Issues in Calculating EPS
Companies are required to disclose both basic EPS and diluted EPS. Basic EPS is the total earnings divided by the weighted average number of shares outstanding during the period. Diluted EPS reflects the effect of exercised stock options, warrants,…
Calculating and Interpreting Alternative Price Multiples
P/E Ratios Trailing P/E is calculated using the last period’s earnings as: $$\text{Trailing P⁄E}= \frac{\text{Market price per share}}{\text{EPS over previous 12 months}}$$ This is preferred when future earnings are unavailable. Leading P/E is calculated using the next period’s expected…
Alternative Price Multiples Rationales and Drawbacks
Price to Earnings Ratios There are several advantages of P/E multiples: Earnings drive the stock value. The P/E ratio is simple to calculate and widely used. According to research, differences in P/E is related to the long-run average return…
Calculating a Justified Price Multiple
A justified price multiple estimates the fair value of a price multiple that can be justified based on the method of forecasted fundamentals or the method of comparables. The justified price multiple is the value the multiple would be…
Price and Enterprise Value Multiples in Valuation
There are two methods of using price and enterprise value multiples: The method of comparables. The method based on forecasted fundamentals. The Method of Comparables The method of comparables is the valuation of an asset based on multiples of…
Study Notes for CFA® Level II – Portfolio Management – offered by AnalystPrep
Reading 39: Exchange-Traded Funds: Mechanics and Applications -a. Explain the creation/redemption process of ETFs and the function of authorized participants; -b. Describe how ETFs are traded in secondary markets; -c. Describe sources of tracking error for ETFs; -d. Describe factors…
Study Notes for CFA® Level II – Derivatives – offered by AnalystPrep
Reading 33: Pricing and Valuation of Forward Commitments -a. Describe the carry arbitrage model without underlying cashflows and with underlying cashflows; -b. Describe how equity forwards and futures are priced, and calculate and interpret their no-arbitrage value; -c. Describe how…
Study Notes for CFA® Level II – Fixed Income – offered by AnalystPrep
Reading 28: The Term Structure and Interest Rate Dynamics -a. Describe relationships among spot rates, forward rates, yield to maturity, expected and realized returns on bonds, and the shape of the yield curve; -b. Describe how zero-coupon rates (spot rates)…
Financial Ratios Used to Analyze Real Estate Investments
Debt financiers often prefer debt service coverage ratio (DSCR) and loan to value (LTV) when arriving at the maximum loan on a definite property. $$ \text{DSCR} = \frac {\text{Year one NOI}}{\text{Debt service}} $$ Where: $$ \text{Debt service} = (\text{Interest}…
Portfolio Roles and Economic Value Determinants of Real Estate Investment
Economic Drivers The following economic factors affect the demand for major property types: GDP: This is by far the most important economic factor as it affects all property types. As the GDP grows, the demand for real estate investment…
