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Stock Selection Criterion
Stock valuation is the method of calculating theoretical values of companies and their stocks. The main use of these methods is to predict future market prices, or more generally, potential market prices, and thus to profit from price movement – stocks that are judged '' undervalued'' (with respect to their theoretical value) are bought, while stocks that are judged ''overvalued'' are sold, in the expectation that undervalued stocks will overall rise in value, while overvalued stocks will generally decrease in value. A target price is a price at which an analyst believes a stock to be fairly valued relative to its projected and historical earnings. In the view of fundamental analysis, stock valuation based on fundamentals aims to give an estimate of the intrinsic value of a stock, based on predictions of the future cash flows and profitability of the business. Fundamental analysis may be replaced or augmented by market criteria – what the market will pay for the stock, disre ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Valuation (finance)
In finance, valuation is the process of determining the value of a (potential) investment, asset, or security. Generally, there are three approaches taken, namely discounted cashflow valuation, relative valuation, and contingent claim valuation. Valuations can be done for assets (for example, investments in marketable securities such as companies' shares and related rights, business enterprises, or intangible assets such as patents, data and trademarks) or for liabilities (e.g., bonds issued by a company). Valuation is a subjective exercise, and in fact, the process of valuation itself can also affect the value of the asset in question. Valuations may be needed for various reasons such as investment analysis, capital budgeting, merger and acquisition transactions, financial reporting, taxable events to determine the proper tax liability. In a business valuation context, various techniques are used to determine the (hypothetical) price that a third party would pay for a ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Capital Asset Pricing Model
In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to a Diversification (finance), well-diversified Portfolio (finance), portfolio. The model takes into account the asset's sensitivity to non-diversifiable risk (also known as systematic risk or market risk), often represented by the quantity Beta (finance), beta (β) in the financial industry, as well as the expected return of the market and the expected return of a theoretical Risk-free bond, risk-free asset. CAPM assumes a particular form of utility functions (in which only first and second Moment (mathematics), moments matter, that is risk is measured by variance, for example a quadratic utility) or alternatively asset returns whose probability distributions are completely described by the first two moments (for example, the normal distribution) and zero transaction costs (necessary for diversifi ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Corporate Tax
A corporate tax, also called corporation tax or company tax or corporate income tax, is a type of direct tax levied on the income or capital of corporations and other similar legal entities. The tax is usually imposed at the national level, but it may also be imposed at state or local levels in some countries. Corporate taxes may be referred to as income tax or capital tax, depending on the nature of the tax. The purpose of corporate tax is to generate revenue for the government by taxing the profits earned by corporations. The tax rate varies from country to country and is usually calculated as a percentage of the corporation's net income or capital. Corporate tax rates may also differ for domestic and foreign corporations. Some countries have tax laws that require corporations to pay taxes on their worldwide income, regardless of where the income is earned. However, most countries have territorial tax systems, which only require corporations to pay taxes on income earned with ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Asset Pricing
In financial economics, asset pricing refers to a formal treatment and development of two interrelated Price, pricing principles, outlined below, together with the resultant models. There have been many models developed for different situations, but correspondingly, these stem from either General equilibrium theory, general equilibrium asset pricing or Rational pricing, rational asset pricing, the latter corresponding to risk neutral pricing. Investment theory, which is near synonymous, encompasses the body of knowledge used to support the decision-making process of choosing investments, and the asset pricing models are then applied in determining the Required rate of return, asset-specific required rate of return on the investment in question, and for hedging. General equilibrium asset pricing Under general equilibrium theory prices are determined through Market price, market pricing by supply and demand. See, e.g., Tim Bollerslev (2019)"Risk and Return in Equilibrium: The C ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Capital Structure
In corporate finance, capital structure refers to the mix of various forms of external funds, known as capital, used to finance a business. It consists of shareholders' equity, debt (borrowed funds), and preferred stock, and is detailed in the company's balance sheet. The larger the debt component is in relation to the other sources of capital, the greater financial leverage (or gearing, in the United Kingdom) the firm is said to have. Too much debt can increase the risk of the company and reduce its financial flexibility, which at some point creates concern among investors and results in a greater cost of capital. Company management is responsible for establishing a capital structure for the corporation that makes optimal use of financial leverage and holds the cost of capital as low as possible. Capital structure is an important issue in setting rates charged to customers by regulated utilities in the United States. The utility company has the right to choose any capital ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Capital Structure Substitution Theory
In finance, the capital structure substitution theory (CSS) describes the relationship between earnings, stock price and capital structure of public companies. The CSS theory hypothesizes that managements of public companies manipulate capital structure such that earnings per share (EPS) are maximized. Managements have an incentive to do so because shareholders and analysts value EPS growth. The theory is used to explain trends in capital structure, valuation (finance), stock market valuation, dividend decision, dividend policy, the monetary transmission mechanism, and volatility (finance), stock volatility, and provides an alternative to the Modigliani–Miller theorem that has limited descriptive validity in real markets. The CSS theory is only applicable in markets where share repurchases are allowed. Investors can use the CSS theory to identify undervalued stocks. The formula The CSS theory assumes that company managements can freely change the capital structure of the company ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
S&P 500 Composite Index Compared To The CSS Asset Pricing Formula - August 2020
S&P Global Ratings (previously Standard & Poor's and informally known as S&P) is an American credit rating agency (CRA) and a division of S&P Global that publishes financial research and analysis on stocks, bonds, and commodities. S&P is considered the largest of the Big Three credit-rating agencies, which also include Moody's Ratings and Fitch Ratings. Its head office is located on 55 Water Street in Lower Manhattan, New York City. Corporate history The company traces its history back to 1860, with the publication by Henry Varnum Poor of ''History of Railroads and Canals in the United States''. This book compiled comprehensive information about the financial and operational state of U.S. railroad companies. In 1868, Henry Varnum Poor established H.V. and H.W. Poor Co. with his son, Henry William Poor, and published two annually updated hardback guidebooks, '' Poor's Manual of the Railroads of the United States'' and ''Poor's Directory of Railway Officials''. In 1906, Luth ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Earnings Guidance
In financial reporting, earnings guidance or simply guidance is a publicly traded corporation's official prediction of its own near-future profit or loss, stated as an amount of money per share. Earnings guidance is usually a financial forecast presented as a quarterly report of the corporation's performance in the next quarter. Guidance is an aid to financial analysts and the stakeholders in valuing the corporation, and helps prevent overvaluation. Guidance refers to Information that a company provides as an indication or estimate of its future earnings. Guidance reports estimating a company's future earnings have some influence over analyst stock ratings and investor decisions to buy, hold, or sell the security. In the United States, a quarterly revenue forecast, or quarterly guidance, by publicly traded companies had become by the 2000s both a common practice (75% of American firms in 2003) and a major influence on the firm's share price. By the 2010s, the quarterly guidan ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Earnings Call
An earnings call is a teleconference or webcast in which a public company discusses its financial results for a reporting period, often providing earnings guidance for future performance. The term stems from earnings per share (EPS), calculated as net income (the "bottom line" from the income statement) divided by shares outstanding. Earnings calls typically accompany a press release summarizing results and are often paired with mandatory filings under local securities laws. These calls are a key mechanism for companies worldwide to communicate financial health and strategy to investors, financial analysts, and stakeholders, with practices varying by region and regulatory framework. In the United States, a 2014 survey by the National Investor Relations Institute (NIRI) found that 97% of its member companies conducted quarterly earnings calls, with most offering webcasts. Globally, listed companies on exchanges like the London Stock Exchange (LSE), Tokyo Stock Exchange (TSE), or ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Discounted Cash Flow
The discounted cash flow (DCF) analysis, in financial analysis, is a method used to value a security, project, company, or asset, that incorporates the time value of money. Discounted cash flow analysis is widely used in investment finance, real estate development, corporate financial management, and patent valuation. Used in industry as early as the 1700s or 1800s, it was widely discussed in financial economics in the 1960s, and U.S. courts began employing the concept in the 1980s and 1990s. Application In discount cash flow analysis, all future cash flows are estimated and discounted by using cost of capital to give their present values (PVs). The sum of all future cash flows, both incoming and outgoing, is the net present value (NPV), which is taken as the value of the cash flows in question; see aside. For further context see ; and for the mechanics see valuation using discounted cash flows, which includes modifications typical for startups, private equity and vent ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Problem Of Induction
The problem of induction is a philosophical problem that questions the rationality of predictions about unobserved things based on previous observations. These inferences from the observed to the unobserved are known as "inductive inferences". David Hume, who first formulated the problem in 1739, argued that there is no non-circular way to justify inductive inferences, while he acknowledged that everyone does and must make such inferences. The traditional Inductivism, inductivist view is that all claimed Empirical evidence, empirical laws, either in everyday life or through the scientific method, can be justified through some form of reasoning. The problem is that many philosophers tried to find such a justification but their proposals were not accepted by others. Identifying the inductivist view as the scientific view, C. D. Broad once said that induction is "the glory of science and the scandal of philosophy". In contrast, Karl Popper's critical rationalism claimed that indu ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
Discounted Cash Flow
The discounted cash flow (DCF) analysis, in financial analysis, is a method used to value a security, project, company, or asset, that incorporates the time value of money. Discounted cash flow analysis is widely used in investment finance, real estate development, corporate financial management, and patent valuation. Used in industry as early as the 1700s or 1800s, it was widely discussed in financial economics in the 1960s, and U.S. courts began employing the concept in the 1980s and 1990s. Application In discount cash flow analysis, all future cash flows are estimated and discounted by using cost of capital to give their present values (PVs). The sum of all future cash flows, both incoming and outgoing, is the net present value (NPV), which is taken as the value of the cash flows in question; see aside. For further context see ; and for the mechanics see valuation using discounted cash flows, which includes modifications typical for startups, private equity and ... [...More Info...] [...Related Items...] OR: [Wikipedia] [Google] [Baidu] |
