VALUATION The price of securities are manipulated by a combination of internal and external pressures, as well as by the way the company is both received, and perceived in the eye of the potential investor. Among these internal influences, are the qualitative factors, such as the way the company works as a team- or their management style, corporate governance, the corporate culture, degree of ownership interest, and the structure of their board of directors consisting of both inside directors and independent outside directors. The most important influencing qualitative factors however, are the business model, and competitive advantage. RATIOS Quantitative measures include the financial statement analysis, the ratio analysis-including time series or trend analysis, and cross sectional analysis, the most common type of tool used in financial analysis (Hitchner, 2006) and the comparative analysis. Quantitative internal factors, such as how the company manages their finances, as reflected on the financial statements, is readily available on the company’s website, or in the company’s annual report. Other key financial analyses that lend to valuation are P/E or price to earnings ratio, which is stock price divided by earnings per share. P/B or price to book ratio, which is price divided by book value, and P/S or price to sales, which is stock price divided by sales per share. MORE RATIOS? NO, NO, ON TO CASH FLOW! Financial Statements are a wealth of information about as company’s performance, and a healthy indicator of how it will perform in the future. Known as the ‘books’ financial records, when audited are reliable and accurate sources of key financial data that can give you a firm grasp ion a company’s profitability and growth... ... middle of paper ... ...e. Irwin Professional Pub. Damodaran, A. (2012). Investment valuation: Tools and techniques for determining the value of any asset. Hoboken, N.J: Wiley. Denning, S. (2012, November 20). What Killed Michael Porter's Monitor Group? The One Force That Really Matters - Forbes. Retrieved from http://www.forbes.com/sites/stevedenning/2012/11/20/what-killed-michael-porters-monitor-group-the-one-force-that-really-matters/ The Five Competitive Forces That Shape Strategy - Harvard Business Review. (2008). Retrieved from http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1 Hitchner, J. R. (2006). Chapter 3: Financial Statement and Company Risk Analysis. InFinancial valuation: Applications and models (2nd ed., p. 72). Hoboken, N.J: John Wiley & Sons. HOW TO USE THE DATA BANK. (2001). Kiplinger's Personal Finance, 15289729, Winter2001, Stocks 2002, 55(12).
The first financial ratio of the analysis is the Price to Earnings ratio (“P/E ratio”). The ratio is computed by dividing the price of one share of common stock, by the earnings per share of common stock. This analysis uses diluted earnings per share which assumes the issuance of new stock for all existing stock options. Also, the price of the stock was computed as an average of the fourth quarter high and low stock prices published in the 10K report of each company, because the year end stock prices were not listed for all the companies. Because the P/E ratio measures the relative costliness of different stocks, in relation to their income, it provides a useful place to begin the analysis.
Earlier 2002, the stock price of Agnico-Eagle Mines sharply decreased by $1 finally closed at $13.89. This price has reached one of the lowest level, from the company's historical perspective. As a professional equity portfolio manager, who has a large number of AEM stocks on hand. Acker and his team are necessary to find a proper way to estimated the fair value of AEM as well as its equity. Discounted Cash Flow (DCF) has been chosen to do this job. The theory behind DCF valuation approach is that the firm's value can be estimated by using the expected future free cash flow discounted by an appropriate discounted rate (Koller etc 2005). However several assumptions need to be clearly examined within this approach. The following sections are showing the process of DCF step by step.
Melicher, Ronald W. and Norton, Edgar A. 2014. "Introduction to Finance: Markets, Investments, and Financial Management. 15th Edition". New Jersey: John Wiley and Sons,
The second method we used to analyze the firm’s value was the Comparable Companies Method. We used the historical figures as of 1990 and Goldmans Sach’s Projections. With an average of 22.
Market value ratios gauge the economic position of a business in the broader market. Market value ratios are important to a publicly traded firm as they provide executives an impression of what the company's stockholders feel of the company's operation and forthcoming projections. Market value ratios assess various methods of examining the comparative worth of a business's stock. If the remainders of the business’ ratios are respectable, then the market value ratios should imitate that and the stock value of the company should be high.
Valuation of firms is encountered in different situations like Mergers & Acquisitions, Leveraged Buy-outs (LBOs & MBOs), IPOs etc.
Ross, S.A., Westerfield, R.W., Jaffe, J. and Jordan, B.D., 2008. Modern Financial Management: International Student Edition. 8th Edition. New York: McGraw-Hill Companies.
William Sharpe, Gordon J. Alexander, Jeffrey W Bailey. Investments. Prentice Hall; 6 edition, October 20, 1998
Every day in business corporations are making decisions about their products and services to make them better and cheaper while making a profit. In this day-to-day challenge many managers have to make financial decisions based with hopes of profitable returns for the future. There are some financial risks involved, but there are ways wherein those financial investment decisions can be based on calculations through net present value (NPV) and other investment criteria to minimize the element of risk. In these calculations rest tools for managers to better predict investment strategies for more profitable future valuations in their company’s success. These tools help managers determine what project is right for today and effects on future decisions made down the road while keeping in mind th...
Brealey, Richard A., Marcus, Alan J., Myers, Stewart C. 1999, Fundamentals of Corporate Finance, 2nd edn, Craig S. Beytien, USA.
Investors often use the book-to-market or price-to-book ratios to determine the value of a company when investing. However, it is critical to first assess whether they themselves are value stock investors or growth stock investors or a combination which will often guide their investment decisions. Mostly, this will be based on their goals as short-term or long-term investors. Value stocks are those stock shares that are sold for less than a buyer thinks they are really worth (Cambridge, 2011).
The Purpose of Financial Statements The financial statements of a business are used to provide information about the status of the business, set performance targets and impose restrictions on the managers of the firm as well as provide an easier method for financial planning. The financial statements consist of the Profit and Loss Account, Balance Sheet and the Cash Flow Statement. There are four areas of information, which we can collect from a company's financial statements. They are: Ÿ Profitability - This information comes from the Profit and Loss account. Were we can compare this year's profit with the previous years.
Porter, M. E. (2008, January). The Five Competitive Forces That Shape Strategy. Retrieved from harvard Business Review: http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/
Block, S. B., & Hirt, G. A. (2005). Foundations of financial management. (11th ed.). New York: McGraw-Hill.
Financial statements provide an overview of a business' financial condition in both short and long term. They help in understanding the past performance of the company and making future predictions about the company. It thus helps us to look beyond the profit figures.