• Some formulas and definitions
Po = sum Div/(1+r)t
Then we know that Po=Div 1/r-g. We can twist this formula and find:
r = (Div1/Po)+g,
because Po = EPS/r + PVGO
The first is high for income stocks (we expect dividends), the second is high for growth stocks (we expect change in value)
Payout ratio = Div/Earnings per share (EPS)
Plowback ratio = 1 - payout ratio
g = plowback ratio + ROE
Return on equity (ROE) = EPS/book equity per share
Price earnings ratio: price/earnings per share
High PER mean that the stock is expensive or that it has growth opportunities, or small earnings. Asia: historically overvalued markets, the same now with America, but some reasons invoked (dividends of peace, globalization...)
Many kinds of stocks exist. Preferred stocks: more dividend (but generally lose the right to vote). Dividends are paid quarterly in America, once or twice a year in France.
A share is a part of the capital (they are many meanings of capital, we mean here the part of equities) of a company. But in the capital, we have the nominal or par value of the share (fixed when it was issued), not the issuing value, that includes a surplus. So the firm does not earn directly money when its shares increase.
Price of stocks increase when:
- r decrease, because it is good for an economy and because alternative investment are less interesting
- there good growth indicators
- the profit of firms rise
The principle >>
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Corporate finance
The subject: corporate finance
PART ONE: CAPITAL EXPENDITURE
The present value
Investment
decisions
Practical
problems in capital budgeting
Firms evaluation
PART TWO. BASICS OF FINANCE
The financial
markets
Options
The market
efficiency
Risk
Mergers,
Acquisitions, and Corporate Control
International
Financial Management
PART THREE FINANCING DECISIONS
Corporate
financing
Dividend policy
and capital structure
PART FOUR FINANCIAL MANAGEMENT
Financial
planning
Short-term
financial management
Courses created and updated by Dr David Chelly, PhD in Management sciences from the University of Tours.
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