FIN Notes 9.11.08

FIN Notes 9.11.08 - Long Selling Long Buying- you take a...

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- you take a position in the stock. Buy a stock, sell a stock. Short Selling - selling stock you don’t own and then buying it back later. “Quoted on”- Nominal Rate Return on Investment=(Profit after taxes)/(some measure of investment) Investment may be measured by: A) Assets- Debt +Equity (PAT/Debt+Equity) B) Stockholders Equity- Equity (PAT/Equity) – Always larger For purposes of analysis ROI is frequently broken down into the product of two ratios: (Profit after taxes/Sales) X (Sales/Assets) OR Profit Margin X Asset Turnover Ratio = ROA High profit margin implies a barrier to entry. Monopoly. Other barrier to entries are patents and capital barriers (too expensive). Return on Equity You make money 3 ways: Profitability, Efficiency, Leverage. ROE=(Profit after taxes/Sales ) X (Sales/Assets) X (Assets/Equity) = Profit Margin X Turnover X Equity Multiplier Risk-Return Relationships What determines how large the ROI for a particular company should be? See graph in text. Competitive Markets and Profitable Projects
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This note was uploaded on 09/16/2008 for the course FIN 3104 taught by Professor Ajkeown during the Fall '07 term at Virginia Tech.

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FIN Notes 9.11.08 - Long Selling Long Buying- you take a...

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