Corporate bond innovations: zero coupons where bonds are sold at a deep discount; floating rate bonds have their coupon rate reset periodically; convertible bond where bonds can be converted to shares.
Lecturer forgot that he skipped a couple of slides on Wednesday. Realised yield is tangible. Bond valuation now finished.
Valuing shares: Net Tangible Asset; earnings per share * P/E multiple; discounted cash flow.
- Limitations of NTA
- Based on historical cost less accumulated depreciation, ignores intangible assets and future growth. Liquidation value.
- Limitations of multiples
- Not practical with negative cash flow or growing rapidly, selecting comparable companies to guess P/E ratio, earnings not the same as cash flow, P/E ratio is based on market price which is speculative.
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