AFTER MID-TERM Miss: Eman Elfar

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Presentation transcript:

AFTER MID-TERM Miss: Eman Elfar Marketing management and financial institutions AFTER MID-TERM Miss: Eman Elfar

Market Equilibrium When the market is in the equilibrium point , the expected returns can be predict by estimating dividends and expected capital gains. While the required returns are predicted by estimating risk and applying the CAPM. -In equilibrium, the stock price is stable. Also the expected return must equal required returns. © 2012 Pearson Prentice Hall. All rights reserved.

Efficient market Hypothesis (EMH) There are four basic hypothesis of efficient market : Large number of market participants ( investors, analysts, and traders) Availability of information Little impediments to trading (Arbitrage refers to buying an assets in one market and be able to selling it at high price in another market. Low cost of trans action and information © 2012 Pearson Prentice Hall. All rights reserved.

Types of Efficient Market Weak-form efficiency : In this market current security prices reflect current available security market data( only historical data(private) are available). The investor can’t predict the future direction of security. Investor can’t achieve positive risk –adjustment return. Depending on technical analysis Semi- strong form efficiency : current security prices reflect publically available information. Depending on Fundamental analysis .

Types of Efficient Market strong-form efficiency : In this market current security prices reflect all information (past – public – private) both from public and private sources. The investor can predict the future direction of security. Investor achieve positive abnormal returns. Depending on both fundamental and technical analysis . © 2012 Pearson Prentice Hall. All rights reserved.

Technical analysis charts Line chart – A line chart measures only the closing price and connects each day’s close into a line

Technical analysis charts Candlestick charts: the box will be clear if the closing price is higher than the opening price. On the other hand, the box will be filled if the close is lower than the opening price .

Technical analysis charts Head and shoulders pattern: is used to predict a price target for ensuing ( next) downtrend. Head represent the highest price , while the neckline represent the key support level to watch for a breakdown and trend reversal

Corporate value model It is also called the free cash flow method: FCF : free cash flow NOPAT : after-tax operating system FCF= NOPAT – NET capital investment © 2012 Pearson Prentice Hall. All rights reserved.

Corporate value model using free cash flow model FCFF= net income + depreciation+ (I (1 ͯ t) – fixed capital investment – working capital investment FCFE : free cash flow of Equity FCFF: Free cash flow of equity I: interest expense T : tax rate Depreciation : non cash charges FCFE= net income + depreciation+ (I (1 ͯ t) – fixed capital investment – working capital investment + net borrowing