scholarly journals Intrinsic Value vs. Market Price: The Excess Return Period And That Elusive Margin Of Safety

2011 ◽  
Vol 2 (9) ◽  
Author(s):  
Darryl G. Waldron
Keyword(s):  
Return Period ◽  
Intrinsic Value ◽  
Market Price ◽  
Free Cash Flow ◽  
Excess Return ◽  
Value Drivers ◽  
Cross Sectional ◽  
Market Prices ◽  
Intrinsic Values ◽  
Margin Of Safety

The principle of convergence is well understood and most accept that in the long-term, market price and intrinsic value will converge. At any point in time, however, one may expect to see significant divergence between price and value. This analysis features a cross-sectional examination of 460 of the S&P 500 companies at a time when the market is under extreme duress. Of interest is the extent to which the market prices and intrinsic values of these firms are convergent, the value drivers responsible for the convergence/divergence, and the extent to which changes in the excess return period may influence valuations and, in turn, an investors margin of safety. A discriminant analysis provides a basis for distinguishing between those firms priced above and those priced below their respective intrinsic values and for identifying those variables that account for most of the between-group separation. Subsequently, intrinsic values are derived using different excess return periods and the resulting effect on the margin of safety is observed. Intrinsic values for the sample firms are derived from an estimate of free cash flow to the firm using Rappaports (1998) model.

scholarly journals Perfect foresight portfolios on the Johannesburg stock exchange

2017 ◽  
Vol 48 (2) ◽  
pp. 1-9 ◽  
Author(s):  
R. Van der Merwe ◽  
J. D. Krige
Keyword(s):  
Standard Deviation ◽  
Return Period ◽  
Stock Exchange ◽  
Excess Return ◽  
Strong Positive Correlation ◽  
Cross Sectional ◽  
Perfect Foresight ◽  
Ex Post ◽  
Benchmark Portfolio ◽  
Market Capitalisation

The main aim of this study was to determine the effect of unanticipated information, or noise, on the returns of cap-weighted portfolios in various segments of the JSE for the period 1995 to 2014. According to Fuller, Han and Tung (2012), all investors in a segment would gain maximum alpha from a portfolio weighted by ex post market capitalisation – in other words, a ‘perfect foresight’ (PF) portfolio. The PF portfolio is a buy-and-hold portfolio of all shares in a particular segment with weights at the beginning of the return period set to be proportional to the market capitalisation of the shares at the end of the return period. The excess return of the PF portfolio over the benchmark portfolio therefore is an estimate of the effect of unanticipated information on the return of the benchmark portfolio. It provides an estimate of the maximum annual amount of available alpha to all investors involved in that segment in a given year. In this study, the returns of PF portfolios were compared with the All Share, Large Cap, Mid Cap and Small Cap segments of the JSE. Intuitively, information to guide decisions on portfolio weighting would be more valuable and deliver more profit when the cross-sectional standard deviation of share returns is high. Therefore a secondary aim was to investigate the correlation between cross-sectional standard deviation and PF excess return. It was found that a strong positive correlation (more than 90%) existed between cross-sectional standard deviation and PF excess return in all segments. In ascending order of annual PF excess return and average cross-sectional standard deviation the results for the segments were: Large Cap (8% and 29%), All Share (9% and 32%), Mid Cap (13% and 36%) and Small Cap (17% and 43%).

scholarly journals Value Investing - Essence And Ways Of Finding Undervalued Assets

2015 ◽  
Vol 21 (2) ◽  
pp. 344-348 ◽  
Author(s):  
Elitsa Petrova
Keyword(s):  
Intrinsic Value ◽  
Market Price ◽  
Efficient Market Hypothesis ◽  
Efficient Market ◽  
Value Investing ◽  
True Value ◽  
Short Period ◽  
Margin Of Safety ◽  
The Difference ◽  
Investing Value

Abstract Efficient market hypothesis considers that because many talented analysts constantly searching the market for the deals in a short period, after a certain point of time there are not so attractive deals. According to the hypothesis, successful investors owe their success more to luck than to their skills. The paper presents the Value investing. Value investing is an investment paradigm, which stems from the ideas of Benjamin Graham and David Dodd. The proponents, including the chairperson of Berkshire Hathaway Warren Buffett, argue that the essence of value investing is to buy shares at a price lower than their true value. The difference between the market price and intrinsic value of the stock Graham called the “margin of safety”.

scholarly journals Penilaian Nilai Wajar Saham Pt Ciputra Development Tbk

2019 ◽  
Vol 2 (3) ◽  
Author(s):  
Sheane Sheane
Keyword(s):  
Cash Flow ◽  
Stock Price ◽  
Intrinsic Value ◽  
Market Price ◽  
Secondary Data ◽  
Fair Value ◽  
Free Cash Flow ◽  
Discounted Cash Flow ◽  
Price Earnings Ratio ◽  
Firm Model

An investor could invest by buying companies’ stocks. Therefore, it is crucial for investors to know the fair value of shares of a company to anticipate the risks and benefits. The fair value of shares reflects the value of that company. This research is aimed to assess the fair value of shares of PT. Ciputra Development Tbk, whether its value is above or below the market price. This research was conducted using secondary data, which are the company’s prospects, yearly report, and other official publication. Quantitative analysis was chosen to process and analyse the data collected. Method used in this valuation is the Discounted Cash Flow method with Free Cash Flow to Firm model and Relative Valuation with Price Earnings Ratio model. The result of the valuation would be useful to be used as the basis for decision making on investing, whether to buy, hold or sell the stock. Based on the calculated stock value, it was obtained that the fair value of shares of PT. Ciputra Development Tbk, using discounted free cash flow to firm method, is Rp 1.092,- which means the stock price of PT. Ciptura Development Tbk is over the market price or overvalued in comparison to its intrinsic value. On the other hand, using price earning ratio as the chosen method shows that the fair value of shares is Rp. 1.262,4 per stock which means the price of PT. Ciputra Development Tbk stock is under the market price or undervalued towards its intrinsic value.

Introduction to Business Valuation

2020 ◽  
pp. 1-23
Author(s):  
Sinem Derindere Köseoğlu ◽  
Saad Salman Awad Almeany
Keyword(s):  
Intrinsic Value ◽  
Financial Statements ◽  
Fair Value ◽  
Firm Valuation ◽  
Free Cash Flow ◽  
Value Drivers ◽  
Business Valuation ◽  
Equity Value ◽  
Different Types ◽  
Valuation Process

This chapter is an introduction to the book and provides basic information to help readers in the following chapters. This book analyzes all kinds of problems and develops solutions in firm valuation process. The needs and purposes of firm valuation are briefly explained. Basic Concepts, such as Cost, Price, Value, Valuation, Evaluation, Free Cash Flow, and different types of value, are explained. Face value, issue price, fair value, intrinsic value, market value, book value, going-concern value, liquidation value, replacement value, enterprise value, and equity value are explained within the different types of value. Then, “financial statements” and “elements of financial statements”, which will form the basis of all valuation approaches, are explained and emphasized. The value drivers for businesses are discussed. Business valuation approaches' general features are given.

scholarly journals ANALISIS VALUASI NILAI WAJAR SAHAM PT. ADARO ENERGY TBK MENGGUNAKAN METODE FREE-CASH FLOW TO FIRM (FCFF)

2013 ◽  
Vol 5 (2) ◽  
pp. 240-270
Author(s):  
Ecryna Cyntia Hutapea ◽  
Tyara Pratiwi Poernomoputri ◽  
Pardomuan Sihombing
Keyword(s):  
Cash Flow ◽  
Stock Price ◽  
Energy Content ◽  
Stock Exchange ◽  
Intrinsic Value ◽  
Coal Mines ◽  
Market Price ◽  
Free Cash Flow ◽  
Private Company ◽  
Thermal Coal

PT Adaro Energy Tbk, an Indonesian private company engaged in coal mines and became the largest thermal coal producers both in Indonesia, which also operates coal mines and have the single biggest in the southern hemisphere. Coal products PT Adaro Energy Tbk has medium levels of energy content, and assign its trademark with the name of the Envirocoal. PT Adaro Energy Tbk is officially listed on the Indonesia Stock Exchange (BEI) on July 16, 2008 and was recorded as the largest company in the history of the Stock Exchange for deals done in rupiah (whereas in the US $ is the currency of the latter), and an IPO 4th largest for the year 2008 in Asia (excluding Japan) with a stock offering as much 11.139331 billion shares. To assess the stock price of PT Adaro Energy Tbk in the market, the valuation of shares is needed, where the valuation of these shares will be known intrinsic value (fair price). The method used in this valuation is the Discounted Cash Flow method using the model of Free Cash Flow to Firm. Valuation results would be very useful to be used as the basis for making investment decisions to buy, hold or sell stock. Based on the calculation that stock valuations have been carried out, obtained the intrinsic value of PT Adaro Energy Tbk amounting to Rp 1,570 while the price of shares in PT Adaro Energy Tbk as at July 6, 2012 is $ 1,866, with the conclusion of the stock price of PT Adaro Energy Tbk undervalued or is below the market price.

scholarly journals Does The Stock of Indonesian Provider Tower Industry Have a Fair Value?

2018 ◽  
Vol 6 (4) ◽  
pp. 130-139
Author(s):  
Saptono Saptono ◽  
Farida Titik Kristanti
Keyword(s):  
Cash Flow ◽  
Stock Prices ◽  
Stock Exchange ◽  
Intrinsic Value ◽  
Fair Value ◽  
Jel Classification ◽  
Free Cash Flow ◽  
Stock Valuation ◽  
Market Prices ◽  
Relative Valuation

Objective - The objective of this study is to evaluate the stock intrinsic value of companies listed on the Indonesian Stock Exchange. The evaluation is carried out by using a DCF method of Free Cash Flow to Firm (FCFF) approach, and a relative method of Price to Earnings Ratio (PER) and Price to Book Value (PBV) approaches. Each approach uses three scenarios of optimism, moderation and pessimism. Methodology/Technique - The historical data of the companies between 2014 and 2017 was used to predict their performance in the period between 2018 and 2021. Findings - The results of this study indicate that by comparing the stock prices to their intrinsic value of the stock valuation of the DCF-FCFF, the stock market prices as of 1 January 2018 according to the optimistic scenario show that TBIG and SUPR were undervalued, while TOWR and IBST were overvalued. In the moderate scenario, TBIG and SUPR were undervalued, while TOWR and IBST were overvalued. Novelty - Meanwhile, TBIG, TOWR and IBST were overvalued and only SUPR was undervalued in the pessimistic scenario. Relative valuation using a PER approach in all scenarios indicates that TBIG, TOWR and IBST were overvalued and SUPR was undervalued. Finally, through a PBV approach, the relative valuation of TOWR, SUPR and IBST were overvalued and TBIG was undervalued in all scenarios. Type of Paper - Empirical. Keywords: Free Cash Flow to Firm; Relative Valuation; Tower Provider Industry; Intrinsic Value; Valuation. JEL Classification: G14, G15, G19.

Kant against the Animals, Part 2

2018 ◽  
Author(s):  
Christine M. Korsgaard
Keyword(s):  
Intrinsic Value ◽  
Special Kind ◽  
Intrinsic Values ◽  
Limits Of Knowledge

Opponents of Kant suppose he thinks that autonomy gives rational beings a special kind of intrinsic value. Since knowledge of intrinsic values would have to be a kind of metaphysical knowledge, this interpretation is contrary to Kant’s strictures on the limits of knowledge. Rather, Kant thinks that only rational beings can engage in reciprocal lawmaking, which is the source of moral laws. Animals cannot obligate us in the sense of participating in making laws for us. This, however, ignores a second sense in which we can have duties to animals: the laws we make for the treatment of people might also cover the treatment of animals. The chapter ends by explaining why it is hard to get this kind of conclusion using the universalization test.

What Determines Port Wine Prices?

2007 ◽  
Vol 2 (2) ◽  
pp. 203-212 ◽  
Author(s):  
Rui Couto Viana ◽  
Lúcia Lima Rodrigues
Keyword(s):  
Jel Classification ◽  
Hedonic Price ◽  
Port Wine ◽  
Cross Sectional ◽  
Firm Reputation ◽  
Market Prices ◽  
Large Sample ◽  
Price Function ◽  
Hedonic Price Function ◽  
Port Wines

AbstractIn this study, we estimate a cross-sectional hedonic price function for Port wines in order to determine the price influence of several Port wine characteristics. Drawing on a large sample of more than 14,000 sales from the biggest Port wine firms we find that market prices can be explained by objective characteristics such as age, type of Port and type of brand appearing on the bottle label and subjective characteristics such as firm reputation. The Port type is the main price determinant. (JEL Classification: C21, Q11)

UJI TINGKAT KESESUAIAN NILAI JUAL OBJEK PAJAK DENGAN MENGGUNAKAN APLIKASI ASSESSMENT RATIO

INFO ARTHA ◽  
2021 ◽  
Vol 5 (1) ◽  
pp. 45-53
Author(s):  
Swasito Adhipradana Prabu
Keyword(s):  
Market Price ◽  
Current Level ◽  
Accuracy Rate ◽  
Tax Base ◽  
Market Prices ◽  
Administration System ◽  
Positive Correlation ◽  
Big Cities ◽  
Better Than

The decentralization of PBB-P2 in Indonesia is expected to produce a better PBB-P2 administration system. One indicator of a better PBB-P2 administration system is a fair collection of PBB-P2 based on tax base (NJOP) valuation close to market prices. This study examines whether NJOP, as the basis for the imposition of PBB-P2, is in accordance with the market price using the assessment ratio. This study found that the current level of accuracy of the NJOP has not met the standard agreed upon by the IAAO. In addition, this study also found that the NJOP accuracy rate in big cities was slightly better than the NJOP accuracy rate in other cities. In addition, this study also found that there was no positive correlation between NJOP updating activities through SPOP filling and NJOP accuracy. Desentralisasi PBB-P2 di Indonesia diharapkan menghasilkan sistem penatausahaan PBB-P2 yang lebih baik. Salah satu indikator dari sistem penatausahaan PBB-P2 yang lebih baik adalah pemungutan PBB-P2 yang adil dengan dasar pengenaan pajak (NJOP) yang mendekati harga pasar. Studi ini meneliti apakah NJOP sebagai dasar pengenaan PBB-P2 sudah sesuai dengan harga pasar menggunakan assessment ratio. Penelitian ini menemukan bahwa tingkat akurasi NJOP saat ini belum memenuhi standar yang disepakati oleh IAAO. Selain itu, penelitian ini juga menemukan bahwa tingkat akurasi NJOP di kota besar, sedikit lebih baik dibanding tingkaat akurasi NJOP di kota-kota lainnya. Selain itu, penelitian ini juga menemukan bahwa tidak ada korelasi positif antara kegiatan pemutakhiran NJOP melalui pengisian SPOP dengan tingkat akurasi NJOP.

Dead Hand Proxy Puts and Hedge Fund Activism

2018 ◽  
Vol 54 (4) ◽  
pp. 1615-1642
Author(s):  
Sean J. Griffith ◽  
Natalia Reisel
Keyword(s):  
Cash Flow ◽  
Hedge Fund ◽  
Cost Benefit ◽  
Free Cash Flow ◽  
Cross Sectional ◽  
Flow Problems ◽  
Banking Relationships ◽  
Hedge Fund Activism ◽  
The Cost ◽  
Sectional Analysis

We investigate the Dead Hand Proxy Put, a contractual innovation in corporate debt agreements that may impact hedge fund activism. We find the provision principally in loans, not bonds, and provide evidence linking the adoption of the provision to hedge fund activism. Furthermore, controlling for endogeneity, we find that the provision significantly reduces the cost of loans. Bondholder wealth also increases. Moreover, cross-sectional analysis of share returns reveals that the provision is positively associated with repeat banking relationships and negatively associated with free cash flow problems, suggesting a cost-benefit tradeoff.

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