Entrance for Studies in Finance Gooblog Edition
blog for business studies

Hugo Dixon, The Penguin Guide to Finance, Penguin Books:2000

 there are two main classes of capital:equity and debt

when new shares are issued, existing shareholders are diluted  

新規株を発売する方式 1)入札auction2)book-building(機関投資家に評価を出させる)

real interest rate raises when people want to borrow a great deal and falls they have plent of syuplus cash

to get the nominal rates, one has to add inflation

subtract inflation to calculateb a real interest rate

equity premium over government bonds=shares - governmment bonds

cost of equity=risk free rate+ premium for holding stock

   premiumu for hoding stock =equity risk premium×beta

cost of debt=pre tax of costof debt×(1-tax rate)

to find the return investors expect from individual stocks, it is necessary to combine the risk free rate, the equity risk premium and the beta

the expected return from a share is the company's cost of equity

cost of capital is an average of the cost of eauity and the cost of debt, weughted according to their relative importance in a company's capital structure

determinant of option values(the more valuable)

share price(the higher)/exercise price(the lower)/volatility(with)/time to exercuse date(the longer the wait)/interest rate(with)

an option's value increases the more they are in the money, the greater the volatility of the underlying asset, the higher the interest rate and the longer one can wait before exercising it  

sales -operating profit =operating profit or Ebit

operating profit + depreciationand amortizaion=Ebitda

operating profit - interest = pre-tax profit

pre-tax profit - tax = earnings

earnings - dividend =retained profit

Ebitda - increase in working capital = operating cash flow

operating cash flow - (capital expenditure +tax paid) = operating free cahs flow before acquisitions

operating free cahs flow before acquisitions - (acquisitions+exceptionals) = operating free cash flow

operating profit (1- tax rate)±optional asustment=net operating profit after tax or Nopat

return on capital: Nopat/(capital employed) = return on capital

Economic Value Added(Stern Stuart) ,  Economic Profit(MsKinsey)

cost  is available to satisfy all investors

EVA is real profitability 

Nopat - Capital charge = EVA capital charge=capital employed × cost of capital

capital employed =optional adjustment + net debt + net assets

equity value, absolute method(discouting dividends), relative method(p/e multiples, dividend yields)

enterprise value, absolute(discounting OFCF, discounting EVA), relative(ebitda multiples)

European multiples by sector 2000

Automobiles P/e 13.3 EV/ebitda  3.8

Energy         P/e 9.8   EV/ebitda  4.6


Technology   P/e  27.7 EV/ebitda  13.6

Telecom-Mobile P/e 35.1 EV/ebitda  15.1

a roadmap the pursuit of shareholder value

maximize returns 1)cut costs 2)improve service 3)drive sales

optimise the capital employed 1)expand if earning more tha cost of capital

                                           2)shrink if earning less than cost of capital

minimise cost of capital          1)gear company up

                                           2)reduce risk, improve communications

optimise business portfolio      1)acquire when 2+2=5

                                            2)sell when 2+2=3 

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