Valuation of Companies:- Like any product we sell on the market, companies have value. Is the value of a company the same as the sum of the value of its assets?Is there any objective method that will help us in the task of determining the value of the company?
Investment Analysis and Portfolio Management
Investment analysis & portfolio management is the field of finance which covers certain investment decisions in business and the manage them all in the shape of portfolio. Investment analysis cover the all the financial aspects of business, like from the money came, how invested and the return on these investments. Business organizations probably records all these business investments in the shape of portfolios that's why it is called investment analysis and portfolio management.
Financial statements are the formal records of financial activities of a company. The overview of the profitability and financial conditions of a company for both long & short term is reflected from its financial statements. Financial statements are of the following four categories.
Indirect Investment | The Investment Companies | International Investment:- Buying & selling of shares of investment companies which in turn keep portfolio of securities is generally referred as indirect investment. Mutual fund is common example of the investment company that is involved in the process of providing indirect investment opportunity to many investors. The investors do not need to make efforts to purchase securities and then manage the portfolio by themselves. They simply put their money into an investment company which performs all the work and all the decisions. This means that investors buy shares of specific portfolio which is being managed by an investment company and this investment in share become indirect investment for them.
In company analysis analysts consider the basic financial variables for the estimation of the intrinsic value of the company. These variables contain sales, profit margin, tax rate, depreciation, asset utilization, sources of financing and other factors. The conduction of further analysis of company include the competitive position of the company in the industry, technological changes, management, labor relations, foreign competition and so on.
Financial ratio analysis is very helpful in understanding much more about the accounts & businesses. Ratio analysis is useful in ascertaining the profitability of a company. The ability of a company to repay the liabilities is also determined from analyzing its financial ratio. Moreover the working performance of the company is looked to check whether it has performed well in the current year as compared to the previous year. Comparison between the performances of different competitors is made through their financial ratio analysis.
Markowitz Portfolio Theory deals with the risk and return of portfolio of investments. Before Markowitz portfolio theory, risk & return concepts are handled by the investors loosely. The investors knew that diversification is best for making investments but Markowitz formally built the quantified concept of diversification. He pointed out the way in which the risk of portfolio to an investor is reduced through diversification. The particular measure of portfolio risk was first developed by the Markowitz and the expected risk & return for portfolio are derived on the basis of the covariance relationship.
Dividend discount model is used to calculate the growth rate of stock. Generally there is infinite life of stock. If there is a known growth rate of the dividends of the stock each year, it is evaluated as growing perpetuity. It is not possible to apply standard value tables on a growing perpetuity. But a mathematical identity makes it possible to find the present value of the perpetuity. Such mathematical identity is referred to as Dividend Discount Model (DDM). Dividend discount model is named as Gordon’s Growth Model and is given by the following formula
Types of Orders in Investment:- In order to buy or sell securities, there are different types of orders that can be used by investors. When investor places certain order, he expects that all the relevant persons of the order processing step understand his instructions. There are different standardize packets of instructions that are used to aid the order processing process in the brokerage business. The main Types of Orders are Market Order, Limit Order, Stop Order and Other Orders.
Dividend Definition | Cash, Stock & Property Dividend:- The smaller part of capital is known as share and the person, who owes shares, is known as shareholder. The return on these shares or investment is known as profit, and the part of profit, which is distributed among the shareholders, is known as Dividend. There are various types of dividend that probably used now days in the business market for paying shareholders return on their investments. This also probably depends on the nature and type of shareholders.
There are different types of common stock which are categorized on the basis of their difference on investment characteristics. All of these types of common stock represent an ownership in the relevant company. Some stocks are volatile while others are stable. Some offer Dividends to their holder while others don’t. Similarly some are investments in recent year while others are speculations about future year events. In fact these stocks are categorized on the basis of their specific investment characteristics.