Finance 4830 - Kilbourne - FInal

Market Capitalization

# of shares outstanding * stock price

What is a Premium on a tender offer?

A premium on a tender offer refers to the amount that the acquirer offers to pay for each share of the target company's stock above the current market price. The premium is usually offered as an incentive for the target company's shareholders to tender their shares, and it can vary depending on market conditions, the target company's performance, and other factors. The premium is often a key consideration for shareholders when deciding whether to accept a tender offer.

Reverse Split

A reverse stock split is the opposite of a regular stock split, where the number of shares outstanding decreases and the price per share increases proportionately. Reverse splits are typically used by companies to boost their stock price, as a higher stock price can make the company more attractive to investors. However, reverse splits can also be seen as a red flag by some investors, as they may indicate financial distress or poor performance.

Spin Off

A spin-off is a type of corporate restructuring where a company creates a new, independent entity by separating a portion of its business into a separate company. The new company is usually given to existing shareholders as a dividend. Spin-offs are typically used to unlock value in a company's assets, streamline operations, or allow for more focused management.

CAGR

CAGR stands for compound annual growth rate, which is a measure of the annual growth rate of an investment over a specified period of time, taking into account the effect of compounding. It represents the rate at which an investment would have grown if it had grown at a steady rate throughout the specified period, assuming all returns are reinvested.

SSS Same Store Sales

Decipher whether its nominal or real Same store sales (SSS), also known as comparable store sales, is a retail industry performance metric that measures the revenue growth or decline of stores that have been open for at least one year. SSS excludes the revenue generated by new store openings or store closures to provide a more accurate measure of a retailer's underlying performance.

Stock Dividend

A stock dividend is a distribution of additional shares of a company's stock to its existing shareholders. Instead of paying a cash dividend, the company issues new shares to shareholders based on the number of shares they already own. A stock dividend does not change the total value of the shareholder's investment, but it does increase the number of shares outstanding.

1. Stock Split i. Impact on Financial Statements ii. Restatement of earnings iii. Value

A stock split does not have any direct impact on a company's financial statements. The total value of the company's equity remains the same before and after a split. However, the number of shares outstanding increases and the par value per share decreases proportionately. This means that the company's earnings per share (EPS) and price per share (PPS) will change, but the overall financial position of the company remains the same. ii. Restatement of Earnings: A stock split may require the restatement of earnings to reflect the change in the number of shares outstanding. This is done to ensure that the EPS figures are accurate and comparable before and after the split. The restatement of earnings involves adjusting the historical EPS figures to reflect the new share count, as if the split had occurred at the beginning of the reporting period. iii. Value: A stock split does not change the underlying value of a company, but it can have an impact on the perceived value by investors. A split can increase the liquidity of the stock, making it more accessible to a larger pool of investors. It can also make the stock more affordable, which can attract more retail investors. However, the split does not change the company's underlying fundamentals, and the stock price may still be subject to market fluctuations and other factors.

Tender Offer

A tender offer is a public offer made by a company or an outside entity to purchase a substantial portion or all of the outstanding shares of another company's stock. The offer is usually made at a premium to the market price, and shareholders are free to accept or reject the offer. Tender offers can be hostile or friendly.

Accretion and Accretive

Accretion refers to the gradual increase in value of an asset or investment over time, while accretive refers to an investment or transaction that increases earnings or value. In finance, dilution refers to the reduction in ownership percentage of existing shareholders when new shares are issued, while dilutive refers to securities or financial instruments that can potentially cause dilution. These terms are important concepts in corporate finance and investment analysis, and they are used to evaluate the impact of various financial decisions and transactions.

1. Dividend Yield - Per share or cash Dividend per share/Stock Price

All the company's profits that have not been returned to the shareholders as dividends are called RETAINED EARNINGS. Retained Earnings = Sum of all Profits - Sum of all Dividends RETAINED EARNINGS can be viewed as a "pool" of money from which future dividends could be paid. In fact, dividends cannot be paid to shareholders unless sufficient retained earnings are on the Balance Sheet to cover the total amount of the dividend checks. If the company has not made a profit but rather has sustained losses, it has "negative retained earnings" that are called its accumulated deficit.

ETF

An exchange traded fund (ETF) is a type of security that tracks an index, sector, commodity, or other asset, but which can be purchased or sold on a stock exchange the same as a regular stock. An ETF can be structured to track anything from the price of an individual commodity to a large and diverse collection of securities. ETFs can even be structured to track specific investment strategies. A well-known example is the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 Index.1 ETFs can contain many types of investments, including stocks, commodities, bonds, or a mixture of investment types. An exchange traded fund is a marketable security, meaning it has an associated price that allows it to be easily bought and sold.

1. Book Assets (less Cash)/Share

Asset value per share is the total value of an investment or business divided by its number of shares outstanding. A closed-end fund raises capital for investment through a one-time sale of a limited number of shares, which may then be traded on the markets.

1. Capital Structure mix and weight

Capital structure refers to the mix of different sources of funds that a company uses to finance its operations and investments. The two main sources of capital are debt and equity. The capital structure mix and weight refer to the proportion of debt and equity in a company's capital structure. The capital structure mix refers to the proportion of debt and equity used to finance a company's operations and investments. For example, if a company has $1 million in total capital and uses $700,000 of debt and $300,000 of equity, then the capital structure mix would be 70% debt and 30% equity. The capital structure weight refers to the relative importance of each source of capital in a company's capital structure. The weight of each source of capital is determined by dividing the amount of each source of capital by the total amount of capital. For example, in the above scenario, the weight of debt would be 70% and the weight of equity would be 30%. The capital structure mix and weight can have significant implications for a company's financial health and risk profile. A high proportion of debt in the capital structure mix may lead to higher interest payments and increased financial risk, while a high proportion of equity may lead to dilution of ownership and reduced financial leverage. Therefore, companies must carefully consider their capital structure mix and weight when making financial decisions and aim to strike a balance between debt and equity financing that aligns with their overall business strategy and financial goals. Regenerate response

Cash Flow per Share (EBITDA/per share)

Cash flow per share is a financial metric that measures the amount of cash generated by a company for each outstanding share of common stock. It is calculated by dividing a company's EBITDA (earnings before interest, taxes, depreciation, and amortization) by the number of outstanding shares of common stock.

Dilution and Dilutive

Dilution in finance refers to the reduction in the ownership percentage of existing shareholders when new shares are issued, which can occur through a stock split, secondary offering, or other means. Dilutive, on the other hand, refers to securities or financial instruments that can potentially cause dilution, such as stock options, warrants, or convertible bonds.

Diversification Strategy

Diversification strategy is a business approach that involves expanding a company's product or service offerings, customer base, or geographic footprint to reduce risk and increase opportunities for growth. It aims to spread risk across different markets and products to avoid overreliance on a single source of revenue.

Free Cash Flow

EBIT - tax + depreciation/amortization - capital expenditure - increase in NWC (check textbook for alternative equation).

Economies of Scale

Economies of scale are the cost advantages that companies can achieve by increasing the scale of their operations, production or distribution. As a company grows and expands its operations, it can benefit from cost savings through higher production efficiency, bulk purchasing, and other economies that reduce the cost per unit of production or distribution.

Economies of Scope

Economies of scale refer to the cost advantages that companies can achieve as they increase the scale of their operations. By producing more units, companies can benefit from lower production costs per unit, which can improve profitability. This can be achieved through various means, such as bulk purchasing, specialization of labor, and investment in more efficient technologies. Economies of scale are a significant factor in many industries and are often cited as a reason for mergers and acquisitions.

Financial Acquisitions

Financial acquisitions refer to the purchase of a company's financial assets or investments, rather than its operational assets or business operations. These types of acquisitions can include the acquisition of securities, bonds, and other financial instruments, and are often used by companies to diversify their investment portfolios or gain exposure to new markets or sectors. Financial acquisitions are typically less complex and require fewer resources than operational acquisitions.

Fundamental vs. Technical Analysis

Fundamental Analysis - Usually used by a long-term investor, fundamental analysis is an analysis technique that looks at a company's financial statements and uses overall economic and industry trends to compare to and determine the intrinsic value or fair value of a company long-term. When the current price of a company is lower than the fair value, then the company is undervalued. When the current price of a company is higher than the fair value, then the company is overvalued. Technical Analysis - Usually used by a short-term investor or trader, technical analysis is an analysis technique that uses past data, for example charts, on the specific company to determine where stock prices will go and ultimately determine the value of the company short-term.

White Knight

In finance, a white knight is a friendly third party that acquires a financially distressed company to prevent it from being taken over by a hostile bidder or competitor. The white knight's goal is to help the company overcome its financial difficulties and ensure that it remains operational and competitive in its industry.

Inflation

Inflation affects inventory. Inflation affects inventory because If inflation is rapid enough, prices will increase in the future. Therefore, high inflation encourages companies to keep a high level of inventories. Inflation is the rate at which the general level of prices for goods and services in an economy is increasing over time. It means that the purchasing power of currency is decreasing, which can lead to a decrease in the standard of living for individuals. Inflation can be caused by factors such as government policies, supply and demand imbalances, and changes in the money supply.

Interest Rate and Taxes

Interest rates and taxes are two important economic factors that have significant impacts on individuals and businesses. Interest rates are the cost of borrowing money and are set by central banks. High interest rates tend to decrease borrowing and spending, which can slow down economic growth, while low interest rates tend to encourage borrowing and spending, which can stimulate economic growth. Taxes are payments made by individuals and businesses to the government, which are used to fund public goods and services. Taxes can have both positive and negative effects on the economy, depending on how they are structured and used. High taxes can decrease spending and investment, while low taxes can encourage spending and investment. Additionally, taxes can be used to incentivize certain behaviors, such as promoting renewable energy or encouraging charitable donations.

Leverage

Leverage is the use of other people's money ("OPM") to generate profits for yourself. By substituting debt (other people's money) for equity dollars (your own money), you hope to make more profit per dollar that you invest than if you had provided all the financing yourself. Thus, debt "leverages" your investment. The leverage ratios measure the extent of this leverage. The reason leverage ratios are also called safety ratios is that too much leverage in a business can be risky ... unsafe to lenders. A lender may think of these ratios as safety ratios, while a business owner may think of them as profit leveraging ratios. Use too little financial leverage and the firm is not reaching its maximum profit potential for its investors. On the other hand, too much debt and the firm may be taking on a high risk of being unable to pay interest and principal if business conditions worsen. Using just the right amount of debt is a management call.

Leverage

Leverage refers to the use of debt (borrowed funds) to amplify returns from an investment or product. Investors can use leverage to multiply their buying power in the market, and companies can use leverage to finance their assets as an alternative to issuing stock to raise capital. Interest expense is relevant to determining the cost of leverage within a company. Leverage can be described as debt/total assets or debt/(debt+equity) which is known as the net worth ratio.

Liquidity

Liquidity is the efficiency or easy with which an asset or security can be converted into ready cash without affecting its market price; most liquid asset of all is cash itself; In other words, liquidity describes the degree to which an asset can be quickly bought or sold in the market at a price reflecting its intrinsic value. An asset is liquid if it can be converted to cash within a year. Liquid assets is measured often by the Current Ratio which is current assets/current liabilities

Organic Growth vs. Acquisitive Growth

Organic growth and acquisitive growth are two different types of growth strategies that companies can use to expand their business. Organic growth refers to growth that is achieved internally, such as by increasing sales, expanding into new markets, or developing new products or services. Acquisitive growth, on the other hand, refers to growth that is achieved through mergers and acquisitions of other companies. Organic growth is generally slower but more stable, while acquisitive growth can provide faster growth but also comes with higher risks and costs.

Organic Growth

Organic growth refers to the growth a company achieves by expanding its business internally, without relying on mergers or acquisitions. This type of growth can include expanding into new markets, developing new products or services, increasing sales, or improving operational efficiency. Organic growth is generally slower but more stable than growth through acquisitions, and it can provide a foundation for long-term success.

Investor understanding returns on capital expenditures

Returns on capital expenditures (CAPEX) refer to the financial returns earned on investments made in capital assets such as equipment, buildings, and infrastructure. Investors use this metric to assess the profitability of capital investments and to determine the effectiveness of a company's capital allocation strategy. Understanding returns on CAPEX can help investors evaluate a company's ability to generate future cash flows and assess its long-term growth prospects. Companies that consistently earn strong returns on their capital expenditures are generally seen as well-managed and capable of creating value for shareholders over time.

Real Versus Nominal Growth

Real growth and nominal growth are two different concepts in finance. Nominal growth refers to growth that is not adjusted for inflation, while real growth refers to growth that is adjusted for inflation. For example, if a company's sales increased from $100 million to $110 million, but inflation was 3%, then the nominal growth would be 10%, but the real growth would be 7%. Real growth is a more accurate measure of economic growth because it reflects changes in purchasing power.

Resistance in the Market

Resistance in the stock market refers to a price level where an asset's price has difficulty breaking through to new highs. It is often associated with a large number of sellers entering the market, leading to a decrease in demand and a potential reversal in price. Resistance levels can be identified using technical analysis and charting, and traders may use them to make buy or sell decisions based on market trends and signals.

Return on Equity (ROE) --> Equity / Net Income a. Total Assets less Liabilities = Equity (Equity is the residual value of the company) b. What will drive ROE higher on the Balance Sheet?

Return on Equity The return on equity (ROE) ratio measures management's success in maximizing return on the owner's investment. In fact, this ratio is often called "return on investment," or ROI.

SPAC

SPACs are commonly formed by investors or sponsors with expertise in a particular industry or business sector, and they pursue deals in that area. SPAC founders may have an acquisition target in mind, but they don't identify that target to avoid disclosures during the IPO process. Called "blank check companies," SPACs provide IPO investors with little information prior to investing. SPACs seek underwriters and institutional investors before offering shares to the public. During a 2020-2021 boom period for SPACs, they attracted prominent names such as Goldman Sachs, Credit Suisse, and Deutsche Bank, in addition to retired or semiretired senior executives. The funds that SPACs raise in an IPO are placed in an interest-bearing trust account that cannot be disbursed except to complete an acquisition. In the event it is unable to complete an acquisition, funds will be returned and the SPAC will ultimately be liquidated. A SPAC has two years to complete a deal or face liquidation. In some cases, some of the interest earned from the trust can serve as the SPAC's working capital. After an acquisition, a SPAC is usually listed on one of the major stock exchanges.

1. How is equity, calculating shares outstanding, used in the P/E ratio?

Shares outstanding refers to the total number of shares of a company's stock that are currently held by all of its shareholders, including institutional investors, insiders, and individual investors. The number of shares outstanding is important because it affects the company's earnings per share (EPS) and, therefore, its P/E ratio. When a company has a higher number of shares outstanding, its earnings per share will be lower, assuming the earnings remain the same. Conversely, a company with a lower number of shares outstanding will have a higher EPS, assuming the earnings remain the same. For example, if Company A has a net income of $100 million and 50 million shares outstanding, its EPS is $2 per share. If Company B has the same net income of $100 million but only 25 million shares outstanding, its EPS is $4 per share. In the calculation of the P/E ratio, shares outstanding are factored into the earnings per share calculation. Therefore, a company with a higher number of shares outstanding will typically have a lower P/E ratio, all other things being equal, because the denominator in the P/E ratio calculation (EPS) will be larger. On the other hand, a company with a lower number of shares outstanding will typically have a higher P/E ratio, all other things being equal, because the denominator (EPS) will be smaller. Overall, shares outstanding is an important factor to consider when analyzing a company's P/E ratio, as it can provide insight into the company's potential valuation and future growth prospects. Regenerate response

1. Stock repurchase (what is it and where is it found in the financial statements)

Stock repurchase, also known as share buyback, is a corporate action in which a company buys back its own shares from the open market or from its shareholders. The purpose of a stock repurchase is to reduce the number of outstanding shares in the market, which can increase earnings per share (EPS) and return on equity (ROE), as well as signal confidence in the company's financial health. Stock repurchases can be found in a company's financial statements, specifically in the statement of changes in equity or the notes to the financial statements. The statement of changes in equity shows the changes in the company's equity accounts, including the common stock and treasury stock accounts. If a company repurchases its own shares, the treasury stock account will increase, and the common stock account will decrease. The notes to the financial statements may provide additional details on the stock repurchase, such as the number of shares repurchased, the cost of the repurchase, and the reasons for the repurchase.

Support vs. Resistance

Support and resistance are key concepts in technical analysis used to identify price levels at which a stock's price may experience a significant shift in direction. Support refers to a price level below which a stock's price is unlikely to fall, as there is buying pressure at that level. Resistance, on the other hand, refers to a price level above which a stock's price is unlikely to rise, as there is selling pressure at that level. Traders and investors often use these levels to inform their decisions about when to buy or sell a stock. Support - Support is a measure of when a stock hits a bottom and does not go lower. Resistance - resistance is the price in which the stock does not go past, trading high resistance to go higher. ...

Support in the Market

Support in the stock market refers to a price level where an asset's price has difficulty breaking below. It is often associated with a large number of buyers entering the market, leading to an increase in demand and a potential reversal in price. Support levels can be identified using technical analysis and charting, and traders may use them to make buy or sell decisions based on market trends and signals. Support levels can also be influenced by factors such as company news, earnings reports, and economic data.

Systematic Risk

Systematic risk, also known as market risk, is the risk of a decline in the value of an entire market or industry, rather than the risk associated with a specific security or investment. Systematic risk cannot be diversified away through portfolio diversification because it affects the overall market or economy. It is inherent in the market system and cannot be eliminated by holding a diversified portfolio of securities. However, investors can manage systematic risk through risk management strategies such as asset allocation, hedging, and diversification across different asset classes.

1. Sources and Uses of Cash: Cash Flow Statement: a. Use of Cash b. Paydown Debt c. Capex - Capital Expenditures d. Dividends e. Payout Ratio f. Stock Repurchase - pros and cons

The Cash Flow Statement tracks the movement of cash through the business over a period of time. A company's Cash Flow Statement is just like a check register ... recording all the company's transactions that use cash (checks) or supply cash (deposits). The Cash Flow Statement for a period shows: Cash on-hand at the start of the period plus Cash received in the period minus Cash spent in the period equals Cash on-hand at the end of the period. Sources of Cash: (a) Operating activities such as receiving payment from customers, and (b) financing activities such as selling stock or borrowing money. Uses of Cash: goes out of the business (uses) in four major ways: (a) operating activities such as paying suppliers and employees, (b) financial activities such as paying interest and principal on debt or paying dividends to shareholders, (c) making major capital investments in long-lived productive assets like machines, (d) paying income taxes to the government.

Dividend Payout Ratio a. Dividends to common stockholders $15,000,000 331/3% i. Net Income $45,000,000

The dividend payout ratio shows how much of a company's earnings after tax (EAT) are paid to shareholders. It is calculated by dividing dividends paid by earnings after tax and multiplying the result by 100.

IRR

The internal rate of return estimates the annualized rate of return an investment will yield. IRR is calculated by dividing future value by present value then raising it to the inverse power of the number of periods then subtracting by one.

1. P/E Ratio a. Current market b. Forward P/E ratio

The price-to-earnings (P/E) ratio is a valuation metric used to evaluate the relative value of a company's stock. It measures the current market price per share of a company's stock relative to its earnings per share (EPS) over the last 12 months. The formula for calculating the P/E ratio is: P/E ratio = Market price per share / Earnings per share (EPS) Current Market: The price-to-earnings (P/E) market ratio is a valuation metric that compares a company's stock price to its earnings per share, indicating how much investors are willing to pay for each dollar of earnings. Forward P/E Ratio: The forward price-to-earnings (P/E) ratio is a valuation metric that compares a company's stock price to its estimated earnings per share (EPS) for the next 12 months. Unlike the regular P/E ratio, which is based on historical earnings, the forward P/E ratio is based on analysts' forecasts for a company's future earnings. To calculate the forward P/E ratio, you divide the current market price of a company's stock by its estimated EPS for the next 12 months. The forward P/E ratio is often used by investors to gauge the market's expectations for a company's future earnings potential.

WACC

The required rate of return weighted proportionally between debt and equity financing. It represents a firm's average after-tax cost of capital from all sources, including common stock, preferred stock, bonds, and other forms of debt. It is important because it is the required return necessary to make a capital budgeting project worth it. WACC = [(Weighted Equity x Cost of Equity) + (Weighted debt x cost of debt)] + (1 - Tax rate)

Return on Asset (ROA)

The return on assets (ROA) ratio measures management's success in employing the company's assets to generate a profit. Return on Assets = Net Income / Inventory

Capital Intensive

The term "capital intensive" refers to a business or industry that requires a significant amount of capital investment in order to operate or expand. Capital-intensive businesses typically require a substantial amount of fixed assets, such as buildings, equipment, and machinery, in order to generate revenue.

Value of a company

The value of a company is typically located in its financial statements, particularly the balance sheet, income statement, and cash flow statement. The balance sheet provides information on the company's assets, liabilities, and equity, while the income statement shows the company's revenues and expenses over a period of time. The cash flow statement provides information on the company's cash inflows and outflows. Additionally, the value of a company can also be influenced by market factors, such as stock price and investor sentiment.

1. the Global Industry Classification Standard (GICS) All Eleven Sectors

These sectors are healthcare, materials, real estate, consumer staples, consumer discretionary, utilities, energy, industrials, consumer services, financials, and technology

Volatility

Volatility in finance refers to the degree of variation of a financial instrument's price over time. It is often used as a measure of risk or uncertainty associated with an investment. Higher volatility implies greater risk, as the price of the instrument can fluctuate rapidly and unpredictably, while lower volatility implies greater stability and predictability.

Return on Assets

a financial ratio that indicates how profitable a company is in relation to its total assets. Corporate management, analysts, and investors can use ROA to determine how efficiently a company uses its assets to generate a profit. A higher ROA means a company is more efficient and productive at managing its balance sheet to generate profits while a lower ROA indicates there is room for improvement.

1. Types of Stocks for Investors in terms of Business cycles investments: a. Cyclical b. Non-Cyclical c. Defensive d. Value e. Mature - Steady f. Momentum g. Unicorns - h. Speculative

a. Cyclical stocks are shares of companies whose performance and earnings are tied to the economic cycle. These companies typically perform well during economic expansions and underperform during recessions. b. Non-cyclical stocks, also known as defensive stocks, are shares of companies that are relatively immune to changes in the economy. These companies often provide essential goods and services that consumers continue to demand, regardless of the economic climate. c. Defensive stocks are shares of companies that are relatively immune to changes in the economy. These companies often provide essential goods and services that consumers continue to demand, regardless of the economic climate. d. Value stocks are shares of companies that are undervalued by the market, based on metrics such as earnings, dividends, and book value. Investors buy these stocks in the hopes that the market will eventually recognize their true value and bid up the share price. e. Mature - Steady stocks are shares of well-established companies with a proven track record of stable earnings and dividend payments. These stocks are often seen as a safe haven for investors seeking steady, predictable returns. f. Momentum stocks are shares of companies whose stock prices have been increasing rapidly, often driven by positive news or market sentiment. Investors buy these stocks in the hopes that the price will continue to rise in the short term. g. Unicorn stocks are shares of privately-held startups that have achieved a valuation of over $1 billion. These stocks are often highly speculative and only available to accredited investors. h. Speculative stocks are shares of companies with high potential for growth, but also high risk. These companies may be in emerging industries or have unproven business models, and their stocks are often volatile and subject to significant price swings.

1. Liquidity as it pertains to owner's stock and capital markets

current assets over current liability... liquid enough to have enough cash to pay its debts in a year Liquidity is the efficiency or easy with which an asset or security can be converted into ready cash without affecting its market price; most liquid asset of all is cash itself; In other words, liquidity describes the degree to which an asset can be quickly bought or sold in the market at a price reflecting its intrinsic value. An asset is liquid if it can be converted to cash within a year. Liquid assets is measured often by the Current Ratio which is current assets/current liabilities

Purpose of a Business

quoted by Peter Drucker, the purpose of a business is that firms should be solely focused on creating and keeping customers. Therefore, they should base their efforts on marketing and innovation. To create customers The purpose of a business is to create customers

strategic plan

the most important component of the strategic plan is the mission statement of the company which states the company's current goal, it is a long term strategy for creating customers. (LONG TERM)

Return on Investment (ROI)

the ratio of net profit over the total cost of the investment

Hostile Takeover

when a company or activist tries to gain control of a target company by sidestepping the company's management and board of directors, and going directly to its shareholders