Chap.5 FINANCIAL ASSET Valuation
Chap.5 FINANCIAL ASSET Valuation
Chap.5 FINANCIAL ASSET Valuation
Formentera BSA-4
Financial
Assets
Financial assets include cash and those assets
that can be easily and quickly converted into known
amount of cash.
Cash
It is an asset in which
other liquid assets are
converted so it is shown
in the balance sheet at
face value.
Valuation of
financial assets:
Marketable securities
are securities or debts that are to
be sold or redeemed within a year.
Are shown at their current market
value. The market value of
marketable securities is affected by
a number of factors such as
interest rates and stock prices.
Valuation of
financial assets:
Receivables
are shown at their net
realizable value.
Net realizable value is
the estimated collectible
amount of receivables.
Summary
What Is Valuation?
1. Absolute valuation
EXAMPLE
A bond that matures in 4 years, has a coupon
rate of 10% and has a maturity value of P100.
The bond pays interest annually and has a
discount rate of 8%.
STEP 3 – Cont…
Solution:
The cash flow of this bond is:
YEAR CASH FLOW
1 P 10
2 P 10
3 P 10
4 P 110
STEP 3 – Cont…
The present value of each cash flow is:
Year 1 – Present Value (PV1) = P10/ (1.08)1 = P9.26
Year 2 – Present Value (PV2) = P10/ (1.08)2 = P 8.57
Year 3 – Present Value (PV3) = P10/ (1.08)3 = P 7.94
Year 4 – Present Value (PV4) = P110/ (1.08)4 = P 80.85
1. Assets-Based Approach
Listed below are the steps to determine the value per share
under the income-based approach:
•Obtain the company’s profit (available for dividend)
•Obtain the capitalized value data
•Calculate the share value ( Capitalized value/ Number of
shares)
Cont…
2. Dividend Yield
Under this method, shares are valued on the
basis of expected dividend and the normal rate of
return. The value per share is calculated by
applying following formula:
Decisions on Ordinary Share
(Common Stock) value
Pros & Cons of Issuing
Common Stock
Issuing common stock helps a corporation
raise money.
The first time that a company issues common stock into the
public markets, it does so via an initial public offering.