1-1 Brokers Awareness program Dr. Mounther Barakat Securities and Commodities Authority

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Brokers Awareness program

Dr. Mounther Barakat

Securities and Commodities Authority

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برنامج توعية الوسطاء

د. منذر بركات العمري

هيئة االوراق المالية والسلع

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Quantity of Funds Demanded

Interest rates are determined by the demand and supply on funds.

Factors to affect interest rates are: Higher expected income Economic growth Government budget deficit inflation

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Fisher Equation I= Real rate of interest+ expected

inflation Any change in the two will drive

interest rates This is the risk free rate, risk

premiums to be added. DRP, LP, MRP, CP, Conv. Disc., put.

Disc., ….

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The Pure Expectations Theory Assume:

bond buyers do not have any preference about maturityi.e.bonds of different maturities are perfect substitutes

LT = long-term ST = short-term

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Liquidity Theory assume:

bonds of different maturities are imperfect substitutes,and investors PREFER ST bonds because they are more liquid.

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Preferred Habitat Theory assume:

bonds of different maturities are imperfect substitutes,and investor preference for ST bonds OR LT bonds is not constant

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Segmented Markets Theory assume:

bonds of different maturities are NOT substitutes at all and are determined in isolation of one another.

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The Annual Reportالسنوي التقرير

Balance sheet – provides a snapshot of a firm’s financial position at one point in time.

Income statement – summarizes a firm’s revenues and expenses over a given period of time.

Statement of retained earnings – shows how much of the firm’s earnings were retained, rather than paid out as dividends.

Statement of cash flows – reports the impact of a firm’s activities on cash flows over a given period of time.

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Balance Sheet: Assetsاالصول - المالي المركز قائمة

CashA/RInventories

Total CAGross FALess: Dep.

Net FATotal Assets

20067,282

632,1601,287,3601,926,8021,202,950 263,160 939,7902,866,592

200557,600

351,200 715,2001,124,000

491,000 146,200 344,8001,468,800

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Balance sheet: Liabilities and Equityالملكية – وحقوق الخصوم المالي المركز قائمة

Accts payableNotes payableAccruals

Total CLLong-term debtCommon stockRetained earnings

Total EquityTotal L & E

2006524,160

636,808 489,6001,650,568

723,432460,000

32,592 492,5922,866,592

2005145,600200,000

136,000481,600323,432460,000

203,768 663,7681,468,800

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Income statementالدخل قائمة

SalesCOGSOther expenses

EBITDADepr. & Amort.

EBITInterest Exp.EBTTaxesNet income

20066,034,000

5,528,000 519,988

(13,988) 116,960(130,948) 136,012(266,960) (106,784) (160,176)

20053,432,0002,864,000 358,672

209,328 18,900

190,428 43,828

146,600 58,640

87,960

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Other dataأخرى معلومات

No. of sharesEPSDPSStock price

2006100,000-$1.602

$0.11$2.25

2005100,000

$0.88$0.22$8.50

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Did the expansion create additional net operating after taxes (NOPAT)?

الضريبة بعد التشغيلي الدخل حسابات

NOPAT = EBIT (1 – Tax rate)

NOPAT06 = -$130,948(1 – 0.4)

= -$130,948(0.6)= -$78,569

NOPAT05 = $114,257

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What effect did the expansion have on net operating working capital?

العمل المال رأس صافي حسابات

NOWC = Current - Non-interest

assets bearing CL

NOWC06 = ($7,282 + $632,160 + $1,287,360) – ( $524,160 + $489,600)

= $913,042

NOWC05 = $842,400

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What effect did the expansion have on operating capital?

التشغيلي المال رأس حسابات

Operating capital = NOWC + Net Fixed Assets

Operating Capital06 = $913,042 + $939,790

= $1,852,832

Operating Capital05 = $1,187,200

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What is your assessment of the expansion’s effect on operations?

التشغيل حسابات من مالحظات

Sales

NOPAT

NOWC

Operating capital

Net Income

2006 $6,034,000

-$78,569$913,042

$1,852,832-$160,176

2005 $3,432,00

0$114,257$842,400$1,187,20

0$87,960

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What was the free cash flow (FCF) for 2002?الحر النقدي التدفق حساب

FCF06 = NOPAT – Net capital investment

= -$78,569 – ($1,852,832 - $1,187,200)

= -$744,201

Is negative free cash flow always a bad sign?

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Economic Value Added (EVA)المضافة القيمة حساب

EVA = After-tax __ After-tax

Operating Income Capital costs

= Funds Available __Cost of

to Investors Capital Used

= NOPAT – After-tax Cost of Capital

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EVA Conceptsالمضافة االقتصادية القيمة مفهوم

In order to generate positive EVA, a firm has to more than just cover operating costs. It must also provide a return to those who have provided the firm with capital.

EVA takes into account the total cost of capital, which includes the cost of equity.

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What is the firm’s EVA? Assume the firm’s after-tax percentage cost of capital was 10% in 2000 and 13% in 2001.

المضافة االقتصادية القيمة حساب

EVA06 = NOPAT – (A-T cost of capital) (Capital)

= -$78,569 – (0.13)($1,852,832)

= -$78,569 - $240,868

= -$319,437

EVA05 = $114,257 – (0.10)($1,187,200)

= $114,257 - $118,720

= -$4,463

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Did the expansion increase or decrease MVA?المضافة السوقية القيمة حساب

MVA = Market value __ Equity capital of equity supplied

It measures the value added to the company from its activities since its inception.Can not tell who did what.

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Calculating Key Multipliersالمضاعفات مثال - حساب

P/E = Price / Earnings per share= $12.17 / $1.014 = 12.0x

P/CF = Price / Cash flow per share= $12.17 / [($253.6 + $117.0) ÷ 250]= 8.21x

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Calculating Key Multipliersمثال - المضاعفات حساب

M/B = Mkt price per share / Book value per share= $12.17 / ($1,952 / 250) = 1.56x

2007* 2006 2005 Ind.

P/E 12.0x -1.4x 9.7x 14.2x

P/CF 8.21x -5.2x 8.0x 11.0x

M/B 1.56x 0.5x 1.3x 2.4x

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Analyzing the multipliersالمضاعفات تحليل

P/E: How much investors are willing to pay for $1 of earnings.

P/CF: How much investors are willing to pay for $1 of cash flow.

M/B: How much investors are willing to pay for $1 of book value equity.

For each ratio, the higher the number, the better. P/E and M/B are high if ROE is high and risk is

low.

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Trend analysisالنمطية تحليل

Analyzes a firm’s financial ratios over time

Can be used to estimate the likelihood of improvement or deterioration in financial condition.

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Potential uses of freed up cashالحر النقدي التدفق استخدامات

Repurchase stock Expand business Reduce debt All these actions would likely improve the

stock price.

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Margin is the amount you put up to trade without paying the full balance.

Initial margin (IM) is the value of your equity in the margin trade.

Maintenance margin (MM) is the minimum equity you need to maintain at all time.

Margin call (MC) is the amount that you need to put up to bring your equity back to the initial margin.

Margin Tradingبالهامش االتجار

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Margin Tradingاالتجار بالهامش

XYZ is now selling at DHS10. You have DHS5000 and would like to purchase 1000 shares. Your broker is willing to extend you a loan at the call money rate+2% for processing and other costs. Maintenance margin is 37.%.

Calculate your profits and losses in the case of 10% price move in both directions.

Calculate the minimum price before getting a margin call.

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Assets DHS Liabilities & Equity

DHS

1000 shares @ 10

10000 Loan 5000

Equity 5000

TA 10000 TC 10000

Price @ DHS10

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DHS

1000 shares @ 11

11000 Loan 5000

Equity 6000

TA 11000 TC 11000

Price up by 10% @ DHS11

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Return with and without use of margins.

Without margin: R=(11000-10000)/10000=10%.

With margin: R=(6000-5000)/5000=20%.

Your margin is 6000/11000=54.54%


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DHS

1000 shares @ 9

9000 Loan 5000

Equity 4000

TA 9000 TC 9000

Price down by 10% @ DHS9

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Without margin: R= (9000-10000)/10000= -10%.

With margin: R= (4000- 5000)/ 5000= -20%.

Your margin is 4000/9000=44.44%


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The minimum price before hitting the first margin call is:

P=(IM*P0)/(1-MM)

In our example:P=(.5*10)/(1-.375)=8

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DHS

1000 shares @ 8

8000 Loan 5000

Equity 3000

TA 8000 TC 8000

Price @ DHS11 which the margin call price.

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Without margin: R= (8000-10000)/10000= -20%.

With margin: R= (3000- 5000)/ 5000= -40%.

Your margin is 3000/8000=37.5%

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Need to add cash to the account to go back to 50% or as agreed with the broker.

Margin call calculations:cash = P*N*IM-EqCash= 8*1000*0.5-3000

= 1000

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DHS

1000 shares @ 8

8000 Loan 5000

Cash 1000 Equity 4000

TA 9000 TC 9000Your margin now is: M=Eq/Inv. =

4000/8000= 50% back to IM.

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See XLS file for further training

Documents

1-1 Brokers Awareness program Dr. Mounther Barakat Securities and Commodities Authority