Week 5 - Week 5: Equity Valuation Paul Dou Objectives and...

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Week 5: Equity Valuation Paul Dou
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2 Objectives and learning outcomes from this module Explain the characteristics of equity securities. Understand some financial ratios. Understand how equity securities are valued. Identify the expected return on equity securities.
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3 Introduction to and characteristics of equity securities Equity is a claim on the residual assets of the issuer. Initial public offerings (IPO) is when a company (that has been privately owned) sell shares to the public for the first time. Transactions that occur prior to the IPO may not be efficient.
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4 Introduction to and characteristics of equity securities Book value : original cost of the asset minus accumulated depreciation. Liquidation value : minimum value of the asset (when the company is liquidated). It does not capture the ‘going-concern’ value of the business. Intangible value : impounded into market price. While it is valuable for the ‘going-concern’ purpose, it may have no value in a forced liquidation.
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5 Introduction to and characteristics of equity securities Market value : Amount the investors are willing to pay in the market. It depends on the earning power of today’s assets and the expected payoff from future investment. If market value = book value, it is only by mere coincident.
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6 Introduction to and characteristics of equity securities The discussions of this module are based on ANZ banking group, which is listed on the ASX (http://au.finance.yahoo.com/q?s=ANZ.AX).
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7 Information for ANZ Banking Group Table 1, Source: Yahoo Finance 24 March 2011
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8 Some financial ratios Dividend for last financial year is 126 cent per share or cps (this information is obtained from ANZ annual report). % 43 . 5 21 . 23 26 . 1 = = = price share current Dividend Yield Dividend % 30 1 %; 70 79 . 1 26 . 1 = - = = = = ratio payout Dividend ratio Plowback EPS DPS ratio payout Dividend
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Some financial ratios ) ( 16 . 34 % 2 . 13 16 . 34 5 . 4 74 . 1 16 . 34 41 . 59 ) ( 79 . 1 ; ; 97 . 12 79 . 1 21 . 23 / report annual from obtained is value this B value Book B B equity of value Book profit Net equity on return B B equity of value Book equity of value Market ratio book
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Week 5 - Week 5: Equity Valuation Paul Dou Objectives and...

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