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8/14/2019 NCFM Trainning - CM Chapter 6
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Concepts
TimeValueofMoney
n erstan ng nanc a tatements
EquityResearch
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Elementar Statistical Conce ts
Geometric Mean
Xi / N, where i =1,2,3n (1+r1)* (1+r2)* (1+r3)* .(1+xn)n
ar ance an ar ev a on
2 = [ (Pi * (xi X)2 ) ] Positive sq root of variance,
Coefficient of Variation Covariance
( / X) * 100 Cov (x,y) = { (Xi X) (Yi Y) } / N
Correlation coefficient Normal Distribution
= *
, x yx
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What is the average rate of return of XYZ if the returns during the
,
Average Return = (20% + 25% + 45%) / 3
= 35%
Correct answer is 30%
What is the expected return of XYZ if it has the probability of
Probability (%) Return(%)
20 10
30 12
50 15
(Since probability is assumed as a percentage, no need to divide by N)
Expected return = { (20%*10%) + (30%*12%) + (50%*15%) }
= 1300
= 13.10%
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What is the annual percentage rate of increase in security prices
,
Annual rate of increase = (1.16)* (1.08)* (1.05)3
= 1.0956
three variables= 9.56%
Type 0.333 (i.e., 1/3
[since we want to find
the cube root)]; then
press =
Click here
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The return on the security A can be either 15% with 60% probability
.
2 = [ (Pi * (xi X)2 ) ]
= (0.15*0.60)+(0.14*0.40) = 0.146 = 14.60%
Thereforethevarianceisgivenby
2 ={ [ 0.60 * (15% - 14.60%)2 ] + [ 0.40 * (14%-14.60%)2 ] }
={ [ 0.60 * (0.4)2 ] + [ 0.40 * (-0.6)2 ] }={ [ 0.096 ] + [ 0.144 ] }
= 0.24 or 24%
Varianceofthestockis24%
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Which amongst the following portfolios (A,B,C) are the most
preferred and most riskyPortfolio Return (%) Standard deviation (%)
A 15 12
Coefficient of variation
= (12/15)*100 = 80
B 10 9C 14 7
= (9/10)*100 = 90= (7/14)*100 = 50
Therefore Portfolio B is more risky whereas
portfolio C is the most preferred
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A stock is at Rs. 800 on day 1. The total risk of the stock is 2% per
day. What range of prices would be observed on day 2 with 99%probability ?
For99%probabilitythestockpricecanliebetween+ 3 fromthe
+ 3- 3
800 (3 * 2% * 800) 800 + (3 * 2% * 800)
800 + 48-
752 848
Hence the price will vary between Rs 752 to Rs 848 on the next day.
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Time Value of Mone
Future value of a single cash flow FV = PV (1+r)t
Present value of an single cash flow PV = FV
(1+r)t
Future value of an Annuity FV = CF {(1+r) - 1 }t
r
Present value of an Annuity
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Calculate the value 4 years hence of a deposit of Rs. 2000 made today if
the interest rate is 15% by discrete and continuous compounding
By discrete compounding
FV = 2000 * (1+0.15)4 = 2000 * (1.749) = Rs. 3498
y con nuous compoun ng
FV = 2000 * e(0.15 * 4) = 2000 * e(0.6) = 2000 * 1.822 = Rs. 3644.23
Select Inv
Multiply by 2000
and press =
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How much does a deposit of Rs. 3000 grow to at the end of 3 years, if
the nominal rate of interest is 15% and compounding is done quarterly ?
Future value = 3000 * [ (1 + 0.15/4)(4*3)
]
. .
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Suppose, you deposit Rs 1000 annually at the year end in a bank for
5 years and your deposit earn a compound interest rate of 15%. What
w e e va ue o your nves men a er years
= 1000 [ { (1 + 0.15)5 1 } / 0.15 ]
.
= Rs. 6742.3
If compounding is continuous then what ?
= 1000 [ ( e0.15*5 1 ) / 0.15 ]
.
= Rs. 7446.6
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What is the present value of Rs. 50000 receivable after 4 years at a
discount rate of 12% ?
PV = 50000 / (1 + 0.12)4
= 50000 / ( 1.5735 )= Rs. 31775.9
If discounting is continuous then what ?
Present value = 50000 / [( e(0.12*4)]
= Rs. 30939.16
= 50000 / 1.616
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UnderstandingFinancialStatementsBalanceSheetBalanceSheetshowsthefinancialpositionofabusinessfirmataparticularpointoftime.
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UnderstandingFinancialStatementsProfit&LossaccountProfit&Loss(abbreviatedtoP&L)Account/IncomeStatementreportstherevenuesand
expensesofafirmofanaccountingperiod.
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Understanding Financial StatementsComparativeFinancialStatementsFinancialstatementswhichfollowaconsistentformatbutwhichcoverdifferentperiods
oftime.
Common Size Statements
Acompanyfinancialstatementthatdisplaysallitemsas percentagesofacommonbase
figure.Thistypeoffinancialstatementallowsforeasyanalysisbetweencompanies or
between timeperiodsofa company.
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RatioAnalysisEarningspershare
Theportionofacompany'sprofitallocatedtoeachoutstandingshareofcommon
stock.EPSservesasanindicatorof acompany'sprofitability.
EPS=(NetIncome+DividendonPreferredStock)/AverageofOutstandingShares.DividendYield
Afinancialratiothat showshowmuchacom an a soutindividendseach ear
relativetoitsshareprice. Intheabsenceofanycapitalgains,thedividendyieldisthe
returnoninvestmentfora stock.
=AnnualDividendPerYear/PricePerSharePricetoearningsratio
Avaluationratioofacompany'scurrentsharepricecomparedtoitspershare
.
=MarketValuePerShare/EarningPerShare(EPS)Returnonequity
Ameasureofacorporation'sprofitabilitythatrevealshowmuch profitacompany
generates withthemoneyshareholdershaveinvested.
=NetIncome/ShareholdersEquity
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RatioAnalysis
Debtto
equity
ratio
Ameasureofacompany'sfinancialleveragecalculatedbydividing itstotal
liabilities by stockholders'equity.Itindicateswhatproportionofequityanddebtthe
companyisusingtofinanceitsassets.
=Total
Liabilities
/Shareholders
Equity
Ratiosforshorttermcreditors1. CurrentRatio
Anindicationofacompany'sabilitytomeetshorttermdebtobligations;the
higher theratio,themoreliquidthecompanyis.
=CurrentAssets/CurrentLiabilities2. AcidTestRatio
ACIDTESTRATIOisastringenttestthatindicates whetherafirmhasenough
.
= (Cash+AccountsReceivable+ShorttermInvestments)CurrentLiabilities
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RatioAnal sis
INVENTORYTURNOVERRATIO = CostofGoodsSold/Inventory.AVERAGECOLLECTIONPERIOD = Receivables/Avg.SalesperDayFIXEDASSETSTURNOVERRATIO = NetSales/FixedSales.GROSSPROFITRATIO = GrossProfit/NetSalesNETPROFITRATIO = NetProfit/NetSales.
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EquityResearch Bhav Co Database
NSEandBSEpublishthebhavcopiesontheresiteseveryday.
Bhavcopyliststhepricesofsharesfortheday.Foreveryscripbhavcopy
containsfourpricesviz.open,high,lowandclosealongwiththevolume.
IndexDatabaseAdatabaseindexisadatastructurethatimprovesthespeedofoperations
onadatabasetable
OrderbooksnapshotDatabaseShownnext.
TradesDatabaseShownNext.
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Order Book Sna shot
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Trades Database
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literature
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