A company can change its value of operations only if it changes the cost of capital or investors’ perceptions regarding expected free cash flow. This is true for all corporate decisions, including the distribution policy. How to allocate the earnings between cash dividends and investments is an important decision for the financial managers.
When valuing a business, in addition to assess the competitiveness of the business products and services, market shares and industry development, it is important to evaluate the management team as a whole as their interests may not always align with the stakeholders. Corporate governance has important impact on the future development of business and the value of the company.
Consumer price index is the the key measures of gauging the price level. The most commonly used measure of the level of prices is the consumer price index (CPI). CFI has fundamental impact on the decisions made by policymakers and government.
The stock of a wonderful firm with superior management and strong performance measured by sales and earnings growth can be priced so high that the intrinsic value of the stock is below its current market price and should not be acquired. In contrast, the stock of a company with less success based on its sales and earnings growth may have a stock market price that is below its intrinsic value.
The gross domestic product (GDP) is the total market value of final goods and services produced domestically during a specific period, usually 1 year. Final goods are those purchased for final use rather than for resale or further processing. In contrast, intermediate goods are those purchased for resale or for use in producing another good or service.
There are two types of approaches of measuring GDP, the expenditure approach and the resources approach.Expenditure Approach: GDP is calculated by summing the expenditures on all final goods and services produced.
An economic variable may have both real and nominal values. The nominal value is expressed at current prices and The real value is the value that has been adjusted for the impact of inflation.
Real GDP is a pretty accurate measure of the output rate in the economy and how that output rate is changing. However, GDP is not a measure of economic welfare.
In an efficient capital market, security prices adjust rapidly to the infusion of new information, and, therefore, current security prices fully reflect all available information. To be absolutely correct, this is referred to as an informational efficient market.
Most of the early work related to efficient capital markets was based on the random walk hypothesis, which contended that changes in stock prices occurred randomly. This early academic work contained extensive empirical analysis without much theory behind it.