Equity

Weight on the exam = 10%

Number of formulas = 15

Margin call trigger price
Margin call trigger price is the stock price that will trigger a margin call

P_{0} - initial stock price

IM - initial margin

MM - maintenance margin

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Price-weighted index
Price-weighted index is a stock index in which each stock influences the index in proportion to its price per share

Index_{pw} - price-weighted index

N_{adj} - number of stocks in index adjusted for splits

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Market value-weighted index
Market value-weighted index is a type of market index whose individual components are weighted according to their market value (capitalization), so that larger components carry a larger percentage weighting.

Index_{mvw} - market value-weighted index

P_{today} - stock price today

P_{base year} - stock price in a base year

N_{shares out} - number of shares outstanding

Index_{base} - base year index value

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Preferred stock valuation
Preferred stock valuation formula determines the value of preferred stock using dividend and required rate of return on preferred stock.

P_{0} - initial price

D_{p} - preferred stock dividend

k_{p} - required rate of return on preferred stock

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One period DDM
Dividend discount model (DDM) is a stock valuation that uses predicted dividends and discounts them back to present value. One period DDM assumes that your holding period is one year.

P_{0} - initial price

D_{1} - expected dividend

P_{1} - year-end stock price

k_{e} - required rate of return on common equity

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Infinite period DDM
Dividend discount model (DDM) is a stock valuation that uses predicted dividends and discounts them back to present value. Infinite period DDM assumes that dividends grow every year at the constant rate g.

or

P_{0} - initial price

D_{1} - expected dividend

k_{e} - required rate of return on common equity

g - expected growth rate

D_{0} - last year dividend

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Multistage DDM
Dividend discount model (DDM) is a stock valuation that uses predicted dividends and discounts them back to present value. In a multistage DDM we estimate all the dividends to be received as well as the selling price at the end of the holding period.

where

P_{0} - initial price

D_{1} - expected dividend in year 1

D_{2} - expected dividend in year 2

D_{n} - expected dividend in year n

k_{e} - required rate of return on common equity

P_{n} - price in year n

D_{n+1} - dividend that will grow at the constant rate g_{c} forever

g_{c} - constant growth rate of dividends

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Earnings multiplier
Earnings multiplier is another variation on the P/E ratio.

P_{0} - initial price

D_{1} - expected dividend in year 1

E_{1} - expected earnings per share (EPS) in year 1

k - required rate of return on the stock

g - expected constant growth rate of dividends

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Expected growth rate

g - growth rate

rr - retention rate (note that 1-rr = dividend payout rate)

ROE - return on equity

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Trailing P/E
Trailing P/E is P/E ratio, using earnings for the lasst 12 month.

P - share price

EPS_{pr} - earnings per share over previous 12 months

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Leading P/E
Leading P/E is a measure of P/E ratio which uses forecasted earnings for the calculation.

P - share price

EPS_{f} - forecast earnings per share over next 12 months

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P/BV ratio
P/BV ratio is used to compare a stock's market value to its book value.

Eq_{mkt} - market value of equity

Eq_{bv} - book value of equity

P - share price

BPS - book value per share

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P/S ratio
P/S ratio is a sales-based ratio for valuing a stock relative to its own past performance, other companies or the market itself. It's useful mainly when comparing similar companies.

Eq_{mkt} - market value of equity

Sales - company's sales or revenue

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P/CF ratio
P/CF ratio is another measure of stock's relative value. Because this measure deals with cash flow, the effects of depreciation and other non-cash factors are removed.

Eq_{mkt} - market value of equity

CF - cash flow (adjusted CFO (cash flow from operations), FCFE (free cash flow to equity) or EBITDA (earnings before interest, tax, depreciation and amortization))

P - share price

CFPS - cash flow per share

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Adjusted CFO
Adjusted cash flow from operations is a CFO adjusted for after-tax interest cost.

CFO_{adj} - adjusted cash flow from operations

CFO - cash flow from operation

CashIntOut_{net} - net cash interest outflow

t - tax rate

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