Corporate Financial Strategy by Ruth Bender, Keith Ward

By Ruth Bender, Keith Ward

I train seminars to skilled bankers on hazard administration and company capital elevating. this is often the 1st, and simply, booklet i've got stumbled on which supplies a true framework for figuring out capital-raising offerings made by means of enterprises that's functional, instead of merely educational (which isn't how judgements are made by means of CFOs and Treasurers, for correct or for wrong!). Very hugely urged for capital elevating. it ranks, for my part, with Charles Smithson's "Managing monetary Risk," at the probability administration facet, because the unmarried top books to be had. it truly is certainly not out-of-date, however it will be amazing if it have been ever up-to-date to incorporate "new economic climate" businesses that frequently have detrimental EPS.

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Thus price/eps ‫ ؍‬P/E. This equation can be rearranged, and so-doing explains, at least partially, a popular misconception about share prices. If P/E ϭ share price/eps (1) then Share price ϭ P/E ϫ eps (2) So far, there is no problem with this rearrangement. The problem arises when individuals – often with an apparently sophisticated knowledge of finance – assume that this second equation implies a causality: that the share price is a function of P/E and eps rather than P/E being itself a function of the share price.

This proposed standard announced the intention to force companies to use purchase accounting, and eliminate the use of pooling. Given that there is no cashflow implication to the accounting change, the reaction to this proposal was interesting. • The investment community, in particular the large firms such as Morgan Stanley and Goldman Sachs, lobbied US regulators to prevent this change in accounting standards. They stated that the goodwill write offs could deter companies from merging, and would affect US competitiveness in global markets.

Shareholder value will only be created if the company beats this growth target. CONCLUSION A company’s share price reflects the market’s expectations of its future performance; the higher the share price relative to current earnings (as measured by the P/E ratio), the harder the management will have to work to achieve (or, more importantly, exceed) the growth inherent in the share price. This chapter has illustrated two ways of calculating that required growth: the simple dividend growth model, and the more useful steady state model which will feature throughout the book.

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