Page 175 - DCOM507_STOCK_MARKET_OPERATIONS

Stock Market Operations

Notes 3. Investment .................................. focus their attention on the trends of earnings and the
related factors like dividends, bonus issues, rights shares, and appreciation of the market
value of the share.
4. The .................................. value is usually estimated by consultation with: a specialist who
appraises asset values and/or an accountant who gives book value of the firm.



Caselet Tata Steel Financial Analysis

or Tata Steel in 2007, net working capital, quick ratio, return on investments, return
on net worth, operating profit margin and gross profit margin of the company were
Fsatisfactory. However, debt-equity ratio, current ratio, net profit margin, return on
capital employed and return on assets were undesirable. In 2008, only company's current
ratio improved due to substantial increase in current assets position. In 2009, net working
capital available was inadequate. Company's debt-equity ratio, operating profit margin
and gross profit margin were desirable and current ratio, return on investments, return on
net worth, return on capital employed and return on assets were found to be unsatisfactory.

Source: http://ethesis.nitrkl.ac.in/1953/
9.2 Fundamental Analyst’s Model

The true economic value or intrinsic value of a share of common stock, like the value of bond or
other assets, is equal to the present value of all cash flows from the asset.

 d
P iO =  it i t
t 1 (1 k )


 d (1 g ) t
=  o i t
t 1 (1 k ) i

d i1
=

k g
Where P iO = Value of share i
D = Dividends of share I in the t period
it
K = Equity capitalization rate
i
G = Growth rate of dividends of share I (a constant)
it
This value is obtained by stock analysts y multiplying the ‘i’ the stock’s normalized earnings per
share (e) with price-earnings ratio or earnings multiplier (m)
P io = e . M io
io
Where P = Value of share ‘I’
io
e = Earning of share ‘c’
io
m = Earnings multiplier of share ‘i’
io

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