fm2 ppt real

• Equity Security Market


  The market for trading equity instruments, also referred to as the Stock Market
• Equity instruments


  A type of financial instrument wherein the issuer agrees to pay an amount to the investor in the future based on the future earnings of the company, if any. The most common example is shares.
• Shares (or Stocks)


  Represent ownership in a company. An individual or party who owns a share is called a shareholder or stockholder. The legal document that certifies ownership is the stock certificate.
• Ways investors may earn from equity instruments

  • Capital appreciation - rise in the value of an asset in relation to the increase in its market price
  • Dividends - payments made by corporation to shareholders representing excess earnings of the company
• Types of Shares


  • Preference shares
  • Ordinary shares
• Preference shares


  Par value preference share - annual dividend is expressed as % of the face value

  No-par preference share - annual dividend is usually stated in peso amount per share
• Ordinary shares


  Represents ownership of the company and most directly participate in the profits and equity of the business
• Types of ordinary shares

  • Privately owned
  • Closely owned
  • Publicly owned or publicly traded
  • Widely owned
  • Supervoting shares
  • Nonvoting shares
• Types of Stock Market

  • Physical - the physical site where shares are purchased and sold face to face on trading is called a stock exchange

  Virtual - electronic trading of stock
• Why is stock valuation important?

  If you own a share of stock, you can receive cash in two ways: Dividends - cash income, Selling - capital gains/loss
• Share valuation models/techniques


  • One-period or Multiple period Valuation model

  Dividend-based valuation technique
• One-period or Multiple period Valuation model


  Used when the investor has no plan to take over control in the firm, instead the investors look at share purchases to receive a greater return and intends to sell the share after a fixed number of years
• Dividend-based valuation technique


  Used when the investor intends to hold the shares long-term and has no plans on selling in the near future. The most relevant input is the future dividends.
• Zero Growth Model


  P0 = D1 / r