a negative number for the company and if the trend continues the investors will lose the confidence in the company and will cease to invest in the company.
The scope of this analysis is to determine Target's stock valuation by evaluating TGT's technical analysis and multiples. The technical analysis will describe the price trend and patterns. In doing so, six common indicators: Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), Aroon, Money Flow Index (MFI),
In 1986 and 1987, MiniScribe ranked top 25%, then declined slightly to the median in 1988. The reason for the decrease in 1988 can be the drop of the net income or the increased competition in the market. The results may be acceptance at first glance, but if we take our analysis in the profit margin to this ratio, it can be found that MiniScribe’s return on stockholders’ equity was actually lower than the number they provided. The Company had a history of using various kinds of methods to “make the number” instead of creating the maximum value of shareholders’ equity. From the long-term point of view, this will harm the shareholders’
This report will critically review the capital structure of the Royal Mail (RM) and the implications this has for the company with reference to its apparent value and the return required by equity investors. The report will take data from the latest set of accounts published by the RM and it accompanying investor reports. It will also refer to investors analysis and news item in an attempt to gain a qualitative impression of RM’s share value.. The numerical analysis will not use information that relates to time past the last full accounting period, however the conclusion will attempt reconcile any share price movement with the analysis. The report will assess three models for their suitability in analysing the capital structure of the RM, (Weighted Average Cost of Capital (WACC), Capital Asset Pricing Model (CAPM) and the dividend valuation model).
The CAPM is the best method of determining the cost of equity for General Mills, inc. (NYSE: GIS). Using CAPM calculations, GIS target for December 2013 is $50.60 (Reuters, 2013). If this security becomes untenable in one year’s time, then the option of increasing dividends to boost investor confidence can be explored. The APT is less accurate compared to the CAPM and the dividend growth models. However, CAPM seems to be the easiest to use. The isolation of the Beta assumptions into a single variable fits the current state of the company best when using the CAPM.
4. Harry Davis’s common stock is currently selling at $50 per share. Its last dividend (D0) was $4.19, and dividends are expected to grow at a constant rate of 5% in the foreseeable future. Harry Davis’s beta is 1.2, the yield on T-bonds is 7%, and the market risk premium is estimated to be 6%. For the bond yield plus risk premium approach, the firm uses a 4% point risk premium.
The concept of beta has gained prominence due to the pioneering works of Sharpe (1963), Lintner (1965) and Mossin (1966). There are many studies that examine the behaviour and nature of beta. These studies include the impact of the length of the estimation interval, the stability of individual security beta as compared to portfolio beta, factors influencing the beta as well as the stability of beta in various market conditions.
The estimates of cost of capital for equity 6.14% are making by using the capital asset pricing model (CAPM) to generate forecast of DDM and RIM. This method is defined by the sum of risk free rate plus beta that multiplied with a risk premium. Particularly, the beta, which is a quantitative measure of the volatility of company stock relative to the unstable of the overall market, found in JB HI-FI case at 0.56 (JB HI-FI financial statement 2016). It
Capital Asset Pricing Model (CAPM) is an ex ante concept, which is built on the portfolio theory established by Markowitz (Bhatnagar and Ramlogan 2012). It enhances the understanding of elements of asset prices, specifically the linear relationship between risk and expected return (Perold 2004). The direct correlation between risk and return is well defined by the security market line (SML), where market risk of an asset is associated with the return and risk of the market along with the risk free rate to estimate expected return on an asset (Watson and Head 1998 cited in Laubscher 2002).
The current price of Inuit was $45.900 with a P/E of 29.61. The stock’s fair value using its P/E Ratio was dismal at $24.58. From a fundamentalist view the stock should be sol...
We analyzed the market for two weeks to determine when the equity market would turn from a bearish to bullish market. Without a change in the market and a declining bond price, we decided to invest in equities according to our investment strategy, which brought us into the second phase of our portfolio. Therefore, at the beginning of February we bought shares in Sirius, Microsoft, Neon, Washington Mutual, and Nike. As assumed, the equity market continued to plummet decreasing the value of all our stocks except for our Gold Corporation stock.