Chapter 9 Stocks and their valuation cacho mildred
CHAPTER 10:
Stocks and Their
Valuation
GME – 605
FINANCIAL
MANAGEMENT
Presented to:
Prof. Violeta Josef
Presented by:
Mildred F. Cacho
1
Learning Objectives:
Discuss the types of stocks.
Explain the distinction between a stock’s price and its intrinsic value.
Identify the two models that can be used to estimate a stock’s intrinsic value
List the key characteristics of preferred stock and explain how to estimate the value of preferred stock.
9-2
STOCKS :
A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.
9-3
Types of Stocks:
1. Common stock –
basic form of ownership of a corporation
have the right to vote at annual meetings, with each share entitling the holder to one vote.
2. Preferred Stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares.
9-4
Types of Common Stocks
1. Classified
Common stock that is given a special designation such as Class A or Class B to meet special needs of the company. sold Class A stock to the public while its Class B stock was retained by the company’s insiders.
2. Founders’ Shares
Stock owned by the firm’s founders that has sole voting rights but restricted dividends for a specified number of years. 9-5
Stock price versus Intrinsic
Values
Stock price - simply the current market price, and it is easily observed for publicly traded companies.
Intrinsic value - represents the “true” value of the company’s stock, cannot be directly observed and must instead be estimate
9-6
Different Approaches for
Estimating the Intrinsic Value of a Common Stock
A. Discounted dividend model
zero-growth
constant-growth model
variable-growth
B.Corporate valuation model
9-7
A. Discounted Dividend Model
Value of a stock is the present value of the future dividends expected to be generated by the stock.
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Stocks and Their
Valuation
GME – 605
FINANCIAL
MANAGEMENT
Presented to:
Prof. Violeta Josef
Presented by:
Mildred F. Cacho
1
Learning Objectives:
Discuss the types of stocks.
Explain the distinction between a stock’s price and its intrinsic value.
Identify the two models that can be used to estimate a stock’s intrinsic value
List the key characteristics of preferred stock and explain how to estimate the value of preferred stock.
9-2
STOCKS :
A type of security that signifies ownership in a corporation and represents a claim on part of the corporation's assets and earnings.
9-3
Types of Stocks:
1. Common stock –
basic form of ownership of a corporation
have the right to vote at annual meetings, with each share entitling the holder to one vote.
2. Preferred Stock generally does not have voting rights, but has a higher claim on assets and earnings than the common shares.
9-4
Types of Common Stocks
1. Classified
Common stock that is given a special designation such as Class A or Class B to meet special needs of the company. sold Class A stock to the public while its Class B stock was retained by the company’s insiders.
2. Founders’ Shares
Stock owned by the firm’s founders that has sole voting rights but restricted dividends for a specified number of years. 9-5
Stock price versus Intrinsic
Values
Stock price - simply the current market price, and it is easily observed for publicly traded companies.
Intrinsic value - represents the “true” value of the company’s stock, cannot be directly observed and must instead be estimate
9-6
Different Approaches for
Estimating the Intrinsic Value of a Common Stock
A. Discounted dividend model
zero-growth
constant-growth model
variable-growth
B.Corporate valuation model
9-7
A. Discounted Dividend Model
Value of a stock is the present value of the future dividends expected to be generated by the stock.
ˆ0
P
D3
D1
D2
D
...
1
2
3
(1 rs )
(1 rs )
(1 rs )
(1 rs