Valuing Stocks

In: Business and Management

Submitted By mother55
Words 528
Pages 3
Valuing Stocks 1. "As owners, what rights and advantages do shareholders obtain" (Cornett, Adair, & Nofsinger, 2014, p. 203)?

They are able to participate in the economic growth of publicly traded firms without having to manage business entities directly. They have the right to residual cash flows of corporate profits and often receive some of these cash flows through dividends. In addition, shareholders vote on the members for board of directors and other proposals for the company. Shareholder capital losses are capped in that they can only lose their initial investment. Stocks are very liquid and investors can enjoy this liquidity in both their entrance into the stock market and their exit from it.

2. "Why might the Standard and Poor's 500 Index be a better measure of stock market performance than the Dow Jones Industrial Average" (Cornett, Adair, & Nofsinger, 2014)?

The S&P 500 is a broad market index that includes stocks of the 500 largest US firms from ten sectors of the economy. It captures 80% of the overall stock market capitalization and is a good proxy for what is occurring in the overall stock market.

3. "What are the differences between common stock and preferred stock" (Cornett, Adair, & Nofsinger, 2014, p. 203)?

Common stock dividends change over time, hopefully increasing in the long-term. Preferred stock pays a constant dividend. Preferred stockholders have higher precedence for payment in the event of firm liquidation from bankruptcy. However, preferred stockholders do not have voting rights that common stock holders enjoy. Preferred stock prices fluctuate with market interest rates and behave like corporate bond prices. Common stock price changes with the value of the company are underlying business.

4. "On March 14, 2013, the Dow Jones Industrial Average set a new high. The index closed at…...

Similar Documents

Stocks remember and understand alll these, it's depressing. My mental judgment tells me that you know what you are saying. Thank you. (That still I´m not) you don´t need to be a PhD in Economics (even as having one can help): you DO need a lot of PATIENCE, you need a discipline of reading everyday A LOT about global economic & political news (discarding the garbage from real-value information), you need a strategy and need to follow it, and you need to remember Peter Lynch´s famous phrase: ¨The main organ in Investing is not the brains: it´s the stomach!¨ . Good investing & best regards. Also, when the stock market drops due to some economic event, we often get dollar rallies. The reason is because everyone is selling thier stock and trading it for Cash. If everyone wants cash, cash becomes scarce and therefore it gains in value. remember than when everyone is SELLING stocks in a panic, they are trading thier stiocks for DOLLARS. Here is what I would do if I had pay-for investment service. 1. Wait for a time of max uncertainty. 2. Make a gutsy call in either direction, down is much preferred, fear works better. 3. Mention all publicly available bad stuff, refer to a model, but never ever disclose any details. Have people pay for it on my website. 4. If it does not work, blame the govt for interfering with free markets. If it works, claim victory. Either way, you win. Germany Okayed letting banks access the EU's super-bailout fund....

Words: 466 - Pages: 2

Valuing Ipos

...Journal of Financial Economics 53 (1999) 409 }437 Valuing IPOs Moonchul Kim , Jay R. Ritter * Department of Accounting, KyungHee University, C1 Hoegie-Dong, Dongdaemun-Ku, Seoul 130-701, South Korea Department of Finance, School of Business Administration, University of Florida, Gainesville, FL 32611-7168, USA Received 3 June 1997; received in revised form 18 August 1998 Abstract The use of accounting information in conjunction with comparable "rm multiples is widely recommended for valuing initial public o!erings (IPOs). We "nd that the price}earnings (P/E), market-to-book, and price-to-sales multiples of comparable "rms have only modest predictive ability without further adjustments. This is largely due to the wide variation of these ratios for young "rms within an industry. P/E multiples using forecasted earnings result in much more accurate valuations than multiples using trailing 1999 Elsevier Science S.A. All rights reserved. earnings. JEL classixcation: G24 Keywords: Initial public o!erings; Valuation; Comparable "rms * Corresponding author. Tel.: #1-352-846-2837; fax: #1-352-392-0301. E-mail addresses: (M. Kim), (J.R. Ritter) This paper is based on Moonchul Kim's University of Illinois Ph.D. dissertation. We would like to thank seminar participants at Boston, Emory, Georgetown, Humboldt (Berlin), and Vanderbilt Universities, the Universities of Miami and Texas, the Stockholm School of Economics, the Chinese......

Words: 13092 - Pages: 53

Valuing Stocks

...QUESTIONNAIRE ON VALUING STOCKS By: Bahae eddine Boussouf Nadezda Vovk 1) Common stock: a share of ownership in the corporation, which confers rights to any common dividends as well as rights to vote on election of directors, mergers, or other major events. Preferred stock: A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend that must be paid out before dividends to common stockholders and the shares usually do not have voting rights. Preferred and common stocks are different in two key aspects. First, preferred stockholders have a greater claim to a company's assets and earnings. This is true during the good times when the company has excess cash and decides to distribute money in the form of dividends to its investors. In these instances when distributions are made, preferred stockholders must be paid before common stockholders. However, this claim is most important when the company must liquidate and pay all creditors and bondholders, common stockholders will not receive any money until after the preferred shareholders are paid out. Second, the dividends of preferred stocks are different from and generally greater than those of common stock. When you buy a preferred stock, you will have an idea of when to expect a dividend because they are paid at regular intervals. This is not necessarily the case for common stock, as the company's board of directors will decide......

Words: 1128 - Pages: 5

Walmart Valuing

...VALUING WAL-MART-2010 Contents: 1. Background of Wal-Mart stores, Inc. 2. Valuing approach 3.1 Dividend Discount model 3.2 Capital asset pricing model 3.3 The Price/Earning multiple approach 3. Recommendation 1. Background Wal-Mart stores, Inc. Wal-Mart was the world’s largest retailer, operating more than 8,400 stores worldwide. Wal-Mart’s strategy was to provide a broad assortment of quality merchandise and services at ”everyday low prices”. In general merchandise area, Wal-Mart’s competitors included Sears and Target; In terms of specialty retailers, its competitors included Gap and Limited; Department store competitors included Dillard’s and Macy’s; Grocery store competitors included Safeway and Kroger; The major membership-only warehouse competitor was Costco Wholesale. 2. Valuing approach In this case, I will use three different methods, including the capital asset pricing model (CAPM), the dividend discount model, and the price/earnings multiples, to value the War-Mart, Inc. and to determine whether this company was fairly valued. 3.1 Dividend Discount model * Method introduction According to the dividend discount model(DDM), the current stock price of Wal-Mart represents the present value of all expected future dividends, discounted at an investor’s required rate of return. Under this approach, a share is valued by forecasting dividends in perpetuity. Then, P0 = D1/(Ke – g) * Source of...

Words: 817 - Pages: 4

On Valuing Nature

...Accounting, Auditing & Accountability Journal On Valuing Nature Ruth Hines Article information: To cite this document: Ruth Hines, (1991),"On Valuing Nature", Accounting, Auditing & Accountability Journal, Vol. 4 Iss 3 pp. Permanent link to this document: Downloaded on: 22 September 2014, At: 09:07 (PT) References: this document contains references to 0 other documents. To copy this document: The fulltext of this document has been downloaded 1512 times since 2006* Users who downloaded this article also downloaded: Downloaded by UNIVERSITI UTARA MALAYSIA At 09:07 22 September 2014 (PT) Ruth D. Hines, (1989),"Financial Accounting Knowledge, Conceptual Framework Projects and the Social Construction of the Accounting Profession", Accounting, Auditing & Accountability Journal, Vol. 2 Iss 2 pp. Christine Cooper, (1992),"The Non and Nom of Accounting for (M)other Nature", Accounting, Auditing & Accountability Journal, Vol. 5 Iss 3 pp. Christopher Humphrey, Robert W. Scapens, (1996),"Methodological themes: Theories and case studies of organizational accounting practices: limitation or liberation?", Accounting, Auditing & Accountability Journal, Vol. 9 Iss 4 pp. 86-106 Access to this document was granted through an Emerald subscription provided by 394654 [] For Authors If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors......

Words: 831 - Pages: 4


...Bumpy Ride for Stocks Post-Fed By JONATHAN CHENG Stocks bounced in and out of positive territory and the dollar and the 10-year Treasury note fell after the Federal Reserve said it would buy $600 billion in longer-term securities by the middle of next year as part of its latest effort to prime the domestic economy. The Dow Jones Industrial Average was down 11 points, or 0.1%, to 11178, while the Standard & Poor's 500-stock index fell less than one point to 1193 and the Nasdaq Composite fell less than one point to 2533. [pic]Getty Images A financial professional looks over at his screen on the floor of the New York Stock Exchange in the middle of the trading day Nov. 3. The 10-year Treasury note sank, pushing the yield up to 2.634%. Gold and metals also fell as the Fed said it would maintain its existing policy of reinvesting principal payments from its securities holdings, and purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011 at a pace of about $75 billion a month. The Fed said it would also "regularly review the pace of its securities purchases and the overall size of the asset-purchase program" as economic data flows in. Expectations of Fed easing had helped fuel a two-month surge on the stock market that has added 12% to the Dow. The Fed move was generally in line with market estimates, putting to rest the idea that the central bank would proceed on a more cautious step-by-step basis from the......

Words: 1172 - Pages: 5

Valuing Facebook

...friends-- groups they've joined, applications or friends they have added, changes to their profiles • A space for uploading photos and videos But Facebook, like many social software sites, is customizable and there is no end to the number of applications you can add to your Facebook account. Applications are additional tools and features-- some are created by Facebook, but many more have been created by third party developers. Key Statistics: According to the business insiders 2014 estimates, the key statistics values of facebook are as follows. Revenue: US$= 12.466 billion, Operating income= US$ 4.982 billion, Net income= US$ 2.94 Billion, Total assets= US$ 40.182 Billion, Total Equity= 36.096 Billion. When it comes to valuing of facebook ? The value of Facebook is calculated using a specific criterion. The value of Facebook is determined using the value of fans on Facebook. In this case, the total amount spent by the fans on Facebook per annum help in the determination of the enterprise value of a Facebook. In fact, the messaging value of Facebook increases the value of Facebook. According to Marks (2013), the propensity of the ability of current Facebook users to lure their friends into Facebook subscription is also a variable used in the computation of the value of Facebook; for example, the United States has a running economy. It infers that its nationals have restricted time to meet their partners and mingle. Subsequently, an expansive extent of the......

Words: 1993 - Pages: 8

Valuing Stocks

...Adair, & Nofsinger, 2014, p. 203)? "Why might the Standard and Poor's 500 Index be a better measure of stock market performance than the Dow Jones Industrial Average" (Cornett, Adair, & Nofsinger, 2014)? "What are the differences between common stock and preferred stock" (Cornett, Adair, & Nofsinger, 2014, p. 203)? "On March 14, 2013, the Dow Jones Industrial Average set a new high. The index closed at 14,539.14, which was up 83.86 points from the previous day's close of 14.455.28. What was the return (in percent to four decimal places) of the stock market for March 14, 2013" (Cornett, Adair, & Nofsinger, 2014)? "At your brokerage firm, it costs $9.50 per stock trade. How much money do you need to buy 300 shares of Time Warner, Inc. (TWX), which trades at $22.62" (Cornett, Adair, & Nofsinger, 2014)? "Financial analysts forecast Safeco Corporation (SAF) growth for the future to be a constant 10 percent. Safeco's recent dividend was $1.20. What is the value of Safeco stock when the required return is 12 percent" (Cornett, Adair, & Nofsinger, 2014, p. 205)? "A preferred stock from Duquesne Light Company (DQUPRA) pays $2.10 in annual dividends. If the required return on the preferred stock is 5.4 percent, what is the value of the stock" (Cornett, Adair, & Nofsinger, 2014, p. 204)? "Ultra Petroleum (UPL) has earnings per share of $1.56 and a P/E ratio of 32.48. What is the stock price" (Cornett, Adair, & Nofsinger, 2014, p. 205)?...

Words: 261 - Pages: 2

Buffet Approach of Valuing Stock

...The Buffett Approach to Valuing Stocks Focusing on return on capital may be the key to investment success. By Steven R. Ferraro, CFA, PhD 2009 Volume 12 Issue 3 Much has been written about famed U.S. investor and Berkshire Hathaway CEO Warren Buffett’s investment style and successes. Preeminent among these writings are the oft-cited Berkshire Hathaway shareholder letters, written by the “Oracle of Omaha” himself. These informative letters have been the basis for a multitude of books. But even with an abundance of available information on “how to invest like Warren Buffett,” it is apparent that something is lacking, how does Buffett determine an acceptable price for companies of interest? This article provides an example of the process Buffett is reported to go though to determine the intrinsic value of a publicly traded company. Photo: Bogdan Radenkovic Starting at the Beginning Before we get our hands dirty with the valuation aspects of the investment decision, let us review a brief outline of the qualitative and quantitative aspects of Buffett’s decision process as observed by Robert G. Hagstrom.[1] This map helps us navigate the turbulent waters of Wall Street and is comprised of business, management, financial, and market tenets. Investment Tenets Business • Is the business simple and understandable? • Does the business have a consistent operating history? • Does the business have favorable long-term prospects? Management • Is......

Words: 2747 - Pages: 11


...Clearly define roles and responsibilities. In general, the inventory counting process and the reconciliation should be supervised or performed by an independent person. This independent person should NOT be the person who checks in or receives inventory, maintains the inventory records for the items, or is responsible for the daily security and accountability of the inventory. An example of participants' possible responsibilities follows: 1. Manager: plans and supervises inventory, makes test counts, approves adjustment journal. 2. Staff Member #1: tabulates physical count and identifies possible errors. 3. Staff Member #2: reconciles physical count to Oracle Financials; creates adjustment journal. 4. Count teams: count the stock on hand. The number of people involved will depend upon the size and complexity of the organization and the items being counted. Rev. 2, 17-OCT-2007 page 2 Physical Inventory Guidelines B. Establish a master schedule that sets the beginning and completion dates for both the counting process and the inventory reconciliation. 1. Physical inventories are typically done in the summer to allow sufficient time to reconcile and adjust balances before the August fiscal year-end close. 2. For ease of reconciliation, consider scheduling the completion of the physical inventory count to coincide with the last working day of a period. 3. Suspend all transaction activities such as receiving and sales during the......

Words: 2744 - Pages: 11

Valuing Bonds

...Valuing Bonds 1. "What does a call provision [call feature] allow [bond] issuers to do, and why would they do it" (Cornett, Adair, & Nofsinger, 2014)? “A call provision on a bond issue allows the issuer to pay off the bond debt early at a cost of the principal plus any call premium. Most of the time a bond issuer is called, it is because interest rates have substantially declined in the economy. The issuer calls the existing bonds and issues new bonds at the lower interest rate. This reduces the interest payments the issuer must pay each year” (Cornett, Adair, & Nofsinger, 2014). 2. "Provide the definitions of a discount bond and premium bond. Give examples" (Cornett, Adair, & Nofsinger, 2014, p. 178). “A discount bond is simply a bond that is selling below its par value. It would be quoted at a price that is less than 100 percent of par, like 99.05. A premium bond is a bond selling above its par value. Its price will be quoted as over 100 percent of par value, like 101.15. A bond becomes a discount bond when market interest rates rise above the bond’s coupon rate. A bond becomes a premium bond when market interest rates fall below the bond’s coupon rate” (Cornett, Adair, & Nofsinger, 2014, p. 178). 3. "Describe the differences in interest payments and bond prices between a 5 percent coupon bond and a zero coupon bond" (Cornett, Adair, & Nofsinger, 2014, p. 178). “The 5 percent coupon bond pays annual interest...

Words: 565 - Pages: 3


...Stocks Stocks October 10, 2015 XACC/291 Stocks Many people wonder why preferred stock is referred to as preferred and what makes it more attractive to investors. Preferred stock shares are "preferred" because they have the preference over the common shares to receive dividends and company assets if the business is liquidated. If a company does not have enough cash to pay dividends to both the preferred shares and the common shares, the preferred shareholders must be paid first. Any Company or Corporation can issue two types of stock: Common and preferred. Common stock is defined as a partial ownership in a company and these are the shares that usually are referred to when discussing a company’s stock. Investors will always look at common and preferred stocks in many different ways. If I had to choose between preferred and common stock I would have to go with preferred stock. A Preferred Stock is very much like a bond, but usually without an expiration date. Typically Investors would buy preferred stocks for their income potential, and common stocks for their growth. Common stock, on the other hand, generally has far more opportunity for appreciation than preferred stocks to. So it can be a difficult choice and of course will vary but it seems that preferred stock would always be the more beneficial since they do not fluctuate much like common stock would. In addition preferred stocks can have several versions, but with common stock there is only one......

Words: 266 - Pages: 2

Sally Jameson: Valuing Stock Options in a Compensation Package

...Date: MAY 1992 Subject: Valuing stock options in a compensation Package Purpose: To determine which option worth for Mrs Jameson, and how long should she stay at Telster. Q1,2: The stock currently trading at $18.75. (20.25-18.75)x3000=4500. If she choose cash compensation package and if there is no TAX, She will receive $5000+(5000x3.8%). Obviously it is worth than stock option. Q3: The options do not vest until the fifth year and the strike price is $35. What is the price of the 5-year option? If Jameson chose stock options, she would hold European 3000 call options (early exercise is impossible) on stocks without dividends which give her the right to buy Telstar stocks at the strike price $35 per share in the 5th year from the date she joins Telstar. The option price is $2.65. Total value of 3000 call options that Jameson would receive is 3000 x $2.65 = $7943 (taxes and transaction costs are ignored), which is option premiums that Jameson can receive if she sells her 3000 granted options. Q4: If Jameson chose cash compensation package and if there is no tax, she will receive $5000 today. If she used this money to invest in 5-year T-bills, the future value of her compensation would be worth: $5000 x 1.0602 = $5301 in 5 years. $7943 is worth than $5301. If she accepts deal (stock option and job), she should untie her wealth from the fortunes of Telstar by using bull spread strategy, which is to sell identical call options with higher strike price, for......

Words: 503 - Pages: 3

Valuing Coca Cola Stock

...Valuing of Coca Cola Stock and Analysis Andrew Burgoyne, James Desimone, Bailey Fowble, Hewei Huang, Ryan Leist, Maria Sandoval University of South Florida FIN 4414 Abstract Taking the role as Jessie Jones, we will analyze whether to recommend the Coca Cola stock to potential clients or current clients that do not have it in their portfolio. By using the Capital Asset Price Model (CAPM), Dividends Discount Model (DDM) and the Price/Earnings (P/E) ratio we will come to a conclusion. Background The Coca Cola Company, which is based out of Atlanta, Georgia, is a leader in the global soft drink market. It owns subsidiaries in over 195 countries around the world but has always remained local. According to the most recent Value Line (1997) report, revenues and profits were expected to continue to grow for the rest of the year but still be weaker than the current year. They forecasted that Coca Cola would meet their goal of increasing profits by 15% each year for the next 3-5 years due to the expanding soft drink market. Jessie Jones, an Investment Advisor with a major brokerage firm, wondered whether she should recommend the Coca Cola stock to any of her potential clients or current clients that did not already have it in their portfolios. Jessie noticed that the current price of Coke slipped to $58 per share with a price/earnings ratio of 35x and dividends yield of 1%. The methodologies used to value the stock of Coca Cola are: CAPM, DDM and P/E......

Words: 1225 - Pages: 5

Wal-Mart Case Valuing Wal-Mart Stock Questions

...Wal-Mart Case Valuing Wal-Mart Stock Questions: 1. Assess the financial health of Wal-Mart based on an analysis of the financial statements. 2. Based on any additional available information (including annual reports and 10-K filings) assess the economic conditions (as of the time of the case), the industry key success factors and competitive situation, and Wal-Mart’s strengths and weaknesses. 3. Develop a pro forma income statement and balance sheet for Wal-Mart for the fiscal year ending January 31, 2006. Assume the following (in addition to information in the case): selling, general and administrative expenses at 17.3 percent of anticipated net sales; interest on debt at an average rate of four percent; similar number of shares outstanding as of January 31, 2005: similar prepaids, other assets, accrued liabilities, deferred taxes and minority interest as in 2005. State any other key assumptions. How profitable do you anticipate Wal-Mart will be? Will Wal-Mart need to increase its reliance on external borrowing? 4. Determine the intrinsic value of Wal-Mart (on a per share basis) using the dividend discount model (DDM). Assess the value based on three forms of the DDM: the constant growth version, an assessment based on three years of projected dividends and a projected future stock price, and the three-stage DDM. Clearly state any assumptions including an estimation of Wal-Mart investor required returns. 5. Determine the intrinsic value of Wal-Mart (on a per share......

Words: 302 - Pages: 2

Ginnifer Goodwin | Graduate School Applications | stream 1964