DOCSLIB.ORG

The Effect of Financial Performance Measured with Rentability Ratio Against Dividend Payout Ratio (Empirical Study on Manufacturing Companies Group Listed on BEI)

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
The Effect of Financial Performance Measured with Rentability Ratio Against Dividend Payout Ratio (Empirical Study on Manufacturing Companies Group Listed on BEI) International Journal of Economics, Business and Accounting Research (IJEBAR) Peer Reviewed – International Journal Vol-2, Issue-1, 2018 (IJEBAR) ISSN: 2614-1280, https://jurnal.stie-aas.ac.id/index.php/IJEBAR The Effect of Financial Performance Measured With Rentability Ratio Against Dividend Payout Ratio (Empirical Study on Manufacturing Companies group listed on BEI) Imas Della Fauzi1, Rukmini2 STIE AAS, Central Java, Indonesia Email: [email protected] Abstract: This study aims to examine whether there is a significant effect of the company's financial performance as measured by the ratio of profitability with Return on Assets (ROA), Return On Equity (ROE), Return On Investment (ROI) and Net Profit Margin (NPM) to Dividend Payout Ratio (DPR). The data collected is obtained from the financial statements of manufacturing companies listed on the Indonesia Stock Exchange period 2013-2015. The analysis used to know how big the influence of ROA, ROE, ROI NPM to DPR company, writer do statistical analysis done by using descriptive analysis, doubled linear regression, correlation coefficient and coefficient of determination. While testing the hypothesis using F test for simultaneous test and t test partially, using SPSS 16. Based on the results of data processing, obtained regression equation Y = 31.225 + 1.209 X₁ - 0.106 X₂ + 0.505 X₃ - 0.708 X₄ + ε, analysis results Statistics simultaneously obtained the value of determination coefficient of 28.3%. While the rest equal to 71.7% influenced by other factors. Based on hypothesis test by using significant level α = 0,05 result of F test, show that together regression model can be used to explain the relation between Return on Asset, Return On Equity, Return On Investment and Net Profit Margin to Dividend Payout Ratio. Keywords: Return on Assets, Return on Equity, Return On Investment and Net Profit Margin, Dividend Payout Ratio conditions, and environmental conditions 1. Introduction of the company is located. The required information is a In Indonesia, every company is certainly company performance report that is not spared from global competition that reflected in the financial statements. To can make an opportunity or can be a threat measure the financial performance of a to the company if not anticipate before. company can use financial ratios such as Included are manufacturing companies liquidity ratios, activity ratios, listed on the BEI. In this case the capital profitability/profitability ratios, solvency market has an important role as an ratios and market ratios. effective means to raise funds even more The proportion of dividends paid to for companies that need capital for long- shareholders depends on the ability of the term financing investment. Before company to generate profits and the form investing, investors should consider the of dividend policy applied by the company condition of the company that can be seen concerned. Stocks with large dividends are from the performance of manufacturing one of the most attractive factors for companies listed on the Indonesia Stock investors that can raise stock prices. In line Exchange (BEI), exchange rate with the increasing dividend given, it is fluctuations, transaction volume, stock expected that the level of financial performance measured by profitability or International Journal of Economics, Business and Accounting Research (IJEBAR) Page 19 International Journal of Economics, Business and Accounting Research (IJEBAR) Peer Reviewed – International Journal Vol-2, Issue-1, 2018 (IJEBAR) ISSN: 2614-1280, https://jurnal.stie-aas.ac.id/index.php/IJEBAR profitability ratios grows higher in the over its operational activities in order to ability to generate profits. Accordingly, in compete with other companies. this study the author took the title: "The Financial performance analysis is a Effect of Financial Performance Measured critical review process to review data, With Rentability Ratio Against Dividend Payout Ratio" (Empirical Study on calculate, measure, interpret, and Manufacturing Companies group listed on provide solutions to the company's BEI). finances in a certain period. 2) Analisis Kinerja Keuangan 2. Theoretical Review Financial performance can be assessed with multiple analytical tools. Based on 2.1 Underlying Theory the technique, financial analysis can be a. Financial performance differentiated into (Jumingan, 2006: Performance derived from the word 242) performance, performance is expressed as a) Comparative Analysis of Financial achievements achieved by the company Statements, is an analytical within a certain period that reflects the technique by comparing the financial level of health of the company. statements of two or more periods by Understanding Financial Performance by showing changes, both in the number Fahmi (2011: 2), is "Financial (absolute) and in percentage performance is an analysis conducted to (relative). see how far a company has implemented b) Analysis of Trends (tendency by using the rules of financial position), is an analysis technique to implementation properly and correctly. determine whether the financial 1) Performance Measurement condition tendency shows an The company's financial performance is increase or decrease. closely related to the measurement and c) Percentage Analysis of Component performance appraisal. Performance (common size), is an analytical measurement (performance technique to determine the measurement) is the qualification and percentage of investment in each efficiency and effectiveness of the asset to the total or total assets and company in business operations during debt. the accounting period. d) Analysis of Sources and Use of The performance assessment according Working Capital, an analytical to Sri mindarti (2006: 34) is the technique to determine the amount determination of operational of sources and use of working capital effectiveness, organization, and through two time periods are employees based on the targets, compared. standards and criteria that have been e) Analysis of Sources and Use of previously set periodically. Cash, is an analytical technique to Performance measurement is used by determine the condition of cash the company to make improvements International Journal of Economics, Business and Accounting Research (IJEBAR) Page 20 International Journal of Economics, Business and Accounting Research (IJEBAR) Peer Reviewed – International Journal Vol-2, Issue-1, 2018 (IJEBAR) ISSN: 2614-1280, https://jurnal.stie-aas.ac.id/index.php/IJEBAR accompanied by the cause of cash financial performance of the competing changes in a certain period of time. firm. f) Financial Ratio Analysis, is a 1) Types of Financial Statements financial analysis technique to a) Balance Sheet determine the relationship between A balance sheet is a financial certain posts in the balance sheet and statement that provides information income statement either individually about a company's financial position or simultaneously. at a given moment. To be able to g) Gross Profit Change Analysis, an describe the company's financial analytical technique to determine the position at a given moment, the position of profit and the causes of balance sheet has three elements of changes in earnings. the financial statements of assets, h) Break Even analysis, an analysis liabilities, and equity. technique to determine the level of b) Statements of Profit and Loss sales to be achieved so that The income statement has two companies do not experience losses. elements in generating profit during the period of performance that is: 3) Financial Performance Assessment (Dwi Prastowo and Rifka Julianty, For investors, information about the 2002: 20). Income is a form of company's financial performance can be increase in economic benefits in the used to see if they will keep their form of income or increase in assets investment in the company or look for or decrease in liabilities. For other alternatives. If the company's example interest income, rent, performance is good then the business service income. value will be high. With high business c) Expense is the decrease of economic value makes investors glance at the benefits in the outflow of assets or company to invest its capital so that liabilities. For example: salary and there will be an increase in stock prices. wages, depreciation, cost of goods Or it can be said that stock price is a sold. function of company value. 2) Statements of changes in equity b. Financial statements According to IAI (2007: 1.12), the The financial statements are the end result Company must present the statement of of the accounting process prepared in changes in equity as a major component accordance with generally accepted of the financial statements, showing the accounting principles. The financial related period's profit or loss, the statements are the responsibilities that accumulated balance of profit or loss at have been entrusted to him. The financial the beginning and end of the period and condition and results of the operations of its amendments. the company as reflected in the financial statements may reflect the performance or International Journal of Economics, Business and Accounting Research (IJEBAR) Page 21 International Journal of Economics, Business and Accounting Research (IJEBAR) Peer Reviewed – International Journal Vol-2, Issue-1, 2018 (IJEBAR) ISSN: 2614-1280, https://jurnal.stie-aas.ac.id/index.php/IJEBAR 3) Statement of cash flows c) The financial statements indicate According to IAI (2007: 2.2), that cash what management has done, or flow
Load more

Recommended publications
  • Dividend Valuation Models Prepared by Pamela Peterson Drake, Ph.D., CFA
    Dividend valuation models Prepared by Pamela Peterson Drake, Ph.D., CFA Contents 1. Overview ..................................................................................................................................... 1 2. The basic model .......................................................................................................................... 1 3. Non-constant growth in dividends ................................................................................................. 5 A. Two-stage dividend growth ...................................................................................................... 5 B. Three-stage dividend growth .................................................................................................... 5 C. The H-model ........................................................................................................................... 7 4. The uses of the dividend valuation models .................................................................................... 8 5. Stock valuation and market efficiency ......................................................................................... 10 6. Summary .................................................................................................................................. 10 7. Index ........................................................................................................................................ 11 8. Further readings .......................................................................................................................
    [Show full text]
  • Earnings, Cash Flow, Dividend Payout and Growth Influences on the Price of Common Stocks
    Louisiana State University LSU Digital Commons LSU Historical Dissertations and Theses Graduate School 1968 Earnings, Cash Flow, Dividend Payout and Growth Influences on the Price of Common Stocks. William Frank Tolbert Louisiana State University and Agricultural & Mechanical College Follow this and additional works at: https://digitalcommons.lsu.edu/gradschool_disstheses Recommended Citation Tolbert, William Frank, "Earnings, Cash Flow, Dividend Payout and Growth Influences on the Price of Common Stocks." (1968). LSU Historical Dissertations and Theses. 1522. https://digitalcommons.lsu.edu/gradschool_disstheses/1522 This Dissertation is brought to you for free and open access by the Graduate School at LSU Digital Commons. It has been accepted for inclusion in LSU Historical Dissertations and Theses by an authorized administrator of LSU Digital Commons. For more information, please contact [email protected]. This dissertation has been microfilmed exactly as received 69-4505 TOLBERT, William Frank, 1918- EARNINGS, CASH FLOW, DIVIDEND PAYOUT AND GROWTH INFLUENCES ON THE PRICE OF COMMON STOCKS. Louisiana State University and Agricultural and Mechanical College, Ph.D., 1968 Economics, finance University Microfilms, Inc., Ann Arbor, Michigan William Frank Tolbert 1969 © _____________________________ ALL RIGHTS RESERVED EARNINGS, CASH FLOW, DIVIDEND PAYOUT AND GROWTH INFLUENCES ON THE PRICE OF COMMON STOCKS A Dissertation Submitted to the Graduate Faculty of the Louisiana State University and Agricultural and Mechanical College in partial fulfillment of the requirements for the degree of Doctor of Philosophy in The Department of Business Finance and Statistics b y . William F.' Tolbert B.S., University of Oklahoma, 1949 M.B.A., University of Oklahoma, 1950 August, 1968 ACKNOWLEDGEMENT The writer wishes to express his sincere apprecia­ tion to Dr.
    [Show full text]
  • How Does the Market Interpret Analysts' Long-Term Growth Forecasts? Steven A. Sharpe
    How Does the Market Interpret Analysts’ Long-term Growth Forecasts? Steven A. Sharpe Division of Research and Statistics Federal Reserve Board Washington, D.C. 20551 (202)452-2875 [email protected] April, 2004 Forthcoming in the Journal of Accounting, Auditing and Finance. The views expressed herein are those of the author and do not necessarily reflect the views of the Board nor the staff of the Federal Reserve System. I am grateful for comments and suggestions from Jason Cummins, Steve Oliner, and an anonymous referee, and members of the Capital Markets Section at the Board. Excellent research assistance was provided by Eric Richards and Dimitri Paliouras. How Does the Market Interpret Analysts’ Long-term Growth Forecasts? Abstract The long-term growth forecasts of equity analysts do not have well-defined horizons, an ambiguity of substantial import for many applications. I propose an empirical valuation model, derived from the Campbell-Shiller dividend-price ratio model, in which the forecast horizon used by the “market” can be deduced from linear regressions. Specifically, in this model, the horizon can be inferred from the elasticity of the price-earnings ratio with respect to the long- term growth forecast. The model is estimated on industry- and sector-level portfolios of S&P 500 firms over 1983-2001. The estimated coefficients on consensus long-term growth forecasts suggest that the market applies these forecasts to an average horizon somewhere in the range of five to ten years. -1- 1. Introduction Long-term earnings growth forecasts by equity analysts have garnered increasing attention over the last several years, both in academic and practitioner circles.
    [Show full text]
  • QUESTIONS 3.1 Profitability Ratios Questions 1 and 2 Are Based on The
    140 SU 3: Profitability Analysis and Analytical Issues QUESTIONS 3.1 Profitability Ratios Questions 1 and 2 are based on the following information. The financial statements for Dividendosaurus, Inc., for the current year are as follows: Balance Sheet Statement of Income and Retained Earnings Cash $100 Sales $ 3,000 Accounts receivable 200 Cost of goods sold (1,600) Inventory 50 Gross profit $ 1,400 Net fixed assets 600 Operations expenses (970) Total $950 Operating income $ 430 Interest expense (30) Accounts payable $140 Income before tax $ 400 Long-term debt 300 Income tax (200) Capital stock 260 Net income $ 200 Retained earnings 250 Plus Jan. 1 retained earnings 150 Total $950 Minus dividends (100) Dec. 31 retained earnings $ 250 1. Dividendosaurus has return on assets of Answer (A) is correct. (CIA, adapted) REQUIRED: The return on assets. DISCUSSION: The return on assets is the ratio of net A. 21.1% income to total assets. It equals 21.1% ($200 NI ÷ $950 total B. 39.2% assets). Answer (B) is incorrect. The ratio of net income to common C. 42.1% equity is 39.2%. Answer (C) is incorrect. The ratio of income D. 45.3% before tax to total assets is 42.1%. Answer (D) is incorrect. The ratio of income before interest and tax to total assets is 45.3%. 2. Dividendosaurus has a profit margin of Answer (A) is correct. (CIA, adapted) REQUIRED: The profit margin. DISCUSSION: The profit margin is the ratio of net income to A. 6.67% sales. It equals 6.67% ($200 NI ÷ $3,000 sales).
    [Show full text]
  • Dividend Discount Models
    ch13_p323-350.qxp 12/5/11 2:14 PM Page 323 CHAPTER 13 Dividend Discount Models n the strictest sense, the only cash flow you receive from a firm when you buy I publicly traded stock in it is a dividend. The simplest model for valuing equity is the dividend discount model—the value of a stock is the present value of expected dividends on it. While many analysts have turned away from the dividend discount model and view it as outmoded, much of the intuition that drives discounted cash flow valuation stems from the dividend discount model. In fact, there are compa- nies where the dividend discount model remains a useful tool for estimating value. This chapter explores the general model as well as specific versions of it tailored for different assumptions about future growth. It also examines issues in using the dividend discount model and the results of studies that have looked at its efficacy. THE GENERAL MODEL When an investor buys stock, he or she generally expects to get two types of cash flows—dividends during the period the stock is held and an expected price at the end of the holding period. Since this expected price is itself determined by future dividends, the value of a stock is the present value of dividends through infinity: ∞ t= E(DPS ) Value per share of stock = ∑ t + t t=1 ()1 ke = where DPSt Expected dividends per share = ke Cost of equity The rationale for the model lies in the present value rule—the value of any asset is the present value of expected future cash flows, discounted at a rate appropriate to the riskiness of the cash flows being discounted.
    [Show full text]
  • Determinants of Dividend Payout Ratios
    Determinants of Dividend Payout Ratios A Study of Swedish Large and Medium Caps Authors: Gustav Hellström Gairatjon Inagambaev Supervisor: Catherine Lions Student Umeå School of Business and Economics Spring semester2012 Degree project, 30 hp I Acknowledgments We would firstly like to thank our supervisor Catherine Lions for her support throughout the research process. Secondly, we would like express our gratitude to Umeå School of Business and Economics for providing us the opportunity to conduct the degree project. Gustav Hellström Gairatjon Inagambaev May, 2012 II Abstract The dividend payout policy is one of the most debated topics within corporate finance and some academics have called the company’s dividend payout policy an unsolved puzzle. Even though an extensive amount of research regarding dividends has been conducted, there is no uniform answer to the question: what are the determinants of the companies’ dividend payout ratios? We therefore decided to conduct a study regarding the determinants of the companies’ dividend payout ratios on large and medium cap on Stockholm stock exchange. The purpose of the study is to determine if there is a relationship between a number of company selected factors and the companies’ dividend payout ratios. A second purpose is to determine whether there are any differences between large and medium caps regarding the impact of the company selected factors. We therefore reviewed previous studies and dividend theories in order to conclude which factors that potentially could have an impact on the companies’ dividend payout ratios. Based on the literature, we decided to test the relationship between the dividend payout ratio and six company selected factors: free cash flow, growth, leverage, profit, risk and size.
    [Show full text]
  • Analysis of the Determinants of Dividend Policy: Evidence from Manufacturing Companies in Tanzania
    Corporate Governance and Organizational Behavior Review / Volume 2, Issue 1, 2018 ANALYSIS OF THE DETERMINANTS OF DIVIDEND POLICY: EVIDENCE FROM MANUFACTURING COMPANIES IN TANZANIA Manamba Epaphra *, Samson S. Nyantori ** * Institute of Accountancy Arusha, Tanzania Contact details: P.O. Box 2798, Njiro Hill, Arusha, Tanzania ** Institute of Accountancy Arusha, Tanzania Abstract How to cite this paper: Epaphra, M., & This paper examines the determinants of dividend policy of Nyantori, S. (2018). Analysis of the manufacturing companies listed on the Dar es Salaam Stock determinants of dividend policy: evidence from manufacturing companies Exchange in Tanzania. Two measures of dividend policy namely, in Tanzania. Corporate Governance and dividend yield and dividend payout are examined over the 2008- Organizational Behavior Review, 2(1), 2016 period. In addition, three proxies of profitability namely 18-30. http://doi.org/10.22495/cgobr_v2_i1_p2 return on assets ratio, return on equity ratio, and the ratio of earnings per share are applied in separate specifications. Similarly, Copyright © 2018 Virtus Interpress. investment opportunities are measured using the ratio of retained All rights reserved earnings to total assets and market to book value ratio. Other The Creative Commons Attribution- explanatory variables are liquidity, business risk, firm size, firm NonCommercial 4.0 International growth and gearing ratio. For inferential analysis, 12 regression License (CC BY-NC 4.0) will be activated starting from May, 2019 followed by models are specified and estimated depending on the transfer of the copyright to the authors measurements of dividend policy, profitability, and collinearity between retained earnings to total assets and market to book value ISSN Online: 2521-1889 ratios.
    [Show full text]
  • Northern Indiana Public Service Company Gas Rate
    NORTHERN INDIANA PUBLIC SERVICE COMPANY GAS RATE CASE Forward Looking Test Year: Twelve months ending December 31, 2018 Base Year: Twelve months ending December 31, 2016 MINIMUM STANDARD FILING REQUIREMENTS (MSFR) TABLE OF CONTENTS 170 IAC Description Part Working Papers and data; rate of return and capital 1-5-13 10 structure 1-5-13(a) An electing utility shall submit the following: 10 Capitalization and capitalization ratios at the end 10 of the test year and at the end of the year beginning 1-5-13(a)(1) twelve (12) months prior to the test year, respectively, including the following information: (A) Year-end interest coverage ratios for the test 10 year and the year ended twelve (12) months prior to 1-5-13(a)(1)(A) the end of the test year, and a pro forma interest coverage under the rates proposed by the utility (B) Year-end preferred stock dividend coverage 10 1-5-13(a)(1)(B) ratios for the test year and the year ended twelve (12) months prior to the end of the test year (C) The supporting calculations for the 1-5-13(a)(1)(C) 10 information described in clauses (A) and (B) The following financial data relating to the utility 1-5-13(a)(2) 10 as of the end of the most recent five (5) fiscal years: 1-5-13(a)(2)(A) (A) Annual price earnings ratio 10 (B) Earnings-book value ratio on a per share basis, 1-5-13(a)(2)(B) 10 using average book value 1-5-13(a)(2)(C) (C) Annual dividend yield 10 1-5-13(a)(2)(D) (D) Annual earnings per share in dollars 10 1-5-13(a)(2)(E) (E) Annual dividends per share in dollars 10 1-5-13(a)(2)(F) (F) A book
    [Show full text]
  • Surprise! Higher Dividends = Higher Earnings Growth Robert D
    Surprise! Higher Dividends = Higher Earnings Growth Robert D. Arnott and Clifford S. Asness We investigate whether dividend policy, as observed in the payout ratio of the U.S. equity market portfolio, forecasts future aggregate earnings growth. The historical evidence strongly suggests that expected future earnings growth is fastest when current payout ratios are high and slowest when payout ratios are low. This relationship is not subsumed by other factors, such as simple mean reversion in earnings. Our evidence thus contradicts the views of many who believe that substantial reinvestment of retained earnings will fuel faster future earnings growth. Rather, it is consistent with anecdotal tales about managers signaling their earnings expectations through dividends or engaging, at times, in inefficient empire building. Our findings offer a challenge to market observers who see the low dividend payouts of recent times as a sign of strong future earnings to come. ince 1995, and until a recent uptick arising D R = ---- + G. (1) from plunging earnings, marketwide divi- P dend-payout ratios in the United States have Expected return, R, equals the dividend yield, D/ S been in the lowest historical decile, reaching P, plus an assumed constant expected growth term, unprecedented low levels from late 1999 to mid- G. Now, the dividend yield itself can be thought of 2001. Alternatively stated, earnings-retention rates as the product of the dividend-payout ratio, D/E have recently been at or near all-time highs. Mean- (the ratio of dividends to earnings), and the earn- while, price-to-earnings ratios and price-to- ings yield, E/P (the inverse of P/E): dividend ratios are high by historical standards, despite the sharp fall in stock prices since early 2000.
    [Show full text]
  • The Influence of the Dividend Payout Ratio (Dpr)
    Volume 3, Issue 5, May – 2018 International Journal of Innovative Science and Research Technology ISSN No:-2456-2165 The Influence of the Dividend Payout Ratio (Dpr) and the Current Ratio (Cr) Against the Growth of Share Prices in the Service Sector Companies the Period 2011 – 215, in Indonesia Hais Dama Doctoral candidate of Economics University of Indonesia Muslim (UMI) in Makassar Masdar Mas’ud Professor programs Economics University of Indonesia Muslim Lukman Chalid Co Promoter, Program Economics University of Indonesia Muslim St. Sukmawati Co Promoter, Program Economics University of Indonesia Muslim Abstract:- The title, the influence of the Dividend Payout Dividend Payout Ratio is determined the company to pay a Ratio and Curren Ratio against the establishment of the dividend to shareholders every year, the determination of the share price on the service sector company perikde 20122 Dividend Payout Ratio based on his little big profit after tax, – 2015. This research aims to find out if the Current are generally dividends paid to shareholders in cash (cash Ratio and Dividend Payout Ratio effect on the growth of dividend), so it can be inferred the higher Dividend Payout service sector Companies stock prices listed on the Ratio set by the company's then increasingly higher amount Indonesia stock exchange. This research data obtained of profit will be paid as a dividend on the share holders. by downloading annual report through the official Dividend Payout Ratio shows the company policy in website so that the data in this study is secondary data. generating and distributing dividends, Dividend Payout The research method used is the method of quantitative Ratio thus reflects the prosperity of the shareholders.
    [Show full text]
  • Agriculture Lower Potash Assumptions
    July 20, 2009 Europe, Middle East & Africa: Agriculture July 20, 2009 Europe, Middle East & Africa: Agriculture Lower potash assumptions; no upside for ICL and URKA Lower potash price assumptions post Indian tender results The recently concluded Indian potash tender caught global potash market by RATINGS AND 12-MONTHS PRICE TARGETS surprise with the MOP price agreed at US$460/mt, 26% below last year’s Current Price target Company Rating Currency Return contract price and competing offers from the largest suppliers. Even though price Old New ICL N NIS 38 46 39 2% the new price level is yet to be confirmed as the new benchmark by other Uralkali N US$ 16 22 16 3% producers, recent supply-side commentary and industry sources indicate it is more likely to be accepted globally than not. On this basis and following Goldman Sachs US Agrochemicals Research team which recently cut their EV/EBITDA MULTIPLE FOR POTASH PRODUCERS 2010E potash price assumption from US$550/mt to US$475/mt FOB Saskatchewan, cut our potash price assumptions for Uralkali and ICL for 2H09 25 and thereafter. We now use a benchmark price of US$475/mt FOB Baltics to 20 drive our potash average selling prices forecasts; our 2009E/10E ASP changes are -13%/-13% for Uralkali and -11%/-15% for ICL. 15 10 Stand-off on benchmark contracts prompts 2009 volume cuts We previously assumed that both Uralkali and ICL will resume deliveries to 5 India and China from early 2H09. While some supplies to India may indeed 0 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 start in Jul/Aug if an agreement with IPL is reached at reduced prices, we ICL Uralkali PotashCorp Mosaic Intrepid think that signing of the Chinese contract could be delayed until late Source: Goldman Sachs Research estimates, FactSet 2009/early 2010.
    [Show full text]
  • Chapter 7 -- Stocks and Stock Valuation
    Chapter 7 -- Stocks and Stock Valuation Characteristics of common stock The market price vs. intrinsic value Stock market reporting Stock valuation models Valuing a corporation Preferred stock The efficient market hypothesis (EMH) Characteristics of common stock Ownership in a corporation: control of the firm Claim on income: residual claim on income Claim on assets: residual claim on assets Commonly used terms: voting rights, proxy, proxy fight, takeover, preemptive rights, classified stock, and limited liability The market price vs. intrinsic value Intrinsic value is an estimate of a stock’s “fair” value (how much a stock should be worth) Market price is the actual price of a stock, which is determined by the demand and supply of the stock in the market Figure 7-1: Determinants of Intrinsic Values and Market Prices Intrinsic value is supposed to be estimated using the “true” or accurate risk and return data. However, since sometimes the “true” or accurate data is not directly observable, the intrinsic value cannot be measured precisely. Market value is based on perceived risk and return data. Since the perceived risk and return may not be equal to the “true” risk and return, the market value can be mispriced as well. Stock in equilibrium: when a stock’s market price is equal to its intrinsic value the stock is in equilibrium Stock market in equilibrium: when all the stocks in the market are in equilibrium (i.e. for each stock in the market, the market price is equal to its intrinsic value) then the market is in equilibrium 36 Stock market reporting Provide up-to-date trading information for different stocks Figure 7-2: Stock Quote and Other Data for GE Stock Symbol (GE) Prev close: closing price on Feb.
    [Show full text]